The Impact of Activity-Based Costing on Banking Industry Performance

The impact of activity-based costing on banking industry performance Activity-based costing (ABC) gives a true cost for the bank compared to traditional costing, which allocates most of the expenses. Banking has become very competitive, and it has become imperative that banks like any other businesses allocate their resources to the most profitable areas. For banking industry, in particular, the potential benefits of activity-based costing (ABC) implementation can be numerous.

These include the proper costing of transactions, the ability to trace specific costs to bank customers and the ability to measure customer and product profitability.The end result of these benefits is the ability to improve decision-making and help organizations meet their strategic objectives. These three cases from three different countries use activity-based costing (ABC) in their banking system. It provides a picture to analyze the performance of banking industry using activity-based costing. Summarizing from findings based on the analysis of these three case studies, the objectives of this research can obtain the clear explanations.

First of objectives is to understand the basic concepts of activity-based costing (ABC).From the literatures and the implementation experiences in these three cases, the basic concepts of activity-based costing (ABC) have been identified. Activity-based costing (ABC) was mainly applied as a superior method for allocating overhead costs. According to the case of Tripoli Libya, it mentioned activity-based costing (ABC) has received its name because of the focus on the activities performed in the realization of a product. Costs are traced from activities to products, based on each product's consumption of such activities.Because of the assumption that a product uses activities and the allowance for batch and product level cost-drivers, it is generally agreed that activity-based costing (ABC) systems are superior in modeling and tracking costs (Imhmed, 2012).

The Activity-based costing (ABC) process provides a better understanding and accurate assessment of the costs associated with producing a product or service and delivering it to its end-users. It looks at the activities associated with producing the product and service and the amount of resources that are required for these activities.Jordi Carenys and Xavier Sales, 2008 said that during the nineties traditional costing systems came under minute scrutiny, loss of relevance, lack of reliability, inability to provide valid information for decision making as well as obsolete methods or systems that were un adapted to the realities of companies are some of the criticisms that were directed at traditional cost accounting systems activity-based costing (ABC) (Carenys ; Sles, 2008). Second objective is to explain the activity-based costing (ABC) impact on banking industry.

The case of Tripoli Libya gives a clear explanation.The only way to control expenses is to have a better understanding of how certain products and how they are setup to contribute to the overall expenses in day to day operation of a bank. The traditional costing system in banking does not effectively assign actual costs to the actual transaction. This is where activity-based costing (ABC) will give bank managers a greater understanding of the true cost and profitability of all transactions in daily processes in the bank.

Activity-based costing (ABC) can be used in all areas of banking, and in some banks it is used in analyzing checking accounts for businesses (Imhmed, 2012).The third objective of research is to understand the benefit of activity-based costing (ABC) implementation in banking industry. The banks presented in three cases all get benefit from implement of activity-based costing (ABC). For commercial banks, in particular, the potential benefits of activity-based costing (ABC) implementation can be numerous.

These include the proper costing of transactions, the ability to trace specific costs to bank customers and the ability to measure customer and product profitability. The end result of these benefits is the ability to improve decision making and help organizations meet their strategic objectives.Review all of this paper. It mainly investigated the impact of activity-based costing on banking industry performance. This paper selected three case studies to analyze the implementation of activity-based costing (ABC) in banking industries. They all attempts to enrich the debate on the benefits of activity-based costing (ABC) and the role it could play to improve performance.

A same effort is to define the dimensions of performance that can be improved by implementing activity-based costing (ABC), how to realize their benefits and how to evaluate them as objectively as possible.Some of the cases about the impact of activity-based costing (ABC) on financial performance used most often survey by questionnaire. These studies are both scarce and have mixed results. And some of the cases only use a case study to make a significant contribution. From these three case studies, the research has stressed that time must be taken into account in assessing the link between activity-based costing (ABC) and performance. These objectives can then all immediately and simultaneously deliver the expected benefits on performance.