Enhancing cost implications of Mapping by activity based costing (ABC) -
Case study for National Mapping Agency in Thailand
W.T. de Vries
International Institute for Geoinformation Science and Earth Observation (ITC),
P.O.Box 6, 7500 AA, Enschede, Netherlands,
tel.:31-53-4874475,
fax.:31-53-4874335,
Email : devries@itc.nl
M. Pholbud
Satellite Positioning Development Section, Bureau of Mapping Technology,
Department of Lands, Pakret, Nonthaburi, 11120 Thailand.
Tel. 66-2-5033367;
Fax. 66-2-5033430 Bangkok, Thailand,
Email : talk2yin@thai.com
Introduction
Many public sector organisations worldwide are under stress to implement business improvement programmes that create (more) value and recover production costs. In these circumstances, it is not surprising that governments have looked to the private sector, used to coping with market pressures, for techniques to produce greater management efficiencies (Williams, 1999). The increased use of information technologies, and the effects of globalization have created a more competitive environment in which a low cost structure often becomes a critical success factor. More so, global pressures for economic competitiveness have been reshaping the attitudes of government towards the public service worldwide. The focus on the cost accounts of government, combined with the reality of ceilings on revenue and the expectations of citizens, have led to rigorous review of the funding of public services and the efficiency with which they are performed. This environment has created a greater need for improved cost measurement and management techniques. In addition to these developments, governmental organizations are also beginning to recognize that geographic information is one of the most critical elements underpinning decision making for economic and the need to assign resources to establish an effective information infrastructure, as confirmed by The World Bank (2001). To remain competitive and keep budgets in balance, “geographic information organisations” need to streamline operations, eliminate waste, reduce cycle time, reduce costs, adopt a commitment to total quality, and judiciously incorporate advanced technologies such as scanning of documents, electronic data interchange, and paperless offices. Managers seeking to succeed in this environment are turning to their management accounting systems for new types of information. The role of cost accounting has been transformed. This means that cost accounting must provide appropriate types of information that have not been provided under traditional cost accounting systems (Blocher et al, 1999). Traditional approaches have proved inadequate for today’s global and technological environment (Cooper and Kaplan, 1991). As a result, the Activity Based Costing (ABC) technique has emerged in recent years to provide managers with more accurate cost information.
ABC has highlighted that true understanding of what it costs to provide products/services is at the same time a tool for better management. It helps to better understand and serve as guides in any business process improvement initiatives, and to subject resources to its efficient usage. In a nutshell, it helps to make more effective business process improvement at more transparent cost. This research verified whether ABC could be an appropriate technique to measure and manage the cost for a geo-information production organisation. The definition of cost management as given by Brimson and Antos (1994) is the management and control of activities to determine an accurate service cost, improve business processes, eliminate waste (non-value added activities), identify cost drivers, plan operations, and set enterprise strategies. ABC has been a suitable technique in manufacturing and service organisations in determining more accurate product or service cost, and in improving the understanding of the economics of production, and activities performed by an organisation.
Public sector organisations in Thailand are undergoing wide-ranging changes caused by many factors, such as globalisation, advances in technology, the creation of Thailand’s constitution in 1997, and Asian economic crisis among others. Issues of efficiency, effectiveness, accountability, and transparency dominate the agenda of the current government and have resulted in advocating of transparent financial management system in all governmental organisations. Due to above factors, the Department of Lands (DOL) as a National Mapping Authority (NMA) has had to deal with consequences resulting from the political reforms of the government and other issues mentioned. Generally, NMAs are now considered as service organisations. Kaplan and Cooper (1997) state that ideally service organisations are good candidate for implementing ABC even more than manufacturing companies.
This research studied the existing cost accounting system of Bureau of Mapping Technology (BMT) under DOL. The mapsheet provision was chosen as a case study because it is considered as a core business process of BMT and fundamental product for issuing land title. Never has the government tightened its financial policies than the aftermath of the Asian economic crisis. It brought with it a trend towards transparent financial management. More so, it emerged during the research that the true cost of mapsheet production has never been determined accurately or vaguely. Also, just as in any BPR projects in which BMT finds itself, the management is now becoming conscious of its performance in terms of costs, quality, processes, time, etc.
ABC and Geo-information Production Organisations
Although the research on ABC has so far primarily focused on service and manufacturing organisations, it is presumed in this article that ABC could also be useful in Geo-Information (GI) production organisation. According to Karioki (1999), GI production is an expensive venture and so are the processes involved in its production. To run a GI production therefore requires heavy capital investments and would require prudent measures in order to perform optimally or yield a good return on investment. This therefore calls for a good system of financial management to support the realisation of the above.
Typically, GI production processes are characterised by complex procedures, some of which are designed in fulfilment with laws and mandates that may not reflect the present day requirements. Onchaga (2000) notes that in many GI processes there exist non-value-adding tasks that increase complexity of the production process as a whole. Ideally if possible, these should be eliminated and the rest rationalised for maximal optimisation. It is however emphasized that not all non-value added activities might be eliminated. Some may be for legal reasons, mandate even a bait to win and retain customers among others. ABC can be used to reveal such non-value-added procedures and also help quantify their cost to the organisation. It may therefore help to streamline, if not eliminate, such non-value-added activities that may be inherent in the various organisational processes. Still on non-value added activities, GI organisations have traditionally set high standards of quality in their processes that are usually more than what most customers really need. To attain such set high standards of quality, various activities are added to the processes of production. These in natural fact, from the customer perspective, are a non-value added activities. ABC technique can streamline through such quality standards to reflect customers’ needs driven by their requirements.
Onchaga (2000) notes that in GI production processes consist of sets of activities that are basically performed in a certain sequence. For each product, it is possible to define the set of activities and resources required for its production. In production environments resources are always limited and the strategy will always be to try to optimise their use. This orientation of having processes organised a set of activities makes it a good candidate of ABC which is also based on activities and that the framework for ABC implementation already exist in GI processes.
Traditionally National Mapping Authorities (NMAs) have been the major providers of GI products and services, operating in very stable environments and assured of government funding. In growing competition, which is largely due to increasing access to GI technology by a larger group of producers, NMAs are increasingly coming under pressure to redefine their processes in order to meet the needs of their customers while fulfilling their national mandates. As a result, the need for change in GI organisations is progressively taking shape. Any change is bound to impose great financial demands on the organisations, many of which already operate on very tight budgets. Nonetheless, it should be possible to achieve an optimum allocation of resources, which could potentially be obtained by ABC. Not only could it highlight the drivers of large overhead cost, but it would allow NMAs to get a better grip on their operational costs. Since the benefit of ABC lies in more transparent financial management, business process improvement, etc., it does not mean that ABC needs to replace the financial system in the organisation, although it could make it more effective if integrated with internal management.