Activity-Based Costing in Banking Institutions
Discuss about the Activity Based Costing For The National Australia Bank.
As the banking industry has greatly evolved , it is important for the instituion to implement a more robust costing model. The competition in the market has increased greatly as different financial institutions have to explore the banking sector with a clear understanding of the consumer needs. With such a market, the banks management needs to restrategize to maintain a considerable market share, keep profit level targets of the bank and importantly keep the institution’s growth steady as in the firm’s set goals. For such reasons, the company can look up to activity-based costing as a solution (Wegmann 2008)
This report indicates the suitability of the methodology for the bank and what can be its implications for the business. This report also highlights the banks objectives and the strategies by the bank to achieve the objective and mission of the bank.it also indicates how activity based costing can help the bank realize the strategies.
Activity-based costing is an accounting methodology that helps in the management of production cost by accurately allocating the number of a process’s inputs used and other costs as expenses used in the production process. For this type of accounting tool, it greatly focuses on identifying the main sources of costs (Tse and Gong 2009). Among the features of activity-based costing includes; the cost performance patterns are usually determined by cost drivers. The total cost in this methodology is categorized into fixed cost and variable cost; the division of costs is significant in the generation of more information purposefully to help in the creation of an efficient cost system. Moreover, the cost performance patterns in this methodology are mostly linked with volume, time, diversity and time. Also, to keep an accurate trace of the overheads to a product, there is always the identification of suitable cost driver to trace the overhead (Thyssen, Israelsen, and Jorgensen 2006).
The mission of National Australia Bank.
The National Australia bank looks forward to ensuring provision of all solutions to all its consumer needs, the bank also indicates that through rendering of high quality services the bank will be able to maintain establish permanent relationships with its customers. Apart from focusing on establishing employee confidence, the bank most importantly seeks to recognize the need to maintain profitability to enable development and growth both for the bank and the society. An ABC system if developed in the system could play a significant role in ensuring that the cost is well managed and inappropriate costs are scrapped off as a way of ensuring profitability
The objective of National Australia bank.
Strategies for Implementing Activity-Based Costing in Banking Institutions
Putting in mind the banks works with small, medium and large businesses, the national Australia bank aims at being the most respected bank across Australia and New Zealand. The bank also puts into consideration its corporate obligation of having a positive influence and impacting sustainability its customers, shareholders, the environment and the community as well.
Cooperate strategies of National Australia Bank.
On the move by the bank to increase it profitability,boost the levels of revenue and to improove the customer experience,the banks management has come up with several strategies to make sure the instituions goals are fully feasible.Among the strategies include,the firm has realised technology as a strategy to propel it to achieve some of it strategies.The bank looks forwad to significantly growing its budgetary allocation on technology.The firm is reportedly fully employing the use of data analytics,machine learning and the use of artificial intelligence in its operations.with these move however,the bank expects to lay off up to 4000 staff members.
The bank has also moved to creating collaborations with other financial institutions canada and israel.The National Australian bank has named these as a plan to work together with the named partners in terms of improving the type of technology. This will include coming together to create new digital services. Apart from technological gains from the partnership, the bank also looks farad to sharing customers with its partners. The main idea to have pushed the bank to the technology path was the increase of digital knowhow among the customers which consequently changes the consumer preferences in terms how they want to access the services.
With the plans of growing its market, the company will both need better decision making and a more efficient cost management system. Using the activity-based costing; the management will be able to make decisions on products and services provision as the system is designed to monitor the costs. Monitoring of the bank costs will help the management to make a proper decision on what which product to offer more after determination of which product generates more profit (Zimmerman and Yahya-Zadeh 2011). Being on the forefront to ensure the quality serviceses are offered to its customers, Part of the process management will be the management of the costs in the process, as proper follow up on process cost will ensure the process is done to its desired quality level (Garrison, Noreen, Brewer and McGowan 2010).
To maintain a steady profit level, the system will also be necessary .since growth of the bank financially is part of the reasons for the strategies; activity-based costing system will be of significant help. The system’s ability to monitor costs in a process will provide the management with information of what a single product needs to generate for bank as profit. The system will as well create a way that will enable the bank to regulate the affordability of their products to attract more customers so as to generate more revenue for the bank (Kaplan and Norton 2008).
Implications of Implementing Activity-Based Costing in Banking Institutions
Cost information from the trends observed in the system can also be significant in many ways. It will enable the management to have better control of the bank’s costs and a better knowledge of the costs. Also, management will be able to make a forecast of future and proper planning based on the cost information acquired from the systems (Horngren 2009). Using information obtained from the operations. The management will be able to identify future shortcomings and develop a prevention plan earlier for the problem. With the cost information, the company can also make decisions about the best way to offer their products and services in an effort to achieving profit maximization (Malmi and Granlund 2009). Apart from profit maximization, activity-based accounting will also help the company to combat competition in the market. Through the monitoring of the process cost, proper pricing decisions will bring about a fair price on the final product for the market. Considering the market goes for reasonable prices and quality products and services, the National Australia bank will stand a better position in having a more significant market share
Just like in every change process, training of the company staff is very vital. Every employee supposed to be involved in the running the system is conversant with it to enable operational efficiency and professionalism in cost management (Vaivio 2008). With the introduction of activity-based costing in the company, the company will have to take its employees through special training about the system and probably if the need arises employ some more experts to manage the system in its early stages at the company before the company is entirely used to system. With help increase the abilities of the workforce and its skills; this can act as a booster to production
There will also arise a need to do activity analysis. After the process identification, activity analysis will be necessary since it helps in the identification of relationships between indirect costs (Becker, Kugeler and Rosemann 2013). Also, activity analysis helps in the allocation of percentage or a portion of the activity in of the process to the final product of the process directly. The costs of the process are the categorized into activity pools. In this way, each activity pool will then have some contribution to the total object cost.
Also, the alternative accounting management tool that can be used for the national Australia bank can be time-driven activity-based costing. In this method, the system identifies the capacity of each process and then allocates the cost of this capacity over the cost object basing on the real amount of time that is required to perform an activity (Abernethy, Bouwens, and Van Lent 2010). This tool is helpful regarding helping the management to focus on the critical aspects of maximizing the level of consumer satisfaction. In this way, the bank will be able to figure the best way to offer products and services that are tailored to satisfy the customers’ needs. (Malmi and Granlund 2009).
Employee Training and Activity Analysis
Conclusion
Finally, activity based costing is a vital business tool, implementation of activity-based costing into the banking process of the bank will help in the determination of the profits. On the development of the activity based costing into advanced braking technology limited and proper training for the relevant workforce, the bank will have significantly covered the challenge of cost management. High and unmanageable costs often arise when a business enterprise experiences overtime growth, and there’s increase in the number of the process and services undertaken since the production capabilities have grown and may also be due to increased demand in the market. The National Australia bank is likely to suffer such with its plans to expand and tap other markets worldwide and improve quality of products and services offered at the bank. The activity-based costing can never be meaningful to the bank if information that is collected from the trends in the cost is not acted upon accordingly as out of the data from the system, the management is supposed to draw conclusions and relevant courses of action from the performance of the costs.
References
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Balakrishnan, R., Labro, E. and Sivaramakrishnan, K., 2011. Product costs as decision aids: An analysis of alternative approaches (Part 1). Accounting Horizons, 26(1), pp.1-20.
Becker, J., Kugeler, M. and Rosemann, M. eds., 2013. Process management: a guide for the design of business processes. Springer Science & Business Media.
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