Beware total cost of ABC warns ALG

Manufacturers looking to invest in activity based costing (ABC) software should consider the total cost of ownership before investing. A recent white paper by consultancy firm Armstrong Laing Group (ALG) points out that the purchase price of ABC software is only part of the total programme cost. Titled ‘Critical Issues in Minimising the Cost of O of ABC Programmes,’ the paper states that it takes time and money to build the model and populate it with data to generate results. Unless the software used is logically structured and capable of automatically taking data from legacy systems, the amount of human intervention required to do this, “Can be overwhelming and involve considerable costs.” Aside from boosting its ego with statements about its own ABC software, Metify, ALG does admit that there’s a general problem, especially in larger companies who undertake ABC projects, to do with the update frequency of ABC models. Many hours of manual data manipulation to ensure results are accurate can be prohibitive and make firms reluctant to update models more frequently. ALG differentiates its own software from the competition by including an assignment methodology. This means that multiple cost items can be assigned to an activity with just one selection. ALG claims that in competing software every activity has to be individually linked with every cost object. As the paper quite rightly points out, “This may be acceptable for a small number of items, but what if there are 500 activities and 3,000 products? The user would have to manually make 1.5 million clicks to assign each activity to each product.” Good point I suppose. To get your hands on a copy of ALG’s white paper, email info@armstronglaing.co.uk