Activity Based Costing and Top
Management:
Experts agree on several essential characteristics
of any successful implementation of activity
based costing. First, the initiative to
implement activity based costing must be strongly
supported by top level managers. Second, the
design and implementation of an ABC system should be
the responsibility of cross functional team rather
than of the accounting department. The team should
include representatives from each area that will use
the date provided by the ABC system. Ordinarily,
this would include representatives from marketing,
production, engineering and top management as well
as technically trained accounting staff. An outside
consultant who specializes in activity based costing
may serve as and advisor to the team.
The
reason for insisting on strong top management
support and a multifunction team approach is rooted
in the fact that it is difficult to implement
changes in organizations unless those changes have
the full support of those who are affected. activity
based costing changes the "rules of the game" since
it changes some of the key measures that managers
use for their decision making and for evaluating
individuals' performance. Unless the managers who
are directly affected by the changes in the rules
have a say, resistance will be inevitable. In
addition, designing a good ABC system requires
intimate knowledge of many parts of the
organization's overall operations. Top management
must support the initiative for two reasons. First,
without leadership from top management, some
managers may not see any reason to change. Second,
if top managers do not support the ABC system and
continue to play the game by the old rules, their
subordinates will quickly get the message that ABC
is not important and they they will abandon the ABC
initiative. Time after time, when accountants have
attempted to implement an ABC system on their own
without top-management support and active
cooperation from other managers, the results have
been ignored. Relevant Articles:
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