Activity Based Costing - Information without Action Is Vanity

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Activity Based Costing - Information without
Action Is Vanity

• Copyright by Jmrinfotech.com

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• No one wants to pay for something they don't
  understand. The thought of an "admin fee" on a
  bill makes our blood boil.
• Workplaces may have a similar dynamic but are
  less unpleasant for individuals. Frustration with
  digital banking solutions and back-office
  overhead charges has long plagued front-office
  departments. Administrative expenditures
  sometimes account for 40 of an organization's
  overall spending, so frustration is
  understandable.

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• Many firms use activity-based costing (ABC) to
  bill back-office expenditures to front-office
  divisions. Methodologies frequently show the back
  office's services, costs, and how each service's
  front office divisions' share is calculated.
• Many individuals believe that using these methods
  is the end of their journey, yet openness is
  simply the first step.

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• Instead of merely giving additional information,
  ABC methods should improve service quality and
  cost. This is particularly true for ABC
  implementations due to the difficulty and
  temptation to focus on the relative size of the
  cost pie rather than reducing it entirely.
• We believe this is a significant missed
  opportunity if you're planning or already on an
  ABC journey. In our view, banks can only achieve
  ABC's full potential after these three stages.

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1. Educate

• Assisting customers in understanding the approach
  ('what') and value ('why').
• There will always be winners and losers when
  changing allocation methods, and those being
  charged more will always oppose at first. To
  minimize disturbance, guide the front office
  through the approach ('what'), explain how the
  costs are determined, and ask questions. Also, it
  may reveal methodological improvements for future
  times, which promotes empathy and trust.

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• The 'why' is just as vital. The front office must
  understand the advantages of this increased
  degree of openness. There is a significant change
  to reduce overall costs or enhance services by
  fostering a better awareness of what services are
  done, whom, and what drives the price.

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2. Collaborate

• To improve your digital banking solutions, we
  must first understand what is happening and why.
• Does the front office obtain any substantial
  advantage from non-mandatory services provided? A
  large number of low-value services from a
  high-cost location? Is there duplication of
  service or activity across several roles or
  locations?

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• It is vital to provide time for probing and
  evaluating the data to verify such queries, even
  if the ABC outputs do not include all the details
  necessary to prove a specific cost save.
• We also need monthly meetings with senior
  frontline staff to evaluate data and agree on
  specific research hypotheses, or better yet,
  include this into current cost governance
  meetings. As well as being prepared with ideas,
  finance must also be eager to collaborate with
  front-office colleagues.

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3. Execute

• Identifying and recording cost-saving options
  isn't enough banks must evaluate them and, if
  feasible, implement them.
• Stage 2 hypotheses should be documented and
  prioritized, and stage 2 collaboration sessions
  should track and assess implementation progress.
  Ideally, each project should be assigned to one
  accountable employee from the front-office and
  back-office, who is responsible for advancing the
  prospects and measuring the benefits. These goals
  may be coupled to balanced scorecards and
  variable pay if needed.
• Structured governance, assessment, and incentive
  systems guarantee that potential concepts become
  a reality.

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Conclusion

• If Finance departments take these measures and
  implement the Oracle digital banking experience
  (OBDX), they can provide their front-office
  customers a luxury they don't have they can
  partner with service providers to lower charges.

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