A systematic investigation of the development and implementation of activity-based budgeting systems in the UK : three case studies

Abstract

Literature describes Activity-Based Budgeting (ABB) as an extended and advanced use of Activity-Based Costing (ABC) in a budgeting process. Despite some potential benefits of an ABB approach being suggested by a few academics and management consultants(Brimson & Antos, 1994/1999; Brimson & Fraser, 1991; Kaplan & Cooper, 1998; Sharman, 1996), very limited published literature has reported the actual ABB experience in practice. Empirical evidence from this research suggests that ABB development and implementation processes tend to encounter problems in practice which hinder the progress and even the successful completion of these processes. In the light of a general lack of published literature on ABB, it is thus necessary to explore some fundamental issues on the applications of ABB, investigate factors that may determine the success or otherwise of an ABB implementation, and gain an in-depth understanding of generic and specific attributes of an ABB process within an organisational context. This study examines the development and implementation of ABB systems in three UK organisations: Scottish Courage Brewing Limited -(SCB) (which is a wholly owned subsidiary of a multinational brewer, Scottish and Newcastle p1c), BG Transco plc (Transco) (which is a public listed organisation and operates in the regulated gas supply market), and Crown Prosecution Services (CPS) (which is one of the governmental agencies). In particular, this study examines the relationships between design specification of ABB systems, budgetary purposes and organisational objectives for system implementations on the basis of the ABB experiences gathered from SCB, Transco and CPS. Four basic themes emerge from this study. First, it is rather difficult to implement the ABB model into a computer system based purely on the concept of 'ABB as a reverse ABC process'. Such difficulty arises due to the fundamental difference in data processing requirements, namely data aggregation in an ABC process and data dissemination in an ABB process. This difference can create major permutation problems and render an ABB system significantly less cost-effective. Second, ABB information can enhance a strategic planning process by providing a clearer cross-functional view of an organisation's activities/processes and highlighting a causal link between performance and resource. In that sense, ABB information is perceived to be useful by top and middle line managers who want to see organisational performance and processes in a holistic manner. The existence of limited cost variability, which has been suggested in the literature as being unsuitable for the application of activity-based systems, does not prevent managers from using activity-based information to support decision making. Third, the success of an ABB implementation is attributed to a combination of internal and external factors. The internal factors are mainly related to technical, behavioural, organisational and cultural perspectives. For example, budgets and budgeting processes can help to form a particular set of norms (culture). The implementation of an ABB system may be perceived as an attempt to break the existing culture by introducing a new set of norms. Organisational restructuring, which destabilises the existing culture, may have some positive impacts on the ABB implementation. Furthermore, supportive administrative arrangements (e.g. standardised procedures and formalised goal/sub-goal development processes) and budgetary devolution can also help to define the precise role of an ABB system relating to organisational objectives, and thus pave the way for a smooth ABB implementation. Evidence of this research suggests that an ABB implementation can also be substantially influenced by some external factors, such as political concerns, regulator's pressure, and market competition. Fourth, some generic issues relating to the implementation of ABC/M and budgeting systems, such as top management's commitment, simplicity, compatibility and resistance to changes are also relevant to the implementation of an ABB system