ABC Rapid Prototyping Implementation Method – Model 0
The Problem: Reasons why many believe ABC does not work
Many believe that activity-based costing (ABC) can be complex and that an organization needs to determine if the benefits are worth the effort. Many have this perception, but it is a misconception. I next describe why this is a fallacy and how this problem can be resolved by “right sizing” the ABC system to be “good enough”.
One reason that many perceive ABC to be excessively complex is because in the 1990’s accountants and consultants way over-designed ABC systems well beyond the point of diminishing returns of higher cost accuracy for the extra levels to collect, calculate, validate, and report the cost information. The ABC models were not understandable and so large that they collapsed under their weight and were unsustainable. Sometimes executives “pulled the plug” before completion viewing it as another meaningless exercise by the bean counters.
The Solution: A proven remedy
My proven approach, that many now advocate, involves an “ABC rapid prototyping with iterative re-modeling” implementation approach. A permanent, repeatable, and reliable ABC production system can be implemented in weeks, not months.
