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International Journal of Information Technology and Business Management

29th May 2014. Vol.25 No.1

2012- 2014 JITBM & ARF. All rights reserved

ISSN 2304-0777



Liyanage M L M D1, Noopehewa P U2, Perera S A D C U3, Gunarathne Nuwan4

1. Central Bank of Sri Lanka, Colombo, Sri Lanka
2. & 3. PricewaterhouseCoopers, Colombo, Sri Lanka.
4. Department of Accounting, University of Sri Jayewardenepura, Sri Lanka.


The purpose of this paper is to examine why and how a Central Bank of a South Asian Country (CBSAC), the
monetary authority and the regulatory body of finance and banking sector, adopts and implements Activity Based
Costing (ABC) practices. The primary data were collected by conducting semi structured interviews and observing
organizational processes. Secondary data were collected through reviewing various documents such as guidelines
to activity wise time recording sheets, annual reports and online sources including the CBSAC web site and CBSAC
intranet. In the data collection process, higher emphasis was placed on data triangulation. Data analysis was
carried out following an explanation building approach. The study identified that the appointment of the new
Governor in 2006 was the major driver for moving towards ABC method at the CBSAC. Currently through time
recording sheets, activity wise cost of each department is being tracked and assigned to the CBSAC functions. The
CBSAC has taken several initiatives to improve the ABC system which has propelled it towards a more time driven

Keywords: Activity Based Costing; Activity Based Budgeting; Banking Sector; Central Bank; Financial
Institutions; South Asia.

INTRODUCTION proportional to the volume (Miller and Vollman,

Business environment has changed rapidly, thereby 1985; Cooper and Kaplan, 1992; Innes and Mitchell
creating a need for all systems in organizations to 1997; Gonzalez-Gomez and Morini, 2006).
adjust accordingly. Although the production or Consequently, these systems did not report accurate
service systems changed in response to meet the product costs.
changing needs of the marketplace, the internal
management accounting systems have remained As a better system of cost allocation, ABC soon
unchanged in many organizations (Kaplan, and witnessed wide applications especially in the
Johnson, 1987, Sohal and Chung, 1998; Atkinson et manufacturing sector. Despite the initial development
al., 2012). Consequently, the management became of ABC in the manufacturing sector, it can be well
increasingly dissatisfied with the traditional costing used in the service sector too (Rotch, 1990; Innes and
systems available in the organizations. In this Mitchel, 1997; Hilton, Ramesh, & Jayadev, 2008;
context, Activity Based Costing (ABC) system Atkinson, et al., 2012). According to Innes and
emerged as an alternative to the traditional costing Mitchell (1997), the later development of ABC has
system (Cooper, 1990; Sohal and Chung, 1998; involved many service sector applications. They
Drury, 2004). Prior to the emergence of ABC system, further state that ABC is used in core management
the traditional costing system, which is commonly accounting areas such as decision making, control
known as absorption costing system, was the most and performance measurement of the service firms.
popular cost allocation method. Traditional costing Atkinson et al. (2012) is of the view that service
systems use volume-driven allocation bases to relate companies are ideal candidates for ABC even more
overhead costs to products or services (Cooper and than manufacturing companies.
Kaplan, 1992; Drury, 2004). However, the issue is
that products or services do not demand resources

International Journal of Information Technology and Business Management
29th May 2014. Vol.25 No.1
2012- 2014 JITBM & ARF. All rights reserved

