The ABCs of TDABC
Universities face a conundrum: Funding for higher education is on the decline, but enrollment is at an all time high—how can they do more with less? One answer may be Time-Driven Activity-Based Costing (TDABC). It’s a system to discern and analyze costs and compare this to what is driving demand. For example, a finance officer may know how much certain departments spend on which vendors, but not have the ability to align shared services (duplicate services or programs) between those departments. Robert Kaplan and Steven Anderson, creators of this costing model, claim TDABC accurately estimates cost and demand through measuring the unit cost of supplying capacity and the time required to perform a transaction or an activity.
Implementing a TDABC model will help universities take control of:
- Financial Reporting: Universities can reduce costs while gaining efficiency through financial planning with real-time budget visibility and consolidated financial reporting. They’ll streamline cash-flow activities and optimize financial transactions.
- Cost Transparency: Schools will be able to gather insight into departmental activity cost details, which produce a more accurate and holistic representation of a department’s overall cost, capacity, and consumption level. Instead of reducing staff and facility costs, they can recognize where support levels can be shifted without adversely impacting overall program and service quality.
- Allocation of Resources/Budget Development: To help with accountability, universities can allocate interdepartmental costs accurately, allowing them to understand the total resources consumed and create accountability in the budgeting process.
- Shared Services: Through the simplified budgeting and reporting capabilities TDABC provides, colleges will be able to efficiently manage shared services and allocate costs and resources across all departments, without duplication occurrences.
Through TDABC, universities can learn which activities drive what costs and prioritize activities that drive demand. They’ll be able to find a way to create a balanced, efficient budget during a time when state education spending is at its lowest in decades.
A PDF version of Kaplan and Anderson’s paper on TDABC can be found at http://goo.gl/rdR52.