ABC Telecom

Activity Based Costing in the Telecom Industry
Activity
Introduction -- What ABC is not•
not•
Based What is Activity Based Costing:
Costing ! As defined by Kaplan & Cooper in 1991

! Difference between ABC and Traditional Accounting
in the Telecom Industry
! The CAM-I Standard and business modeling
28 February 2002
Presented by: ABC in the Regulatory Environment:
! FDC, LRAIC versus ABC
ABC in Government:
! Cost Recovery, Cost Management, Process Improvement
and Outcome/Output Analysis
ABC in the Telecom Industry:
! Predictive Resource Planning, Profitability Analysis,
Costing and Cost Management
Who are using ABC
©2000 All rights reserved. ABC Technologies, Inc. Slide 2
Financial Accounting versus ABC Expenditure is not the same as cost
“There are many ways to arrive at •Costs and expenses equal in total. But
“cost” as well as revenue as the Enron they are not the same thing.
scandal has so vividly illustrated.
•Expenditures are incurred when money
is exchanged between parties. Costs are
For an accountant, “cost” can be any
always calculated, restated and then
outflow of value … for an economist, a assigned to products and services.
“cost” only arises from a a real cause.”
John Ure •ABC resolves the arbitrary “Cost
Absorption” in traditional accounting
ABC practitioners
and economists think
alike …
©2000 All rights reserved. ABC Technologies, Inc. Slide 3 ©2000 All rights reserved. ABC Technologies, Inc. Slide 4
ABC is not ... Activity Based Costing in the Telecom Industry

not•
What is Activity Based Costing:
! As defined by Kaplan & Cooper in 1991
• the same as financial accounting ! Difference between ABC and Traditional Accounting
• A heretic in the world of accounting
ABC in the Regulatory Environment:
• Well understood by accountant ! FDC, LRAIC versus ABC
ABC in Government:
• In conflict with FDC, LRAIC and ! Cost Recovery, Cost Management, Process Improvement
other “Costing Philosophy” as defined and Outcome/Output Analysis
by economists ABC in the Telecom Industry:

IS NOT
Who are using ABC
ABC is... What is ABC
! Resources are consumed by Activities

Defined by Kaplan and Cooper
in 1991, ABC shows what activities are ! Activities are consumed by Products/Services
used to produce what products and services.
Full blown ABC business models now use
Activity-based Cost as a unit of measurement
to describe the organisation activities, the
resources consumed by those activities and
the products and services generated by those
activities. Products
ABC is not just a way to describe cost. It is
Resources Activities &
also an unimpeachable operational Services
management methodology that enables fact-
based and quantity based management
decision.
Industry Definition: The CAM-I Standard The Need for ABC
Cost Assignment View A key to understanding ABC is to understand how cost

RESOURCES behavior truly varies in relation to other factors
Changes in Cost Structure
100%
Resource
Resource
Resource Drivers
Cost
Assignment
Overhead The demand for
overhead activities are
Cost Direct not much linked to
Material sales or production
Process Cost Drivers
Performance Components
ACTIVITIES Measures volume. They result
View from:
• The diversity and
complexity of
Activity
Activity Cost
Direct (recurring) Labor products, services
Assignment and customers
Assignment • Quality levels
Activity
Adapted from The CAM-I Drivers • Rates of needed
Glossary of Activity-Based
1950s 1990s change
0%
Management, edited by Norm COST
Raffish and Peter B.B. Turney, Old-fashioned Hierarchical Integrated
OBJECTS
(Arlington: CAM-I, 1991.)
Stages in Business Evolution
Activity Activity Examples
“Work performed within an organization.” Unloading trucks
Processing phone centre orders
Training employees
Maintaining company vehicles
What
What we
we do
do
Adapted from The CAM-I Glossary of Activity-
Based Management, Edited by Norm Raffish
Forecasting sales
and Peter B.B. Turney, (Arlington: CAM-I,
1991.)
The Language of ABC
Doesn’t Replace the Accounting System
ABC Doesn’
Stating activities with an action verb-object-noun grammar convention creates an atmosphere for change by An ABC/ABM system does not replace the accounting system. It restates the same
providing a new way of looking at something people are already familiar with, rather than something foreign. data and adds operating relationships to more effectively support decision making.
From: General Ledger To: ABC Data Base
Activity-Based View Data Data+ Information
Chart-of-Accounts View
Claims Processing Dept
Claims Processing Department
Key/scan claims $ 31,500 A Ms. Strategy
Favorable/ General
Actual Plan (unfavorable) Analyze claims 121,000 B
Suspend claims 32,500 A blizzard of Ledger C
Salaries $621,400 $600,000 $(21,400)
Receive provider inquiries 101,500 transactions (expense / Mr. Operations
Equipment 161,200 150,000 (11,200) Resolve member problems 83,400 account A
2,000
Process batches 45,000 balances) B
Travel expense 58,000 60,000
Determine eligibility 119,000 M
Supplies 43,900 40,000 (3,900) Make copies 145,500
Write correspondence 77,100
Use and Optical
occupancy 30,000 30,000 –– Attend training 158,000 An Decision makers
Lens
Total $914,500 $880,000 $(34,500) Accumulator (Reassigns
Total $914,500
Costs)
When managers get this kind of report, they are
either happy or sad, but they are rarely any smarter!
Three Views of Cost Activity Based Costing in the Telecom Industry