ISSN 2304-0777

When ABC is adopted in manufacturing and service foreign exchange, managing the state annuity fund
sector organizations, the government sector for employees, financial intelligence and monitoring
organizations started to adopt it. However, Brown, of provincial offices. A renowned person with a
Myring, & Gard (1999) suggest that government background on accounting and finance was appointed
organizations show interest in ABC long after the as the Governor of the CBSAC in 2006 who then
adoption of ABC by its counterparts. They identify became the major catalyst of driving the
the competitive pressures, availability of advanced implementation process of ABC within the bank.
technology and the availability of wide applications
as the main reasons for the government sector to The rest of the paper is organized as follows; Section
adopt ABC. Williams and Melhuish (1999) identified Two provides the literature review of the study. It is
that there is a positive relationship between ABC then followed by methodology in Section Three. In
evolution and the success of the government Section Four findings and discussion of the study is
activities. ABC would enable the government presented. Finally, the paper concludes in Section
agencies to make rational decisions, plan the budgets, Five.
establish fees and increase the production.
Despite this global importance of ABC in the Costing Systems
government sector, there is a dearth of research of its According to Drury (2004), a cost accumulation
application in the semi-government sector in systems is needed to generate information for an
developing countries. The paper therefore focuses on organization as; a) many indirect costs are relevant in
the implementation and application of ABC, in a making decisions, b) further investigation is needed
Central Bank of a South Asian Country (CBSAC) in to identify product profitability periodically and c)
its service delivery. This study will therefore attempt many product decisions are independent. Depending
to contribute to the body of knowledge of ABC on which costs are assigned to the cost objects and
related research in developing countries and in the the level of sophistication, usually there are three
financial service sector in particular. costing systems, direct/marginal costing,
traditional/absorption costing and ABC system
The semi government sector of the South Asian (Drury, 2004; Hilton, et al., 2008).
Country includes corporations, boards, authorities
and public private companies grouped under several Activity Based Costing (ABC)
ministries. The Ministry of Finance and Planning ABC is as a method of measuring costs and
consists of 18 institutions in the state sector and 23 performance of activities, products, and customers
institutions in the semi-government sector. The (Gunasekaran, Marri, & Yusuf, 1999; Hilton, et al.,
CBSAC is among the 23 semi government 2008). ABC assigns resource costs to cost objects
institutions that come under the purview of the such as products, services, or customers based on
Ministry of Finance and Planning. As the central activities performed for the cost objects (Cooper and
bank of the South Asian country, the CBSAC is Kaplan, 1992; Chartered Institute of Management
vested with the responsibility of; managing the Accountants- CIMA, 2005). Wickramasinghe and
monetary policy, directing and regulating the key Alawattage (2007) identify ABC as a post-
components of the financial system and overseeing mechanistic cost management approach in
the other key aspects which are delegated to it via management accounting. ABC accurately reflects the
various other statutes and regulations. The CBSAC resource consumption in production and distribution
was established in late 1950s and is governed by the by attempting to trace costs to products or processes.
Monetary Board which has five members. Three out ABC achieves this by accurately recognizing a causal
of five members are appointed by the President of the relationship of cost drivers to activities (Holmen,
country to represent the private sector and other two 1995; Drury, 2004; Hilton, et al., 2008). It identifies
members are ex-officio members viz, the Secretary to activities which consume resources, attaches costs to
the Ministry of Finance and the Governor of the them, and assigns costs to products or processes that
CBSAC. The functions of the CBSAC mainly use these activities (Ismail, 2010).
include; maintaining price, economic and financial
system stability, managing public debt, managing

International Journal of Information Technology and Business Management
29th May 2014. Vol.25 No.1
2012- 2014 JITBM & ARF. All rights reserved

