Content area
Full Text
There has been much written in this magazine and elsewhere about the possible use of activity-based costing (ABC) in the UK. This article sets out to show that, not only is ABC usable in service organisations, but the basic principles were developed in one such organisation (BT) long before the term ABC was even coined.
THE GROWTH OF SERVICES
There is little doubt that service industries form a large and growing proportion of the UK's economy. In the early 1960s almost 35 per cent of the workforce was employed in manufacturing but this had fallen to 22 per cent by the end of the 1980s.' Subsequent recessions--both in the UK and in the UK's export markets--have done little to halt this trend.
Despite this, most management accounting techniques are still based on factory costing and taught as aids to the manufacturing process.
It is little surprise then, that when the new costing method known as ABC (see Panel 1) was first suggested, it was put forward as mainly a manufacturing costing technique.
Yet most of the changes in manufacturing which led to the introduction of ABC apply just as much to services. In the case of utility services such as telecommunications, gas and electricity, water and railways, this is particularly important.
WHY ABC?
Cooper' outlined the main stimuli for new methods--and ABC in particular-as being due to inaccuracies in traditional product costing techniques resulting from or exacerbated by:
(a) a large fixed-cost base;
(b) a relatively small dire labour force;
(c) high incidence of technological change;
(d) the general decrease in the costs of IT and accounting systems;
(e) growth in product diversity;
(f) growth in competition and
(g) the extent of de-regulation.
Cooper's paper demonstrated these factors against a manufacturing background but clearly most of them should apply more generally. Points (a) and (b) are problems that have always faced most utilities, while (f) and (g) are particularly appropriate to UIC utilities in the light of the privatisation policy of the last few Conservative governments.
Utilities should also be able to take advantage of some ABC side-effects. Johnson' argues that benefits can be obtained from both the cost-structure awareness which ABC brings and the close involvement of non-finance managers in ABC system design. This...