Q&A with St.George Bank Limited - Customer Service Institute of ...

A Key Tool in CSIA’s Methodology -
Activity Based Costing (ABC)
Activity based costing is an accounting
methodology that assigns costs to activities
rather than products or services. This enables
resource and overhead costs to be more
accurately assigned to the products and the
services that consume them.
With activity based costing, organisations
can identify where to remove waste, improve
processes and eliminate re-work, as well as
understanding what drives their costs. They
can also see the degree of alignment of their
cost structure with their organisation’s mission
and strategy. CSIA believes that utilising ABC
to establish Activity-Based output data serves
as enabler for ongoing improvement programs.
Key steps in the methodology involve defining
the major business processes and key activities
of the organisation using Process and Customer
Touchpoint Mapping and tracing operating costs
and capital charges to key activities.
The tables below demonstrate the differences
between traditional accounting models (general
ledger style) and activity based cost accounting
models, for an Insurance Company’s claims
department.
Both styles of accounting are required, yet that
of most immediate value in allowing managers
to make decisions is the one on the right – the
activity-based view. The general difference
between the two is the structure:
Traditional Accounting (General Ledger) View
Claims Processing Department
Actual ($) Plan ($)
Favourable /
Unfavourable
Salaries 621,400 600,00 (21,400)
Equipment 161,200 150,000 (11,200)
Travel Expenses 58,000 60,000 2,000
Supplies 43,900 40,000 (3,900)
Use and occupancy 30,000 30,000 ---
TOTAL $914,500 ($34,500)
Activity-Based View
Claims Processing Department
Key / scan claims $31,500
Analyse and re-work claims $121,000
Suspend claims $32,500
Receive provider enquiries $101,500
Resolve member problems $83,400
Attend training $45,000
Determine eligibility $119,000
Make copies $145,500
Write correspondence $77,100
Process batches $158,000
TOTAL $914,500
As we can see from the above tables, the
activity-based view allows more transparency
of where activities that stem from ‘bad service’
exist and how much they cost. In this view,
we can see that “Analyse and re-work claims”
along with “Resolve member problems” are
high volume areas. In making one or two
efficiency changes, the organisation has
an opportunity to save money and improve
service to customers.
CUSTOMER SERVICE EXECELLENCE
THE MONTHLY MAGAZINE OF THE CUSTOMER SERVICE INSTITUTE OF AUSTRALIA
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