ISSN 2304-0777

The traditional volume-based costing is appropriate queuing theory to incorporate the costs that are
generally when direct costs are the major cost of the difficult to trace to activity centers.
product or service and activities supporting the
production of the product or service are relatively While most of the research on ABC has focused on
simple, low-cost, and homogenous across different general service and manufacturing organizations,
product lines (CIMA, 2005; Drury, 2004;). Unlike there are several studies that have particularly
traditional costing, ABC systems trace the uses of focused on the financial sector institutions. Brown et
resources to activities and link the activity costs to al. (1999) have studied how ABC could be used to
products, services, or customers (Drury, 2004). The improve the performance of a healthcare and
first stage of ABC assigns factory overhead costs to insurance program. They state that successful
activities or activity cost centers (activity cost pools) implementation of ABC is needed through careful
by using appropriate resource consumption cost and thoughtful steps that incorporate many aspects.
drivers. The second stage assigns the costs of Further, they emphasize that the implementation of
activities or activity cost pools to cost objects by ABC fails due to how it was done but not what was
using appropriate activity consumption cost drivers done. Therefore, Innes and Mitchell (1997) are of the
that measure the demands of cost objects placed on view that ABC cannot yet be viewed as having
the activities (Drury, 2004). Therefore by using cost replaced more traditional costing systems in financial
drivers in both the first and second stage cost institutions. Nonetheless, a strong desire to control
assignments, ABC systems provide more accurate and reduce cost has been evident among the financial
measures of product or service costs for the cost of institutions.
activities that are not proportional to the volume of
outputs produced. Atkinson et al. (2012) suggest that lack of clear
business focus, senior management support, poor
ABC systems differ fundamentally from volume- ABC model design, organizational and individual
based costing systems in two ways. Firstly, the ABC resistance to change and inappropriate delegation to
system defines cost pools as activities rather than consulting organizations as the main problems in
production plant or department cost centers. ABC implementation. Further, Kaplan and Anderson
Secondly, the cost drivers that the ABC system uses (2004 & 2007) suggest that expensive data for ABC
to assign activity costs to cost objects are drivers systems, time consuming design process and lack of
based on an activity or activities performed for the enterprise wide ABC systems could inhibit the value
cost object (Innes and Mitchell, 1990; Drury, 2004). of traditional ABC and suggest a time driven ABC
In allocating costs to products and services, ABC system as a solution. Anand, Sahay, & Saha (2005a)
uses multiple drivers where resources are linked to suggest that firms face difficulties in developing an
activities via resource drivers and activities is linked activity dictionary and cost drivers during the design
to costs via cost drivers (Turney, 1989). phase and not having proper review of the ABC
system during the implementation initiative.
ABC implementation
Due to the wide applicability and popularity of ABC, ABC in South Asian countries
there are numerous studies that have focused on In India, Anand et al. (2005a) identify that ABC cost
ABC. According to Lee (2003), the first group of systems provide accurate cost and profit information
empirical studies on ABC deals with the cost-activity for value chain and supply chain analysis. Yet, ABC
relationship. Further, according to Cardos and Pete information is not well linked to budgets unlike the
(2001), ABC and ABM systems have emerged to firms who are using traditional costing. Further, they
meet the need for accurate information about the cost identify that Indian firms use absorption costing or
of resources demanded by individual products, marginal costing irrespective of the use of ABC
services and customers. Borjesson (1994) presents systems. Moreover, they find no significant
two case studies where activity-based projects are difference in the use of standard costing between
practiced to achieve two different objectives of ABC users and traditional costing system users.
activity analysis: namely, product costing and activity Anand et al. (2005b) further identified that
control. Moreover, Srinidhi (1992) suggests an motivations and potential to adopt ABC is similar
extension to the current ABC framework by using

International Journal of Information Technology and Business Management
29th May 2014. Vol.25 No.1
2012- 2014 JITBM & ARF. All rights reserved

