ABC (Activity Based Costing) Costing for ERP Projects : Implementation , Impact on the Organization & Business Benefits

ERP implementation projects affect large parts of an implementing organization and lead to changes in the way an organization performs its tasks. The costs needed for the effort to implement these systems are hard to estimate. Research indicates that the size of an ERP project can be a useful measurement for predicting the effort required to complete an ERP implementation project. However, such a metric does not yet exist. Therefore research should be carried out to find a set of variables which can define the size of an ERP project. This paper describes a first step in such a project. It shows 21 logical clusters of ERP implementation project activities based on 405 ERP implementation project activities retrieved from literature. Logical clusters of ERP project activities can be used in further research to find variables for defining the size of an ERP project.

Activity-based costing provides a more accurate method of product/service costing, leading to more accurate pricing decisions. It increases understanding of overheads and cost drivers; and makes costly and non-value adding activities more visible, allowing managers to reduce or eliminate them. ABC enables effective challenge of operating costs to find better ways of allocating and eliminating overheads. It also enables improved product and customer profitability analysis. It supports performance management techniques such as continuous improvement and scorecards.

Questions to consider when implementing ABC
Do we fully understand the resource implications of implementing, running and managing ABC?
Do we have the resources to implement ABC?
Will the costs outweigh the benefits?
Can we easily identify all of our activities and costs?
Do we have sufficient stakeholder buy-in? What will it take to achieve this?
Will the additional information ABC provides result in action that will increase overall profitability?

Activity based costing ABC is a method for assigning costs to products, services projects, tasks, or acquisitions, based on the activities that go into them and the resources consumed by these activities.
Management is moved to adopt ABC by the desire to improve costing accuracy—get closer to the true cost and true profitability—of individual products and services, or to understand better the true costs and return on investment from projects or other initiatives. ABC pursues these objectives essentially by making direct costs out of many costs that traditional cost accounting treats as indirect costs. Examples below show how this is done.
mpact on the Organization

Sometimes, organizations face the risk of spending too much time, money and resources on gathering and analysing data required for activity-based costing model. This can eventually lead to frustration and the organization may give up on ABC eventually.
Failure to connect the outcomes from the activity-based costing usually hinders the success of the implementation. This usually happens when the decision makers are not aware of the "big picture" of how activity-based costing can be used throughout the organization. Understanding the concepts and getting actively involved in the ABC implementation process can easily eliminate this.
If the business organization requires quick fixes, activity-based costing will not be the correct answer. Therefore, ABC should not be implemented for situations where quick wins are required.

Activity-Based Costing allocates process quantities based on resource and process drivers, allowing you to define cost allocation along the value-added chain more exactly than is possible with overhead rates. Activity-Based Costing also complements and enhances product costing by assigning costs to the business processes where they originated. Cost center resources can allocate to business processes based on their true utilization of activities.
The power of activity-based costing (ABC) is the ability to understand the profitability of each product line. If the direct costs and indirect costs are few, ABC may not be required. Or if management believes it has a firm grip on costs by product line, ABC is unlikely to help. But if companies are seeking better tools to manage profitability, especially on the cost side, ABC may be required.
Some pointers for implementing activity-based costing are:
1. To begin using ABC, consider working with a single product line or several products within one line of business. In this way, the work can be handled easily with a small database, joined to a spreadsheet. The key will be to document products, activities and resources (with their costs). The analysis should show the "new" costs and profitability by product line. If there are significant insights her If you are running ERP software, it is likely that your ERP vendor offers an ABC module. This can make the overall implementation and integration process simpler.
2. If you are running enterprise performance management software, your EPM vendor may have ABC offerings (or partners). EPM vendors that offer ABC include SAP, Oracle, and SAS.
3. You can also learn a lot from targeted ABC cost management vendors, including Acorn Systems, and QPR Cost Control.
4. Software vendors should provide a comprehensive methodology and a straightforward approach to mapping costs from the accounting system to ABC. The redefinition of indirect costs will be especially important. Finally, what-if analysis and report writing are critical to providing management with the true profitability of products or services by product and channel, which can then lead to strategic changes in product and market strategy.