Case study: ABC Project
“Precise financial information is a fundamental requirement for making a correct, informed decision. Undeniably, MyABCM is a tool that offers us great support.”
Director of Planning and Control
Latvenergo is a public company based in Riga, Latvia, which plays a key role in the economic scenario of this country. It’s focus is on the generation and sale of electric and thermal energy. The company had an ABC costing model using Excel spreadsheets that was basically used to assign the company’s support costs to its subsidiaries as well as separating the costs of generating energy (thermal and hydroelectric stations) and selling energy. Thus, it was possible to obtain an individual analysis of these units.
The main problems with the previous system was the model’s transparency, its lack of flexibility in relation to recurring structural changes, and the absence of any functionality to deal with reciprocal cost assignments. Given this, in 2008 Latvenergo opted to acquire a professional costing tool that would support activity based costing.
The MyABCM costing software was selected as the best alternative available in the market for calculating and analyzing real costs from a cost/quality standpoint.
One of the objectives for this migration was to improve the quality of the model and to also implement the improvements recommended by the consultants responsible for the software’s installation. All of the data was transferred to MyABCM in less than a month with help from the consulting firm’s specialized professionals.
The initial structure and assignment logic were maintained even after the migration of the model to MyABCM, even though recommendations to improve it were suggested during the process, and a few of them related to the model’s transparency were implemented during the migration itself.
ABC Costing is a methodology of assigning indirect costs with the goal of analyzing the real cost of services offered. This methodology has been used mainly by companies in various sectors (industry, services, the government), and all over the world to support strategic decisions in terms of pricing, outsourcing and process improvements.
Transferring the original model to a professional system for calculating and analyzing costs is the first step to implementing the ABC Costing methodology and benefitting from its greater control and reduction of costs. Some of the benefits that MyABCM has given us are an easy to use, user-friendly tool, much greater model transparency, countless possible analyses, simple updates and the ability for many users to access the model at the same time.