ISSN 2304-0777

and very high across manufacturing and service METHODOLOGY

sector companies in India. In this research work, case study method was
followed due to the nature of research question, lack
In a Sri Lankan study, Fonseka, Manawaduge, & of control over events and the focus on the
Senaratne (2005) find that the level of management contemporary managerial issue (Myers, 2003; Yin,
accounting application, including ABC, is low among 2009).
the public listed companies. As identified by
Subasinghe and Fonseka (2010), the level of adoption The data collection of the study was carried out
of management accounting practices in Sri Lanka can during February to September of 2013. In order to
be varied between different sectors such as ensure a high degree of un-biasness and consistency
manufacturing, trading, and services. They further in conducting this study, the researchers used
identify that the adoption of management accounting multiple data collection methods. These methods
is high among the manufacturing companies and include; interviews, observations, and documentary
relatively low in trading and service companies. In analysis. Before approaching the CBSAC, employees
explicating the reasons for low level of adoption of of several companies adopting ABC were
management accounting, Goonesekera (2004) interviewed to get an initial understanding of the
observes that the lack of knowledge on the part of work involved in implementing ABC and also why
senior management of management accounting tools these companies implemented ABC system in their
is an important reason. Kulendran (2008) also organizations.
confirms that business leaders awareness of
management accounting practices is low and needs to In order to provide more independent views for the
be enhanced. In addition, Subasinghe and Fonseka study, interviews were conducted with individuals
(2010) find that subordination of management belonging to multiple aspects of the ABC process at
accounting to financial accounting and unsupportive the CBSAC. An initial interview was conducted with
organizational culture can result in a lower level of an officer from the Finance Department, who
adoption of management accounting practices in the provided a basic overview of the ABC process. The
country. interview lasted for around twenty minutes and the
insights gathered from it enabled the researchers to
The analysis of literature reveals that in contrast to get an overview of the overall process and
Western countries, ABC and other advanced organizational background. It was followed by
management accounting techniques are not widely another detailed interview lasting for forty minutes
practiced in the South Asian region and consequently with the same officer, in June, using the interview
there is a lack of researches/empirical evidences on guideline prepared (refer Appendix 1). In order to
ABC implementation and its application. This is collect further information the liaison officer, an
particularly highlighted in the semi-government employee of Bank Supervision Department (BSD)
sector due to the none availability of any study on and a senior officer of the Information Technology
ABC implementation. Further, it is evident that the Department were interviewed respectively in August.
countrys banking sector is not studied for the These latter interviews were comparatively short
application of ABC practice widely. which lasted about twenty minutes with mostly open
ended questions. A senior officer who engaged in the
The researchers were motivated to conduct this study implementation stage of ABC was also interviewed
as an attempt to fill the paucity of literature on the to gather information on the implementation process
application of ABC in the financial sector institutions of ABC in September. In this interview, which lasted
in South Asia. The researchers therefore believe that for twenty minutes, the researchers used mostly open
management accounting practices in South Asian ended questions with the intention of gathering
countries can be improved by giving right awareness detailed data. The researchers were then convinced
to the relevant stakeholders who heavily rely on that the point of saturation has reached in collecting
management accounting information, especially top data, as suggested by Marginson (2004), when the
management. same answer received from the different individuals
for the same questions. The researchers tape recorded
these interviews which were then electronically

International Journal of Information Technology and Business Management
29th May 2014. Vol.25 No.1
2012- 2014 JITBM & ARF. All rights reserved