not•
Operational View
Today
Financial Strategic ABC in the Regulatory Environment:
View Yesterday Tomorrow View ! FDC, LRAIC versus ABC
ABC in Government:
?
Who are using ABC
LRAIC as stated by Telecom Agency of Germany OFTA versus Irish Telecoms
The Telecom Authority considered that …

• LRAIC is the long run cost of providing LRAIC would be the appropriate cost
either an increment or decrement of output, standard for it would send the right “build or
buy” signals to interconnecting carriers.
which should be measured on a forward- In July 1997:
looking basis.
ABC principles are relevant to the
• Setting interconnection charges using determination of interconnection charges, for
LRAIC permits recovery of fixed costs, while which purposes the costing systems of
retaining some of the desirable properties of operators will need to be sufficiently detailed
In April 1999: to permit the allocation of costs to network
marginal cost pricing. components.
LRAIC Model Reference Paper, Telestyrelsen
Irish Telecoms Stated in April 1999 … Irish Telecoms Stated in April 1999 …
ACCESS:
•The Telecoms Regulator today issued • An open, fair and transparent licensing regime
proposals for the costing methodologies to be PRICE:
used in the separated accounts of operators • Regulatory Costing and Accounting
designated as having significant market power • Interconnection Rates
(SMP). The move should facilitate and sustain • Long Run Incremental Costs(LRIC)
the further development of a competitive • Internet Interconnect
telecoms environment ... • Accounting Separations
• Costing Methodologies
•The proposals consider the implications of • Consumer Prices
following the principles of cost causation e.g. • Price Cap
Activity Based Costing, in the allocation of • Rate Regulation for TV Delivery
costs, revenues and capital employed for the QUALITY:
purposes of preparing separated accounts. • Quality of service offered by operator to operator and
by operator to consumer is of major importance
PRINCIPLES OF COST ALLOCATION:

PRINCIPLES OF COST ALLOCATION:
•The 8/4/98 Recommendation recommends that the i) Transparency: the operator should publish updated
allocation of costs, capital employed and revenue is versions of its cost allocation methodology when changes are
made to it.
done in accordance with the principle of cost
ii) Consistency: the same bases of allocation should
causation (such as activity-based costing (“ABC”)), preferably be used from year to year. Where there are changes
i.e. costs and revenues should be allocated to those made the operator should restate the previous
services or products that cause those costs or revenues year separate accounts on the new bases.
to arise. iii) Materiality: the use of specific allocation bases may not
be necessary if the effect on the allocation is not material to the
outcome. Of course, it may not be possible to measure the effect
without adopting an alternative basis and, in cases of doubt, the
most appropriate activity related cost apportionment basis
should be used.
PRICE:
INTERCONNECTION RATE:
• Access is effectively denied if the price is
• The ability of new entrants to interconnect to the
prohibitive.
network of an incumbent operator is fundamental
to the development and sustainability of
• In a monopoly market and in markets in transition
competition in a telecommunications industry.
from monopoly to competition, specific regulatory
measures are necessary to ensure that users and new
entrants have appropriately priced access to services
from the former monopolist.
Many Costing Philosophies … Activity Based Costing in the Telecom Industry
FDC and LRAIC are costing “philosophies”
philosophies” which say Introduction -- What ABC is not•
not•
what costs should or should not be included What is Activity Based Costing:
Measurement (quantitative technique) is the key
FDC LRIC TELRIC-BS LRAIC ! The CAM-I Standard and business modeling
FLEC/LRAIC
Measurement ABC in the Regulatory Environment:
Measurement Measurement ! FDC, LRAIC versus ABC
Measurement ABC in Government:

