Activity-Based Management for Financial Institutions: Driving Bottom-Line Results

CHAPTER 5

ABC/M in Shared Services

Beware of the man who won’t be bothered with details.

—William Feather

STARTING ABC/M WITH SHARED SERVICES

Since two of the primary reasons for implementing activity-based costing are understanding and, hopefully, improving indirect costs such as those previously allocated from Operations, Information Technology (IT), Human Resources (HR) and Finance, these shared services are common starting points for ABC/M implementation. Within the financial services industry, in particular, IT and Operations are the most common starting points due to their relatively high expenses.

Additionally, there are two common complaints about the IT costs from the lines of business (LOBs):

1. “I don’t understand our IT costs” This claim sometimes has two very legitimate components—a lack of transparency which should be the first priority of the ABC implementation and a lack of a common language which will be discussed shortly.

2. “The IT costs are too high” This complaint always perplexes me. If the LOBs do not understand the IT costs, how can they claim the costs are too high? Ask for a benchmark or other indicator that the IT costs are “too high.” Certainly, IT costs have been growing for the past several decades. However, these costs provide scalability and reduce costs in the front office. Of course, the IT costs are growing while the Front Office or Operations costs are shrinking—these comments are two sides of the same coin. However, the increases in IT costs ...