ISSN 2304-0777

logged for later analysis. The researchers also Prior to 2008, a proper management accounting
observed how the activities are carried out by the mechanism to ascertain costs of individual
CBSAC as a means of collecting data. departments and to process such information to
facilitate management decision making was almost
Apart from the above mentioned primary data absent. Being a service provider who handles large
sources, secondary sources of data such as awareness monetary aggregates, it was questioned whether the
documents prepared by the Finance Department, costs were incurred in the most prudential and
organizational structure charts, ABC process chart, efficient manner. A critical issue that emanated from
time recording sheets used by BSD and online the absence of an appropriate cost calculation was the
resources such as the CBSAC web site and intranet difficulty in arriving at accurate pricing and cost
were examined. The collected data from different management decisions which has been highlighted by
sources, i.e. interviews, observations, documentary Cooper and Kaplan, (1992). For example, it was
review and physical artifacts were triangulated to debated whether the simple nominal fee earned from
ensure validity and reliability during data collection activities such as license fees of banks and finance
process (Golafshani, 2003; Yin, 2009). companies and fines charged on regulatory breaches
were sufficient to breakeven when considering the
The collected data were analyzed using an related supervisory costs of those entities.
explanatory building approach to build up a story Furthermore, in the absence of an overall cost
(Yin, 2009). In building up this story of the case, the allocation mechanism, the higher management of the
data were analyzed into three phases of implementing CBSAC faced difficulties in making cost-related
ABC. These three phases are; pre-ABC era, decisions on activities where several departments
implementation era and post-implementation era. collaborated such as the preparation of key
However, gaps and missing links were identified by publications of the institute like the Annual Report of
the researchers. Hence, some of the data sources were the CBSAC. The top management frustration due to
reached out again for further clarifications. These improper cost allocation system is an issue that has
steps were repeatedly conducted until the case was been highlighted by Sohal and Chung, (1998) and
completely built. The next section provides the Atkinson et al. (2012).
findings and the discussion of the study.
These limitations were identified by the Governor of
FINDINGS AND DISCUSSION the CBSAC, who had a keen interest in management
This section provides the findings and the discussion accounting since he is an accountant by profession.
of the study in terms of thee phases of He then proposed the management to adopt ABC as
implementation of ABC (pre-ABC era, an effective solution. The main purpose of adopting
implementation era and post-implementation era). ABC was to ascertain costs incurred by the CBSAC
in delivering its key functions.
Pre-ABC era
The appointment of a new Governor in 2006 can be When enquired about the rationale behind
identified as the crucial internal change that implementing ABC, an officer who was involved in
instrumented the ABC implementation of the the implementation process in 2008 stated:
CBSAC. Kaplan and Anderson (2007) highlight how We carried out a thorough cost benefit
the profit analysis system got increased visibility analysis before implementing ABC whereby
after the appointment of a new CEO in a financial management agreed that comparably the
service firm. Similarly the new Governor has been benefits that can be gained from
the driver in initiating the new costing system. Due to implementing such a mechanism would
the lack of availability of ABC especially in the overweigh the costs involved. It was figured
South Asia including the banking sector (Anand et al. out that the cost taken to gather the
2005b; Fonseka et al., 2005), the CBSACs move to additional information was not very material
introduce ABC can be regarded as a significant as we had some details collected already.
The above statement highlights that the ABC
adoption at the CBSAC has been carefully evaluated

International Journal of Information Technology and Business Management
29th May 2014. Vol.25 No.1
2012- 2014 JITBM & ARF. All rights reserved

ISSN 2304-0777

as highlighted by Kaplan and Anderson (2004). As accurate cost information. We currently

stated above, prior to implementing ABC, a have few FAQ materials on time recording
comprehensive cost benefit analysis was performed. sheets aiming new employees who join the
This action was driven by the philosophy that the CBSAC.
benefits attainable from implementing such a costing
mechanism are greater than the associated costs in He went on to highlight another reason for the
the long run. low level of resistance during the
implementation process as follows:
Implementation era Whenever there are any new amendments,
In order to implement ABC at any organization, it is we communicate them to employees through
first necessary to identify the activities performed Department Liaison Officers at each and
(Drury, 2004; Hilton, et al., 2008; Ismail, 2010). In every department. These Department
implementing ABC, the management faced the Liaison Officers are senior employees of the
problem of determining the activities carried out by CBSAC who are currently working in the
individual departments. This problem which is faced capacity of Deputy Directors in the
by the CBSAC is similar to what was identified by individual departments. This layer of
Anand et al. (2005b). Hence, each department was individuals also acted as change agents,
requested to submit key activities performed at the which we believe as another reason for the
department level and weighting based on the relative low level of resistance observed.
work done on each activity. For example, in the
context of the BSD, key activities would include, Further, department level awareness sessions were
formulating regulations and policies relevant to conducted at annual budget meetings in order to
banking sector, on-site examination of banks, ascertain meaningful cost information of departments
continuous supervision of banks, etc. and their functions. Moreover, a liaison officer was
appointed at each department to facilitate information
However, to the dismay of the implementation team, gathering at respective departmental level. These
the initial information submitted by the individual officers coordinated the monthly information
departments was mostly inaccurate and did not gathering and acknowledged the ABC method to
portray a true picture of the level of work performed. newly appointed employees at departmental level.
This was mainly due to the fact that when Due to these procedures, a low level of resistance
determining a cost weighting, departments had not was observed at the point of implementation and
taken into account the number of individuals even thereafter. It is clear that the CBASC has taken
employed to deliver each activity. Hence, this steps to overcome the organizational and individual
exercise was repeatedly done until a meaningful resistance to change, which was highlighted by
calculation that reasonably matched the actual costs Atkinson et al. (2012), through these steps.
was arrived upon. Initially, weightings were used to
apportion costs of departments to individual activities At the CBSAC, costs are allocated into key functions
and finally to functions as well. As a remedy to of the institution at the absence of a physical product,
minimize the impact of an arbitrary calculation, the which are broadly categorized as core functions,
Finance Department later introduced department wise ancillary functions and agency functions. The costs
time recording sheets to ascertain a more reliable identified under these functions were categorized as
picture on the cost of functions at the CBSAC. direct costs, overhead costs, other costs, common
costs and legal statute related costs. The primary and
During the implementation process, a very low level secondary allocation bases of these cost categories
of resistance was observed among all levels of are given in Table 1.
employees. A senior officer who was involved in the
implementation process stated: In dealing with various cost items, staff cost was
We held awareness sessions for employees identified as a significant cost component. Due to the
of all departments explaining the new complex nature of the work allocation of most
management accounting system and the role employees, the CBSAC required a proper mechanism
of individual employees in ascertaining to allocate the staff cost to different activities. Hence,

