Adding Value With Activity-Based Costing

Activity-based costing and management can be used to identify efficiencies and maximize cost effectiveness for a wide range of IT projects.

Money, globe

ABC/M helps indicate the value of organizational processes and products and services. The goal is to identify resources that support inefficient or ineffective activities and reassign these resources to activities that add value. These resources can also be reduced or eliminated entirely. For example, an ABC/M value analysis may reveal duplicative activities or decentralized support functions that can be consolidated to streamline business processes and reduce costs.  

In addition, ABC/M provides a wealth of data to support process improvement initiatives. ABC/M models facilitate the capture of valuable information used to analyze and evaluate changes to business processes. This information helps identify opportunities that yield significant cost savings. For example, ABC/M is useful in determining the cost and value of legacy systems on specific products and services and evaluating the impact of investing in new technologies.  

When used effectively, ABC/M can be the key to understanding the true value of an organization’s business processes and the products and services it provides.

About the Author

Kevin Sawyer is a partner at Vergys LLC, which provides strategic management consulting services to federal, public and private sector organizations. He has more than 13 years of experience providing IT and financial management solutions, including activity-based costing and management, business intelligence, and chargeback and showback implementation and management.

You can read his previous CIO Insight article, "Capturing the Value of IT Services," by clicking here.


This article was originally published on 11-18-2013
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