Academic journal article International Journal of Management

Information Usefulness and Usage in Business Decision-Making: An Activity-Based Costing (ABC) Perspective

Academic journal article International Journal of Management

Information Usefulness and Usage in Business Decision-Making: An Activity-Based Costing (ABC) Perspective

Article excerpt

Activity-based costing (ABC) an information system developed in the 1980s to overcome some of the limitations of traditional cost accounting and to enhance its usefulness in strategic decision-making. The objective of the study is find out how managers feel about activity-based costing, especially how useful they believe it is in providing information and in helping them to make better decisions. Data was collected by means of an emailed questionnaire sent out to 181 ABC users consisting of executives at a large telecommunication company in South East Asia. ABC users were asked 24 items which assessed their perceptions of the information usefulness and effects on decision making of ABC usage. Descriptive analysis on the firm's experiences with the usefulness of ABC information in different business processes and how ABC information changed decisions is presented. Respondents' were asked to indicate the significance of changes made as a result of ABC site implementation. Using this measure, when an ABC implementation causes a strong change in decisions, it is viewed as being successful; when it causes less change in decisions, it is viewed as not being successful. It also reports on the organisation's usefulness of ABC information in different business processes. By viewing an ABC system as an enabler to improve the operations business processes and decisions, it demonstrates that these systems enable executive and managers to enhance the process of decision-making. The study found ABC provided better information in areas of budgeting and planning and opportunities for improvement in other business areas. In relation to ABC making changes in business decisions, these were less successful in the various business functions. The implications of these findings share the experiences of the present organisation and their perceptions on the usefulness of ABC information and where it stands in changing business decisions in their operations.

1. Introduction

The main purpose of this study is to report on the perceptions of ABC users in relation to the usefulness of ABC information usage and when ABC implementation causes a change in business decisions. Furthermore it gives information on the characteristics of ABC users, such as their level of training and knowledge about ABC concepts.

The paper is important for two reasons. First, ABC at the theoretical level is expected to help a South East Asia telecommunication organisation to evaluate their cost management practices and how these systems could support their decision processes. Hence, the study gives some indications about this organisation effort to seeing ABC usefulness in their business operations. Secondly, beside the great deal of interest, surveys conducted have shown that the diffusion process has been quite low as to why ABC implementations seem to fail.

The study covers one large South East Asia telecommunication provider. Due to the exploratory theme of this study, no formal hypotheses were tested. Rather, the paper gives some descriptive statistics that outline the current general trends and use of ABC systems by the organisation. The paper is divided into five sections. Section two provides the theoretical background for the study which includes ABC implementation and success; section three describes the population selected. Section four reports and discusses the results achieved; and the final section concludes with a summary of the results and a discussion of the limitations.

2. The Relevant Literature

ABC Implementation

For many decades, management accounting had increasingly dedicated its effort in ensuring that financial accounting standards were satisfied and costing procedures were met (Garrison and Noreen, 2000). A number of recently developed management accounting techniques, such as ABC, product life cycle analysis, benchmarking, and value chain analysis, have been suggested as ways of linking operations with company strategies and objectives (Chenhall and Langfield-Smith, 1999). …

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