After implementing activity-based costing, several companies are doing exactly this, but it is quite a change. The point is that ABC provides the data and tools to make difficult business transitions based on fact, not history or feel. Management must understand where and how activity costs are derived and how these costs are traced to customers, products, vendors, etc. Stopping a certain activity will not save money if the direct resources allocated to that activity are not effectively used elsewhere. Likewise, overhead costs associated with an activity do not disappear upon removal of that activity, but remain within the company.
Understanding drives intelligent decisions.
ABC Ownership Finally, ABC ownership is critical. If results just given to managers by someone in finance, who does not use the reports but is just responsible for generating them, nothing is accomplished. The do not believe the reports. The finance person is not responsible for improving operations in these manager's areas. The finance person is just stuck with the chore of generating reports.