DEVELOPING & DEVELOPING & INSTALLING ABC SYSTEMSINSTALLING ABC SYSTEMS

Dennis Geyer

Geyer Management AssociatesTel: 925 246 9887

Email: dgeyer@geyermanagement.com© Copyright 2007

2007 Geyer Management Associates2

Barriers to Adoption

ABC systems are too costlyABC systems are too complex to understandAll we need are more cost centersMachine-hour systems will save the dayA cost system should be kept simpleWe know what our products costThe market sets prices so we do not need product costsWe cannot do anything about fixed costsOnly manufacturing costs are product costsProduct costs are not useful for managing overhead

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Stages of Implementation

Prototype Model

Stand-Alone Pilot

Enterprise-Wide System

Fully Integrated System

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A BC/ A BM S teer ing T eam

Pr oj ect L ead er

M ult if unc t ional Gr oup

O ut s ide E x per t s

O ver all A ssessment

& I mplementat ion T eam

Pr oj ect L ead er

O ut s ide E x per t s

S egment T eams

S t eer ing T eam R epr esent at ive

M ult if unc t ional Gr oup

O ut s id e E x per t s / I T S pec ial is t s

Data Collect ion

& Repor ting T eam

Pr oj ect L ead er

I T S pec ial is t s

Organizing the Implementation

Develop an overall assessment and prepare an implementationplan

Divide the organizationinto segments and conduct implementation using a step-by-stepprocedure

Develop a cost-effectiveongoing data collection and reporting system

Step 1 Step 2 Step 3

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Vendor Characteristics

Product Characteristics

Documentation Provided

Conversion Costs

Ongoing Costs

Time in business Number sold System flowchart Add'l programs Processing costVolume of Sales Price structure Logic diagram Size of records Hardware changesPublic or private Included in price Program listings Direct clerical effort Peripheral equipmtCredit Rating Restrictions on use File layouts Mgmt involvement Input preparationTechnical staff size Minimum hardware Input/output formatsEducation Output handlingYrs of experience Language used Operator manuals Audit & control Hardware capability Est. run times Cont. educationSoftware capability Est. life of package Software changes

Add'l documents

Software Checklist

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Obstacles to Success

1. Lack of appreciation of benefits

2. Lack of ABC knowledge

3. Lack of organizational commitment

4. Lack of systematic implementation plan

5. Lack of outside technical expertise

6. Lack of committed resources

7. Lack of follow-up

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Common Pitfalls

Did not establish clear objectives Attempted one-size-fits-all system design Looked only at manufacturing cost, not total cost Used a team from finance, not cross-functional Failed to talk to the right level of people Tried to build a computer system in-house Picked too many cost drivers Did not make it a full-time commitment Failed to run a pilot project first Did not address the managerial changes

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Acknowledgments

“Implementing Activity-Based Management in Daily Operations”, John A. Miller, John Wiley & Sons, Inc. (1996)

“Lessons From the ABM Battlefield: Getting Off to the Right Start”, R. Steven Player and David E. Keys, Journal of Cost Management, Spring 1995, 26-33

“The Top Ten Things That Can Go Wrong With an ABM Project (And How to Avoid Them)”, R. Steve Player, As Easy As ABC, Summer 1993, 1-2, ABC Technologies

“Ten Myths that Create Barriers to the Implementation of Activity-Based Cost Systems”, Peter B.B. Turney, Journal of Cost Management, Spring 1990, 24-32.