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Time-Driven Activity-Based Costing: A Simpler and More Powerful Path to Higher Profits

Book Description

In the classroom, ABC looks like a great way to manage a company’s resources. But many executives who have tried to implement ABC on a large scale in their organizations have found the approach limiting and frustrating. Why? The employee surveys that companies used to estimate resources required for business activities proved too time-consuming, expensive, and irritating to employees.

This book shows you how to implement time-driven activity-based costing (TDABC), an easier and more powerful way to implement ABC. You can now estimate directly the resource demands imposed by each business transaction, product, or customer. The payoff? You spend less time and money obtaining and maintaining TDABC data—and more time addressing problems that TDABC reveals, such as inefficient processes, unprofitable products and customers, and excess capacity. The authors also show how to use TDABC to link strategic planning to operational budgeting, to enhance the due diligence process for mergers and acquisitions, and to support continuous improvement activities such as lean management and benchmarking.

In presenting their model, the authors define the two questions required to build TDABC:
1) How much does it cost per time unit to supply resource capacity for each business process?
2) How much resource capacity (time) is required to perform work for a company’s many transactions, products, and customers?
The book demonstrates how to develop simple, valid answers to these two questions.

Kaplan and Anderson illustrate the TDABC approach with a wealth of case studies, in diverse settings, based on actual implementations.

