Sarbanes-Oxley (SOX) + Activity-Based Costing (ABC) = Value

The alignment of two seemingly unrelated stars in the Finance universe is creating a new opportunity for CFOs. Recently, companies have invested heavily in documenting and strengthening controls over business processes to support improved risk management in accordance with requirements such as Sarbanes – Oxley (and, for financial services organizations, Basel II), or to support process initiatives such as Six Sigma. At the same time, a new and innovative approach to developing accurate and meaningful cost information - Time-Driven Activity-Based Costing, has been evolving which directly leverages process documentation, dramatically reducing implementation time and cost.

Organizations that have made early forays into Activity-Based Costing (ABC) have often struggled to capture significant ongoing value from their ABC investments. Traditional approaches to ABC rely heavily on surveys and estimates, and large staff groups to maintain the systems, provide reports, and interpret the information for users. While few question the value of the information, the cost of developing and maintaining it continues to escalate. The rise of Time-Driven ABC, however, is beginning to provide CFOs with better information at lower cost.

This paper explores some of the weaknesses of traditional ABC and demonstrates how the new Time-Driven ABC overcomes many of these problems. At the same time, the paper shows how Time-Driven ABC leverages existing process documentation to support development of accurate and actionable cost information in a cost effective and timely manner.