Implementing Activity-based Management Case Study

Our principal consultant, Julie Mabberley, led the team that developed an activity based costing system for a leading Turkish Bank. This included the definition of activities, identification of costs and cost drivers and the development of activity costs.

The first phase of the project focused on reviewing the products, reporting types and principles to be used in the calculations and the reporting requirements. The project team has interviewed managers in each department and in a sample of branches to define the activity map so that the activity costs can be calculated.

The second phase involved working with the Bank's Software Department to install the Activity Based Management software (OROS) and link this to a data warehouse and to the systems within the Bank to ensure that all the volume and cost data will flow automatically into the reporting. It also refined the activity costs developed in Phase 1 and by using the new system was eventually able to produce detailed product and customer profitability information and performance reports for managers within the Bank.

The third phase of work required the formalisation of the strategy for the Bank. The performance measures developed during Phase 2 could then be applied using measures which reflected the targets agreed during the budget process.

The final deliverable was an activity based management system linked to the operating systems in the Bank, which can produce multi-dimensional information, by product, customer, channel, branch, activity and manager.

The new challenge for all financial institutions is to acquire a more flexible, customer-centric business model, while simultaneously achieving economies of scale. Winning financial institutions of the future will be those which take on this challenge, and rethink their business model, organization, processes, technology, culture and performance measures in a fundamental way. Our client has begun this process with the ABM project and will continue along this route with the remaining strategy programs.

In such competitive industries, accurate cost information is essential for effective management. Only with an understanding of the value adding activities and cost structures of the product delivery and customer management, can the Bank take on the challenge to simplify to succeed.

ABM is a key tool for successful change. Use of the information can provide a strong understanding of an organization and the areas where profit can be generated. It can also highlight the areas of non-core business where the Bank has the option to review the service and consider alternative sourcing opportunities. The information produced by the ABM project will assist the strategy projects in achieving these goals.

To quote an employee of the Bank; “The bank will never again, be the same as it was before the commencement of the project.”

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