Scorecard Demostration

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Activity-Based Costing/Management
Presented by Andrew Lim General
Manager ABC Technologies Asia
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ABC Technologies Inc.

• Leading ABM Software Supplier in the industry
• Founded 1989, Singapore office set up 1997
• Over 4,000 installations world-wide
• Global sales/support offices world-wide
• World-wide HQ in Beaverton, Oregon USA
• Over 800 trained Affiliates world-wide ranging
  from Big 5 to the private consultants
• Over 400 Academic Affiliates world-wide

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Business Process are made of
Activities
Customer Needs
Product or Service
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Overview of ABC
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Definition Activity-Based Costing
A methodology that measures the cost and
performance of activities, resources, and cost
objects. Resources are assigned to activities,
then activities are assigned to cost objects
based on their use.
Adapted from The CAM-I Glossary of
Activity-Based Management, Edited by Norm Raffish
and Peter B.B. Turney, (Arlington CAM-I, 1991.)
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CAM-I Cross
Cost Assignment View
What things cost...
Resources
Resource
Drivers
Process View
Resource
Cost
Assignment
Why things have cost...
Performance
Activities
Cost Drivers
Measures
Activity
Cost
Assignment
Activity
Drivers
Adapted from The CAM-I Glossary of
Activity-Based Management, Edited by Norm Raffish
and Peter B.B. Turney, (Arlington CAM-I, 1991.)
Cost
Objects
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Outputs of ABM
ABM evaluates the activities critical to your
business

• Cost of Activities
• Cost of Non-Value Added Activities
• Performance Measures
• Accurate Product/Service Cost
• Cost Drivers

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ABC/M Main Usage Areas

• Product / Service Costing
• Performance Improvement
• Cost Reduction
• Others - make/buy decisions
• - strategic planning
• - project management
• - budgeting

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TECHNOLOGY ENABLER FOR MEASURING BUSINESS
INITIATIVES
ACTIVITY-BASED INFORMATION SYSTEMS
EVA
initiatives
Value Chain
BPR
Insurance
Telcos
Banking
Medical
Industries
Utilities
Automotive
Government
Manufacturing
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Application Examples

• Mobil Products Customer Profitability
• - dramatic reduction in products offered
• - elimination of inefficient plants and excess
  capacity
• - improved profits w/o volume increase

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Application Examples

• HP - NADO Strategic Activity Management
• - analyse customer/channel profitability
• - develop contract discount structures
• - analyse costs of key services
• - determine impact of outsourcing
• - re-engineer 3 key areas - 2 m savings

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Application Examples

• Coca-Cola ABC- A Tool for Value Creation
• - understanding the economics of its
• business
• - profit by channel/brand/package
• - benchmarking of key activities
• - most impt. tool for value chain analysis

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Traditional vs ABC
HOW DANA DISCOVERS WHAT ITS TRUE COST ARE The
material-control department in Plymouth, Minnesota

OLD WAY
Process sales order 144,846 Source
parts 136,320 Expedite supplier
orders 72,143 Expedite internal
process 49,945 Resolve supplier
quality 47,599 Reissue purchase
orders 45,235 Expedite customer
orders 27,747 Schedule intracompany
sales 17,768 Request engineer change 16,704 Reso
lve problems 16,648 Schedule parts 15,390
Traditional accounting SALARIES 371,917 FRINGES
118,069 SUPPLIES 76,745 FIXED
COSTS 23,614 TOTAL 590,345
NEW WAY
TOTAL 590,345
Source Fortune Magazine
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ABM Benefits

• Provides a way to continuously improve processes
• Focuses on the important costs
• Creates a relationship between business cost and
  creating value

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ABM Benefits (Contd)

• Provides non financial performance measures
• Includes all business functions in an organization

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Summary of Benefits (1)

