Activity Based Costing (ABC)
Source: Idaho National Engineering Laboratory
Date: 10/1/95    Record No.: 10248
Contact: Finis Southworth, 208-526-8150

Activity Based Costing (ABC)
ABC is another basic management tool which enjoys growing popularity among many of the largest corporations. In simplest terms, it identifies core business processes, activities and tasks, and then determines their cost. It then goes on to identify the products and services provided to customers by each process, and then determines the value-added content, outputs, and cost drivers for each. Importantly, it cuts across organizational boundaries. One very interesting feature is the careful distinction it provides between mandated vs. non-mandated, and value-adding vs. non-value-adding activities. Non-mandated non-value-adding activities should be the first candidates for elimination in any cost cutting or re-engineering program.

INEL has a methodology and analysis software to support ABC, and is currently supporting several studies and has responded to requests by utilities who want to reduce non-value added costs.