International Journal of Information Technology and Business Management
29th May 2014. Vol.25 No.1
2012- 2014 JITBM & ARF. All rights reserved

ISSN 2304-0777

Time Recording Sheets were developed by the After the implementation phase of ABC, the
Finance Department for each and every department in management of the CBSAC has taken various steps
the CBSAC, depending on various activities to sustain and continuously improve the system.
performed by the respective employees. These sheets Among them the continuous revision of the existing
are filled by individual employees monthly and the ABC process and related variables such as functions,
information is then submitted to the Finance sub-activities, cost drivers, etc. is important. The
Department by way of a master schedule for the importance of updating the ABC system has been
entire department. The actions taken by the CBSAC highlighted by Atkinson et al. (2012) and Anand et
in this regard can be viewed as a movement towards al. (2005a). Understanding this importance, the
a time driven ABC as suggested by Kaplan and variables in the ABC are quarterly reviewed by the
Anderson (2004 & 2007). management and applicability and relatedness of
existing variables are evaluated while making
Table 1: cost allocation in the ABC system changes to enhance the current mechanism. After the
Cost item Primary Secondary implementation of ABC in early 2008, the CBSAC
allocation allocation made its first amendment to the initial design by
Direct costs pooled into reallocated to adding a new driver to relate personnel costs namely
- Directly activities functions based the hourly rate in 2009. The hourly rate is
attributed to an on a percentage calculated for an employee depending on his or her
activity grade and hours worked and will illustrate per hour
(electricity, cost of an employee for different employee grades in
telephone) the CBSAC.

- Not directly pooled into reallocated to In the subsequent years even, the CBSAC
attributed to respective functions continuously updates its ABC system with the
any activity departments experience it obtained over the years. In 2013, the
& allocated Finance Department identified that significant
into activities overheads are pooled under common costs category
Overhead costs apportioned reallocated to in the absence of proper cost identification. Most of
(Incurred as to functions these costs arise from statute related activities
organization wide departments (based on the performed by the CBSAC in order to implement the
common cost) (based on the % contribution Monetary Policy of the country. Hence, costs
predetermined of each incurred by the CBSAC to perform its statutory
parameters) & department to obligations were separately categorized as legal
allocated into the respective statute related costs, which includes costs such as
activities function) withholding tax paid on treasury bills, interest paid
Other costs Pooled into Reallocated to on foreign reserves, etc (Refer Table 1).
(not categorized respective functions
under the above) departments In 2012, the Finance Department came up with a
and then separate calculation called sub activity cost
allocated to calculation. For example, the cost per examination
the activities conducted by the BSD for banks. Information
Common costs Directly provided from the ABC system is used for various
and Legal allocated to management actions including planning, decision
statutes related functions making and control as highlighted by Innes and
costs (incurred Mitchell (1997). In making decisions such as annual
directly related to license fee of banks, fine charges for violations of the
the major regulatory framework, etc., the information provided
functions) by the ABC system is used as the basis. For example,
Source: Author constructed in making outsourcing decisions, the cost information
provided by ABC is used extensively. In this context,
Post-implementation era an employee of the Finance Department stated,

