Time-Driven activity-based costing.

Time-Driven Activity-Based Costing Robert S. Kaplan and Steven R. Anderson Publisher: Harvard Business School Press www.HBSPress.org 257 pages, 2007; $45

In the 1980s Kaplan developed activity-based costing (ABC) as a way to measure and link an organization's costs to the goods and services it produces. However, as time progressed, Kaplan and Anderson found problems with ABC. These problems included high costs of collecting interviews for the ABC model, the subjectivity of time allocations, and the difficulty in maintaining the model with respect to process and resource spending changes (such as adding new activities, increases in the diversity of individual orders, channels, and customers).

In Time-Driven Activity-Based Costing, authors Robert S. Kaplan of Harvard College and Steven R. Anderson of Acorn Consulting provide a review of the time-driven activity-based costing (TDABC) model and how organizations can use it to understand the cost and profitability of delivering their products and services. The TDABC model addresses key problems within the ABC model including reducing both the costs of interviews and the subjectivity of time allocations. Some key features of TDABC are:

* The model can be estimated and installed quickly

* It can be easily updated to reflect changes in processes, order variety, and resource costs

* TDABC data can be fed from transactional ERP and CRM systems

* TDABC can be validated by direct observation of the model's estimates of unit times