Time-Driven Activity Based Costing for the Improvement of IT Service Operations

Adenle A. Adioti, Raul Valverde

Abstract


This study aims to show that application of Time-Driven Activity Based Costing (TDABC) to the managementof cost of Information Technology (IT) Services operations and how it can be used to achieve significant costreduction. To achieve this; a case study organization was used and the scope of activities was limited toTechnical Services department Operations units. Interviews were conducted with the unit managers and theiroperations staff. These units are the Network Operations Centre, Data Centre, Service Desk and Field Servicesunits. These units provide support to existing services and satisfy requests that involve modification of theseservices. From the interview, a list of services were developed and linked to activities and time to execute eachwas provided by the operational staff. Time equations were developed from the activity groups that supportedeach type of service. Capacity cost rates were derived per unit by obtaining a ratio of the monthly cost ofrunning each unit and the practical time resource capacity of each unit. A TDABC model was then simulatedwith Microsoft Excel; which incorporated the activities, the time to deliver each and the capacity cost rate toderive the cost of delivering a service. Data for six months of service request, incident and change orders wereobtained to simulate a test scenario. The result of the test showed that two variations (out of six) of that incidenttype cost more than 75% of the overall cost of that incident type, though they constitute about 30% of theincident type. This study showed that TDABC is an effective tool in identification of costly processes whichmay then allow IT operations managers and supervisors to take critical decisions about cost control, charge-backor costing of services.


Full Text: PDF DOI: 10.5539/ijbm.v9n1p109

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International Journal of Business and Management   ISSN 1833-3850 (Print)   ISSN 1833-8119 (Online)

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