International Journal of Information Technology and Business Management
29th May 2014. Vol.25 No.1
2012- 2014 JITBM & ARF. All rights reserved

ISSN 2304-0777

Prior to implementing ABC, most of the is the difficulty of data collection from different
non-core activities such as conducting sources. Due to the absence of an integrated
surveys, managing the staff cafeteria were mechanism of data gathering, the Finance
performed by our employees. But Department incurred time and other resources heavily
afterwards, management chose to delegate in collecting the requisite information from different
conducting of surveys to the State Census sources. For an example, hourly rate is calculated
and Statistics Department, where necessary, based on time recording sheets filled by individual
using sub-activity cost information such as employees and are not subjected to detailed
cost per survey supervision. Hence, time recording sheets may
deviate from reality in certain instances. As a solution
He further added, for this, the Finance Department compares the
Similarly, when moving the State Managed apportioned cost with actual costs incurred and in the
Annuity Fund Department to another case of a significant deviation (i.e. 20% or more), it is
location outside the main premises, top requested to re-submit the information.
management used the cost per canteen
maintenance at head office as a benchmark At present, the ABC process at the CBSAC is semi-
to decide on an outside party to run the automated while some of the key data collection and
canteen facilities at the new location. calculation areas are manually performed which is
both cumbersome and time consuming. For example,
The CBSAC also uses activity based information in in the context of staff costs allocation, individual
preparing budgets, which can be identified as a employees provide information regarding time spent
system of Activity Based Budgeting (ABB) (Drury, on individual activities using spread sheets which is
2004; Hilton, et al., 2008; Atkinson, et al., 2012). summarized into a master spread sheet at the
These budgets are prepared at the individual departmental level. The Finance Department uses the
department levels and are subject to review and master spread sheets to allocate staff costs to
discussion of the management and the Finance different activities. At the same time, higher
Department therein. These budgets finalized at the management and employees of the Information and
beginning of the year are then again need to be met Technology Department of the CBSAC uses
unless in extreme situations subject to senior uncomplicated in-house software to submit
management approval. This has resulted in better information on the time spent for individual
control of costs at the CBSAC. activities.

The sub-activity cost calculation is further Despite these challenges, the ABC implementation
instrumental in instances where multiple departments has been instrumental in enhancing the productivity
engage in a single sub-activity such as the annual of management decision making at the CBSAC in
report preparation. In annual report compilation many ways. Moreover, the Activity Based Budgets
process, departments from different clusters gather in prepared by the Finance Department together with
providing the respective articles and chapters to the other budgets, have been helpful to improve the sense
report and engage in translation work, although the of cost-consciousness among other departments as
primary responsibility resides with Research well.
Department. In collaborated efforts as aforesaid,
Finance Department obtains the information related CONCLUSION
to their respective contribution to the particular sub-
activity from each department. The Finance The study demonstrated how ABC system was
Department identifies sub activities and calculates implemented and is continuously improved at the
sub-activity cost that is subsequently used in CBSAC. The appointment of the new Governor has
operational and managerial level decision making. been the major trigger for the change towards ABC.
Thus, the study shows how the influence of persons
The implementation and sustenance of the ABC with authority could bring accounting change to
system is not without many challenges. One of the derive better results. The study highlights that the
critical challenges faced by the Finance Department ABC system adopted by the CBSAC is now more of

International Journal of Information Technology and Business Management
29th May 2014. Vol.25 No.1
2012- 2014 JITBM & ARF. All rights reserved

ISSN 2304-0777

a time driven ABC. The study further reveals the Organizations to Gain Profitability. Romanian
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organizations to implement ABC. Systems, Journal of Cost Management, 4(3), pp.
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the access to information. The highly procedural Usage, Accounting Horizons, September, pp.1
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ISSN 2304-0777

