Relevance lost: The rise and fall of activity-based costing

Nitza Geri, Boaz Ronen*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

23 Scopus citations

Abstract

In the debate between marginal decision-making and full absorbance that has been going on since the nineteenth century, activity-based costing/management (ABC/M) appeared as a promising decision support tool which answers the criticism leveled against traditional cost accounting. This paper describes the strengths and weaknesses of ABC/M from a global value creation perspective, in an effort to explain why it failed to live up to its promise and why not too many companies retained it beyond a short pilot period. The paper suggests the global decision-making methodology (GDM), as an effective alternative to costing methods, which improves the quality of decisions and enhances organization value. The paper illustrates its implementation by presenting a case study of a large international financial services organization that abandoned the ABC/M system it had been using for seven years in favor of GDM. The ABC/M system was transformed to a throughput focused "light ABC" system that supports GDM. The article describes the circumstances that led the organization to adopt GDM, and provides general guidelines for its implementation.

Original languageEnglish
Pages (from-to)133-144
Number of pages12
JournalHuman Systems Management
Volume24
Issue number2
StatePublished - 2005

Keywords

  • Activity-based costing/management (ABC/M)
  • Global decision-making methodology (GDM)
  • Light ABC
  • The measurements profile
  • Theory of Constraints (TOC)

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