Where Are You on the ABC Learning Curve?

Business Finance readers weigh in on how they're using activity-based costing in the era of business performance management.

No cost management technique has more potential for boosting companies' bottom line than activity-based costing (ABC) does. Organizations that have successfully incorporated ABC into their business processes agree it's had a profoundly positive effect on their cost containment efforts and overall profitability. Yet many companies balk at implementing an ABC program, citing the time, money and effort required to do it right and keep it going. So how prevalent is ABC? And how are businesses that have implemented an ABC program meeting the challenges the methodology poses?

To answer those questions, in July 2004 Business Finance and ALG Software conducted a survey of 270 finance and IT professionals at companies in a broad range of industries with annual revenues ranging from less than $100 million to over $1 billion. The survey covered a wide variety of topics including ABC initiatives' projected and actual benefits, implementation issues, and practitioners' use of ABC-generated data as input to their business performance management (BPM) system. The survey results provide a comprehensive picture of how finance pros are leveraging this powerful costing tool.

Why ABC?

Companies that adopt an activity-based costing/management (ABC/M) approach do so for all sorts of reasons. By far the most popular is the methodology's ability to help an organization understand the profitability of its products or services. This rationale was cited by 72 percent of respondents overall and a slightly higher proportion of those from companies with $1 billion or more in annual revenues (see graph 1).