Measurement
•• ABC
ABC is
is aa measurement
measurement ABC in the Telecom Industry:
•• ABC
ABC demonstrates
demonstrates the “Cost and
the “Cost and Effect”
Effect” (Causation)
(Causation) ! Predictive Resource Planning, Profitability Analysis,
Who are using ABC
Does our Government understands its cost structure? Activity Based Cost Recovery
(Therapeutic Goods Agency)TGA, Commonwealth Department of
Health and Aged Care of Australia
Regulator of therapeutic goods, drugs and medical devices
! Costs as input to
pricing
Translate Costs to Prices
“ We will first consider [how to cut] • Costs translate to revenue required per
! Identify cross
subsidisation
expenditure. The Government is sector
! Defensible basis for
• Estimate no. units for fee events prices
determined to solve the issue in the • What - if analysis by sector
! Similar applications in
• Develop pricing model
medium and long term” • Negotiate with industry associations
Hong Kong:
Kong: Water
Water
Supplies De
Department,
partment,
Antony Leung, Financial Secretary, S.C.M.P. Thursday December 6, 2001 Hong Kong
Kong Post, OFTA
etc.
Process Improvement and Cost Management Example 2. ABC/M In Government

Raw Material Raw Material Output/Outcome Decision Framework
RECEIVE RECEIVE Government’
Government’ssMission
Mission
INSPECT MACHINE
STORE 4
ASSEMBLE
ISSUE Days
TEST
MACHINE Government’
PACK Government’ssStrategy
Strategy
INSPECT
STORE SHIP
4 ISSUE
Weeks ASSEMBLE Minimize Cost PolicyObjectives
Policy Objectives (Outcomes)
INSPECT Drivers for Finished Product
Non-Value
STORE
Added Activities
TEST GovernmentServices
Government Services (Outputs)
STORE
PACK
STORE
SHIP ActivityArrangement
Activity Arrangement
Finished Product
2. ABC/M in Government Managing for Outcomes
OUTCOMES
OUTPUTS
IN PUTS
Activities
Activity Based Costing in the Telecom Industry Key challenges for the Telecom industry …
not•
Economic and Structural Change:
! As defined by Kaplan & Cooper in 1991 “… these “secular” trends have seen the traditional cash cows of
! Difference between ABC and Traditional Accounting the industry, IDD and mobile voice service drying up.”
ABC in the Regulatory Environment: John Ure,TRP

“… the (Hong Kong) telecom market is saturated. Profits of
ABC in Government: most operators are falling. Most companies are losing
! Cost Recovery, Cost Management, Process Improvement money. I hope government policy would also consider and
and Outcome/Output Analysis encourage investments as it opens up the telecom market.”
ABC in the Telecom Industry: Linus Cheung, PCCW
Who are using ABC
ABC in Telecom Business Planning ABC in Telstra - Why?
The existing Cost Management System was inappropriate
•Profit Margins were not transparent

•Lack of belief in the cost system(s)
•Provided little insight into the key activity costs for
each major product segment
•Information not used by line managers
Business planning for
policy makers and •Large number of special costing studies
Telecommunications •Reports not used by management
operators in the new •Insufficient to support strategy setting
technical and legal
environment
It was not supporting the product
management process
Profitability Profile Using ABC Sample Activity Based Budgeting Model
Capacity Activities Cost Objects

Profitability profiles are like electrocardiograms of a company’s health. Resources
Available Required Estimated Required Output
After sales are attached to the ABC costs, this graph reveals that $8 million was made
on the most profitable 75% of products --- and then $6 million was conceded back!
Cumulative Profit (Millions) Work Effort Output Customer type
$8 Expenses from GL
- Activation
- Compensation Expenses
- Existing Acct Activities - Activation Call
$6 - Non-Labor Expenses Consumer
Net - Upselling - Business Call
Business
- IT Charge Back
Revenues - Trouble Resolution - Consumer Call
Minus $4 - Trouble Ticket

