The CPA Journal

Your CPA in Industry article in March, “Selling Activity-Based Costing,” by John C. Lere, was interesting and informative but it omitted a key element if an activity-based costing (ABC) program is to be successful.

ABC is not a stand-alone technique—it is only one of the interactive components that include ABM, reengineering, continuous improvement, and productivity improvement. ABC cannot be implemented without first utilizing activity-based management (ABM) methodology, the operational side of decision making.

Unfortunately, corporate America generally is not willing to take the time to understand the activities that make up a given business. The predominant tendency of these shortsighted executives is to seek out a silver bullet that will provide them with a solution to a problem without having to do much work. This quick-fix course of action usually translates into purchasing one of the many available ABC software packages. In this age of technology, software has replaced the gypsy tea-leaf reader as the provider of quick solutions.

Most decisions are multidimensional and usually affect several business processes or functional work areas. Decisions are as easy as ABM, not ABC. ABC doesn’t indicate how to operate a business more efficiently, it only informs a manager of the cost of an activity—information that can be useful after the ABM team has completed the data-gathering phases of an ABM program.

Overall, decisions are easier to make if goals are clearly defined and the data used as input is complete, detailed, objective, and collected using a bottom-up approach. Making an effective decision requires an ABM program to be implemented up-front in order to understand the levers and how to use them. Then and only then will ABC work. You can do ABM without ABC, but you can’t successfully implement ABC without ABM.

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The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.