Table of Contents

  1. Title Page
  2. Copyright Page
  3. Dedication
  4. Table of Contents
  5. PREFACE
  6. ACKNOWLEDGMENTS
  7. PARTONE - The Fundamentals of Time-Driven Activity -Based Costing
    1. CHAPTER ONE - THE EVOLUTION OF TIME-DRIVEN ACTIVITY-BASED COSTING
      1. ACTIVITY-BASED COSTING: A BRIEF HISTORY
      2. ABC PITFALLS
      3. TIME-DRIVEN ABC: AN ELEGANT, MORE ACCURATE APPROACH
      4. TIME EQUATIONS
      5. MODEL UPDATING
      6. TIME-DRIVEN ABC: “OLD WINE (DURATION DRIVERS) IN NEW BOTTLES?”
      7. SUMMARY
      8. NOTES
    2. CHAPTER TWO - ESTIMATING PROCESS TIMES
      1. ESTIMATING TIME CONSUMPTION
      2. TIME EQUATIONS
      3. CASE STUDY: WILSON-MOHR
      4. TRANSACTIONS AS UNIT OF ANALYSIS
      5. BUILDING THE TIME EQUATION
      6. ASSIGNING COSTS DIRECTLY ON THE BASIS OF PERCENTAGE OF TIME CONSUMED
      7. SUMMARY
      8. NOTES
    3. CHAPTER THREE - CAPAC ITY COST RATES
      1. ESTIMATING TOTAL DEPARTMENTAL COSTS
      2. CAPACITY COST RATES: DEPARTMENTS OR PROCESSES
      3. ESTIMATING PRACTICAL CAPACITY
      4. ACTUAL VERSUS BUDGETED MONTHLY COSTS
      5. SUMMARY
      6. NOTES
    4. CHAPTER FOUR - IMPLEMENTING TIME-DRIVEN ABC MODELS
      1. PHASE I: PREPARATION
      2. PHASE II: DATA DEFINITION, ACCESS, AND ANALYSIS
      3. PHASE III: BUILDING THE PILOT MODEL
      4. PHASE IV: ENTERPRISE ROLLOUT
      5. COMPARISON OF TIME-DRIVEN AND CONVENTIONAL ABC MODELS
      6. SUMMARY
      7. NOTES
    5. CHAPTER FIVE - WHAT-IF ANALYSIS AND ACTIVITY-BASED BUDGETING
      1. MAKING FIXED COSTS VARIABLE
      2. SIPPICAN CORPORATION: A CASE STUDY
      3. WHAT-IF ANALYSIS
      4. ACTIVITY-BASED BUDGETING
      5. BUDGETING FOR DISCRETIONARY RESOURCES
      6. SUMMARY
      7. NOTES
    6. CHAPTER SIX - FAST-TRACK PROFIT MODEL
      1. RATIONALE FOR A FAST-TRACK PROFIT MODEL DURING DUE DILIGENCE
      2. CASE STUDY NUMBER 1: DEVELOPING A FAST-TRACK PROFIT MODEL AT PIONEER CONTROLS
      3. CASE STUDY NUMBER 2: THE FAST-TRACK PROFIT MODEL APPROACH VALIDATED AT FAIRMONT COMPANY
      4. CASE STUDY NUMBER 3: OUTPACING THE COMPETITION AT WAYLAND
      5. THE GENERAL TDABC DUE-DILIGENCE PROCESS
      6. SUMMARY
      7. NOTES
    7. CHAPTER SEVEN - ENHANC I NG BUS I NESS PROCESS I MPROVEMENTS
      1. ENHANCING LEAN MANAGEMENT
      2. THREE CORE PRINCIPLES
      3. INTEGRATING TIME-DRIVEN ABC WITH LEAN SIX SIGMA
      4. SUMMARY: LEAN MANAGEMENT AND TDABC
      5. SUPPLY-CHAIN MANAGEMENT
      6. EXTENDED CASE STUDY
      7. IMPLEMENTATION ISSUES
      8. SUMMARY: SUPPLY-CHAIN OPTIMIZATION AND TIME-DRIVEN ABC
      9. BENCHMARKING
      10. CASE STUDY OF TIME-DRIVEN BENCHMARKS IN DISTRIBUTION
      11. SUMMARY: BENCHMARKING AND TIME-DRIVEN ABC
      12. CHAPTER SUMMARY
      13. NOTES
  8. PART TWO - Time-Driven Activity -Based Costing in Action
    1. CHAPTER 8 - KEMPS LLC
      1. HISTORY AND BACKGROUND
      2. TIME-DRIVEN ABC PROJECT
      3. WHAT DID NOT GO WELL?
      4. NEAR-TERM BENEFITS
      5. SUMMARY
      6. NOTES
    2. CHAPTER NINE - SANAC LOGISTICS
      1. COMPETITIVE STRATEGY
      2. MARKET EVOLUTION
      3. THE FAILURE OF A CONVENTIONAL ABC MODEL AT SANAC
      4. CHALLENGES ENCOUNTERED IN INTRODUCING TIME-DRIVEN ABC
      5. DEVELOPING TIME EQUATIONS AT SANAC
      6. FINDINGS AND ACTION STEPS
      7. IMPACT
      8. SUMMARY
      9. NOTES
    3. CHAPTER TEN - COMPTON FINANCIAL
      1. COSTING INNOVATIONS
      2. THE PROFITABILITY ANALYSIS SYSTEM
      3. IMPLEMENTATION
      4. TIME-DRIVEN MODELING OF IT SERVICES AND CALL CENTERS
      5. SYSTEM IMPLEMENTATION
      6. WHAT DID NOT GO SO WELL?
      7. PERFORMANCE AND USAGE OF THE SYSTEM
      8. SUMMARY
      9. NOTES
    4. CHAPTER ELEVEN - ATB FINANC IAL
      1. BUILDING AN ENTERPRISE MODEL
      2. WHAT DID NOT GO SO WELL?
      3. KEY FINDINGS
      4. IMPACT
      5. SUMMARY
      6. NOTES
    5. CHAPTER TWELVE - CITIGROUP TECHNOLOGY INFRASTRUCTURE DIVISION
      1. CTI FINANCIAL MANAGEMENT CYCLE
      2. WHY BUILD A PERFORMANCE MEASUREMENT AND MANAGEMENT SYSTEM?
      3. RESULTS
      4. IMPLEMENTATION CHALLENGES
      5. SUMMARY
    6. CHAPTER THIRTEEN - GLOBAL INSURANCE COMPANY PRIVATE CLIENT GROUP
      1. ORGANIZING THE STAFFING AND RESOURCE MANAGEMENT SYSTEM PROJECT
      2. IMPLEMENTATION PROCESS AND PROJECT TEAM
      3. IMPLEMENTATION CHALLENGES
      4. SUMMARY
    7. CHAPTER FOURTEEN - JACKSON STATE UNIVERSITY
      1. BUILDING THE TIME-DRIVEN ABC MODEL
      2. IMPLEMENTATION
      3. PROPOSED ACTIONS
      4. EARLY VALUE CAPTURE
      5. SUMMARY
      6. NOTES
  9. APPENDIX A - TRANSFORMING UNPROFITABLE CUSTOMERS
  10. APPENDIX B - FREQUENTLY ASKED QUESTIONS
  11. INDEX
  12. ABOUT THE AUTHORS