- Store Data Records
ABC Costs Unrealized profit revealed by ABC
$2
$1.8 profit Determine Resources Required Apply Rates Estimate Demand
$0
Specific Products, Services, and/or Customers
(ranked most profitable to least profitable)
Process Improvement Theory Using OROS Software With Sprint Process Improvements
Strategic
Knowledge Goals
Management
LOB Managed Strategic

Strategic Balanced Reporting
KPI Process ABM
Goals Scorecard
CBI (results)
Detail based on managed output Balanced

Scorecard
Operational
ABM
ABC
($ or headcount; i.e manageable TOC
CQI
resources) ABM/P
Traditional
Planning
Budget
Process Process
Functional
'As Is' Changes
Process Improvement - Scenario Analysis Resource Planning
!How many employees should I hire?

!There are cuts going on all over the company. !What staff levels (Employees with OT vs. Contractors)
How do I reduce my budget without sacrificing do I need?
customer service?
!What should be my mix between Contractors and
!With the business environment dramatically Salaried employees?
changing, we need to be able to manage growth of
some products and maturation of other products !Do I need to build a new facility to handle my expected
effectively. volume?
!How efficient do I have to become to support my !Should I buy a new server to support data storage?
expected volume with my current budgeted !Should I train employees to handle multiple tasks?
resources? (able to handle 2-3 types of calls)
Management = Management of Activities Activity Based Costing in the Telecom Industry
not•
Product or Service
Customer Needs

ABC in the Regulatory Environment:

Activities ABC in Government:

Who are using ABC
Who are using ABC – Regulatory Environment Who are using ABC – Telecom Operators
Clients in the Asia/Pacific:
Telstra Telkom Indonesia
Singapore Telecom Telstra
Telekom Malaysia Celcom Malaysia
Globe Telecom (Malaysia) LG Telecom (Korea)
Clients in Europe:
ICP Instituto das Comunicacoes
NTL Communications
TMN Telecomunicacoes Movieis
Clients in US and Canada:

AT&T GTE
Northern Telephone Limited Pacific Bell
Irish Telecom Authority
Telecom Australia Bell Canada
Bell South/Atlanta Global One
Sprint
Contact atihongkong@abctech.com for CD-ROM
THANK YOU!
For more information, please
contact:
Alan Lung, Director & General

Manager
ABC Technologies(HK)Ltd
Tel: +852 2503-1383
Fax: +852 2503-3645
E-mail: atihongkong@abctech.com
http://www.abctech.com
http://www.bettermanagement.com

ABC Telecom

Hochgeladen von

Dokumentinformationen

Originalbeschreibung:

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

ABC Telecom

Hochgeladen von

Copyright:

Verfügbare Formate

Activity Based Costing in the Telecom Industry

Costing ! As defined by Kaplan & Cooper in 1991

©2000 All rights reserved. ABC Technologies, Inc. Slide 2

Financial Accounting versus ABC Expenditure is not the same as cost

ABC is not ... Activity Based Costing in the Telecom Industry

other “Costing Philosophy” as defined and Outcome/Output Analysis

by economists ABC in the Telecom Industry:

! Resources are consumed by Activities

Industry Definition: The CAM-I Standard The Need for ABC

Cost Assignment View A key to understanding ABC is to understand how cost

Activity Activity Examples

“Work performed within an organization.” Unloading trucks

Processing phone centre orders

Maintaining company vehicles

Three Views of Cost Activity Based Costing in the Telecom Industry

LRAIC as stated by Telecom Agency of Germany OFTA versus Irish Telecoms

The Telecom Authority considered that …

PRINCIPLES OF COST ALLOCATION:

Measurement ABC in Government:

Process Improvement and Cost Management Example 2. ABC/M In Government

ABC in the Regulatory Environment: John Ure,TRP

ABC in Telecom Business Planning ABC in Telstra - Why?

The existing Cost Management System was inappropriate

•Profit Margins were not transparent

Capacity Activities Cost Objects

Minus $4 - Trouble Ticket

LOB Managed Strategic

Detail based on managed output Balanced

Process Improvement - Scenario Analysis Resource Planning

!How many employees should I hire?

! Difference between ABC and Traditional Accounting

ABC in the Regulatory Environment:

Activities ABC in Government:

Clients in US and Canada:

Contact atihongkong@abctech.com for CD-ROM

Alan Lung, Director & General

Das könnte Ihnen auch gefallen