Double Measure: When Scottish Courage Brewing Tried to Graft a New System for Activity-Based Budgeting on to Its Existing One for Activity-Based Costing, It Ran into Problems and Was Forced to Suspend the Project. but the Company Did Gain Invaluable Insights in the Process. (Finance Activity-Based Budgeting)

By Liu, Lana; Martin, John P. et al. | Financial Management (UK), October 2002 | Go to article overview

Double Measure: When Scottish Courage Brewing Tried to Graft a New System for Activity-Based Budgeting on to Its Existing One for Activity-Based Costing, It Ran into Problems and Was Forced to Suspend the Project. but the Company Did Gain Invaluable Insights in the Process. (Finance Activity-Based Budgeting)


Liu, Lana, Martin, John P., Robinson, John, Financial Management (UK)


While many case studies of activity-based costing (ABC) implementation exist, comparatively few are available on activity-based budgeting (ABB) systems. As their names indicate, ABC and ABB are linked, but can the two processes be built into one system--and does the implementation of ABC naturally lead to the implementation of ABB?

Scottish Courage Brewing, which is widely regarded as a pioneer of ABB in the UK, has now shelved the further development of its system, but its experience provides insights that address a number of practical issues that have not been reported.

The starting point of Scottish Courage Brewing's ABB project was the implementation of ABC, which was a response to pressure from its customers (mainly supermarkets) for price reductions. When ABC was piloted in the early 1990s it was successful in that it provided a whole new set of data that raised managers' confidence in the accuracy of beer product costs. This breakthrough encouraged senior managers to approve a full-scale implementation, which aimed to build a system that could support both ABC and ABB processes.

A steering committee was formed to set strategies for the ABB implementation and monitor the progress of the project. It comprised the production director, the finance director and an ABB co-ordinator. An implementation team was also formed. This consisted of two full-time members (the ABB co-ordinator and a management accountant) and part-time members representing each of the company's six breweries. In the early stages, the support of senior management was ensured by the presence of the directors on the steering committee. During the implementation, workshops and presentations were held for line managers at each brewery with the aim of gathering information and demonstrating the finished models.

The conceptual model was based on the notion of ABB as a reverse process of ABC, as codified by Robert Kaplan and Robin Cooper in Cost and Effect (Harvard Business School Press, 1998). Sales forecasts were used to determine the product mix by taking account of factors such as brands, packaging and markets. Activity and resource requirements were then generated, taking capacity constraints into account. Lastly, the cost influences to resources were determined and fed back to general ledger to produce a budget.

If this model could be implemented successfully, it would be able to conduct "what if?" scenarios to give sound information on which to base strategic decisions.

The enhancements to the ABC software included the ability to explore various volume/ mix scenarios, to allow the process to work from sales forecasts towards cost budgets and to determine revised total resource costs. Processes were mapped out at each brewery. A key requirement here was to identify activities and resources that varied with volumes and to determine the linear relationships between them. Another requirement was to identify the maximum capacity of a given resource so that a warning signal would be given in the "what if?" scenarios when this capacity was exceeded. The violation of this constraint would invalidate total cost predictions.

It was intended that the ABB model would calculate the total product cost of a particular type of beer, as well as the total production costs of individual breweries, based on the computed variable unit costs, volumes and related fixed costs. Final calculations were performed automatically in a customised computer software model called Cost Control.

But the new system implementation did not proceed as intended, significant problems occurred and errors were found in the model. While the system was able to produce the necessary ABC data, it couldn't perform the ABB calculation process reliably, which cast doubt on the quality of the resulting budget data. The implementation problems, together with the perceived unreliability of budgets, eventually led the company to shelve the ABB project. …

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Double Measure: When Scottish Courage Brewing Tried to Graft a New System for Activity-Based Budgeting on to Its Existing One for Activity-Based Costing, It Ran into Problems and Was Forced to Suspend the Project. but the Company Did Gain Invaluable Insights in the Process. (Finance Activity-Based Budgeting)
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