More Powerful Path to Higher Profits. Boston; APPENDIX 1 - Interview

Harvard Business School Press. questions/themes
23. Kaplan, R. S., & Johnson. H. T. (1987). Reasons contributed to the ABC
Relevance Lost: The Rise and Fall of implementation
Management Accounting. Boston; Harvard o How significant is your overheads?
Business School Press. o What were the main reasons for the
24. Kulendran, S. A. S. (2008). Factors that Impact CBSAC to move to ABC?
Organizational Change towards Management o What were your main challenges in
Models Beyond Budgeting. An unpublished
changing the costing system to
thesis, Postgraduate Institute of Management,
25. Lee, J. Y. (2003). An Examination of
International Differences in Adoption and Theory Characteristics of the new ABC system
Development of Activity Based Costing. o How many cost pools and cost
Advances in International Accounting, 15, pp. drivers have been identified?
65-77. o How did you determine the
26. Marginson, D. E. W. (2004). The Case Study, the relevant cost pools and cost
Interview and the Issues: A Personal Reflection: drivers?
The Real Life Guide to Accounting Research, In
o What were the main issues faced by
Humphrey. C., & Lee. B. (Ed.). The Real Life
Guide to Accounting Research, UK; Oxford, pp. the team in identifying and
328-338. determining cost pools and cost
27. Miller, J. G., & Vollman, T. E. (1985). Hidden drivers?
Factory. Harvard Business Review, pp. 1-9. o Have you maintained any internal
28. Myers, M. D. (2003). Qualitative Research in policy as to how to conduct the
Information Systems. MIS Quarterly, 21(2), pp. ABC process?
241-2. o What kind of measures taken to
29. Rotch, W. (1990). Activity-based Costing in raise the awareness about the new
Service Industries, Journal of Cost Management,
methodology among employees?
Summer, pp. 4-13.
30. Sohal, A. S., & Chung, W. W. C. (1998). Activity o Have you revised or changed the
Based Costing in Manufacturing: Two Case ABC mechanism that was initially
Studies on Implementation, Integrated established?
Manufacturing Systems, 9(3), pp.137 147.
31. Srinidhi, B. (1992). The Hidden Costs of Importance of ABC information in
Specialty Products. Journal of Management management decision making
Accounting Research, 4, pp. 198-208. o How often do you send ABC
32. Subasingha, J., & Fonseka, A. T. (2010). Factors
information to the senior
Affecting the Low Adoption of Management
Accounting Practices in Sri Lankan Business management?
Organizations. Sri Lankan Journal of o What kind of reporting formats do
Management, 14 (2), pp. 95-112. you use in reporting ABC
33. Turney, P. B. B. (1989). Activity Based Costing: information to the senior
A Tool for Manufacturing Excellence. Target, management?
Summer, pp. 13-19. o How have you integrated the ABC
34. Wickramasinghe, D., & Alawattage, C. (2007). system to the annual budget
Management Accounting Change: Approaches preparation and strategic planning
and Perspectives. UK: Routledge.
35. Williams, C., & Melhuish, W. (1999). Is ABCM
Destined for Success or Failure in The Federal
Government? Public Budgeting & Finance, Data collection for the ABC system
19(2), pp. 2236. o What kind of a mechanism have
36. Yin, R. K. (2009). Case study Research: Design you established in collecting
and Methods, (4th Ed.). California; Sage. information from the respective

International Journal of Information Technology and Business Management
29th May 2014. Vol.25 No.1
2012- 2014 JITBM & ARF. All rights reserved

ISSN 2304-0777

o What kind of issues do you face in o Have you observed any significant
collecting data? improvements/reductions in the
o What kind of remedial measures costs incurred due to the ABC
have you planned/planning to take implementation?
in resolving above issues? o What kind of assumptions have
supported in allocating the cost
Issues faced by the CBSAC in implementing among different functions of the
ABC system CBSAC?
o What kind of practical issues do
you face in controlling the high
cost functions?