• Better Cost Information
• Cost of product/product types
• Cost of customer/customer types
• Cost of services / transactions
• Activity/Process costs
• Multi-dimensional Profitability
• Performance Management
• Activity Analysis
• Benchmarking
• Identification of Cost Drivers

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Value Added Activity Example...
Raw Material
Raw Material
RECEIVE
RECEIVE
INSPECT
MACHINE
STORE
4 Days
ASSEMBLE
ISSUE
TEST
MACHINE
PACK
INSPECT
SHIP
STORE
ISSUE
4 Weeks
ASSEMBLE
Minimize Cost Drivers for Non-Value Added
Activities
Finished Product
INSPECT
STORE
TEST
STORE
PACK
STORE
SHIP
Finished Product
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Building an ABC Model
Identify Resources
Identify Activities
Identify Cost Objects
Define Resource Drivers
Define Activity Drivers
Draw Arrows from Activities to Cost Objects
Draw Arrows from Resources to Activities
Enter Resource Costs
Enter Resource Driver Qty.
Enter Activity Driver Qty.
Calculate Costs
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Profitability Profile

• Profitability profiles are like
  electrocardiograms of a companys health. After
  sales are attached to the ABC costs, this graph
  reveals that 8 million was made on the most
  profitable 75 of productsand then 6 million
  was conceded back!

Ranked from highest to lowest ABC profit-margin
percentage ().
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SAMPLE CUSTOMERS IN ASIA

• Manufacturing
• Texas Instruments
• Compaq Computers
• Coats/Tootal
• Samsung Electronics
• Motorola
• Nokia
• Osram-Opto Siemens
• Delco Electronics
• Micron Semiconductor
• TSMC (Taiwan)
• Likon Electronics
• AlliedSignal Avionics
• AlliedSignal Laminates
• Fujitsu-Quantum
• Advanced Micro-Devices
• Astec International
• Taiwan Synthetic Rubber
• Everest Textiles

• Manufacturing
• Adaptec Manufacturing
• Philips Lighting
• National Printers KL
• Cypress Semiconductors
• Telcos / Utilities
• Taiwan Fixed Network
• PT Telkom Indonesia
• PUB
• Singapore Telecoms
• Telekom Malaysia
• Celcom Malaysia
• LG Telekom
• Nippon Telegraph Telecom
• TOT
• Dacom Korea
• Tokyo Gas
• Globe Telecom (Phil)

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SAMPLE CUSTOMERS IN ASIA

• Healthcare
• Singapore General Hospital
• National Cancer Centre
• National Heart Centre
• National Neuroscience Inst.
• IJN Hospital
• Pantai Medical Centre
• Subang Jaya M C
• Seoul National Univ Hospital
• Others
• Bintulu Port
• PSA Singapore
• Sealand Hongkong
• 7-Eleven Hongkong
• Asiana Airlines
• Safra Radio
• US Naval Logistics
• Diethlem Holdings

• Banking Finance
• Hong Kong ECICS
• Credit Lyonnais
• CIBC
• OCBC Bank
• DBS Bank
• Fukuoka Bank
• ChinaTrust Bank
• Bank of Tokyo-Mitsubishi
• Sakura Bank
• UOB Bank
• Food Beverage
• Cadbury-Schweppes
• Coca-Cola

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ABC Wiring Diagrams - Segment the Diversities
Salary, Fringe Benefits
Direct Material
Phone, Travel Supplies
Depreciation
Rent, Interest, Tax
Resources
Work Activities
People Activities
Support Activities
cost-to-serve paths
Equipment Activities
Final Cost Objects
Products, Services
Business Sustaining
Suppliers
Customers
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Modeling the Business Wiring
Resource Module
Work Groups
General Ledger
GL
Salary, Supplies, Utilities...
Activity Module
Processing Activities
Origination Activities
Products
Services
Balances Revenue

Cost Object Module
Reporting/ Executive Information Systems
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ABC Technologies

• Thank You
• Visit the ABC Authority at www.abctech.com