Resources are the objects (e.g. people, equipment, systems, premises) required to carry out activities. These resources can be identified by observing activities. For effective management, cost planning, and reporting, resources should belong to an organizational unit. Resources in different organizations are similar (e.g. machines, equipment, people, systems, premises) as they are necessary for activities.
When describing resources for ABC, it is important to ensure they are described in a way that allows them to participate in activities. This is because the principles of ABC (pull and push modeling) require that resources are capable of performing the same activities.
What happens when resources cannot perform the same activities?
In the pull model, if resources cannot perform the same activities, it becomes difficult to determine which resource to use for a specific activity. This leads to inaccurate information on resource utilization and prevents the model from being used for planning.
To overcome this, resources should be described in a way that reflects their ability to carry out activities. For example, human resources with similar job titles (e.g. senior specialist vs. specialist) performing similar activities should be grouped as a single resource. This approach should be applied to other resources, such as equipment, to ensure accurate resource utilization and activity-based planning.
The list of resources can be compiled using existing information such as equipment and premises listed in the fixed assets, information on personnel from the personnel system, and information on materials used in production from stock records. To ensure accuracy, it is important to first categorize the resources into groups and then supplement the list as necessary during the compilation of the model.
When describing human resources, the first step is to gather information from personnel accounting, which includes information on both people and positions. After this, the unit managers should be consulted to obtain a complete understanding of the resources available. This process is simplified as more units are included since their resources can be added to the previously described resources of other units.
To make it easy to retrieve the costs related to human resources in the future, a resource tag should be added to the personnel list and a corresponding dimension should be added to the accounting entries arising from the personnel system. This ensures that all entries related to salaries, for example, are assigned a resource tag at the time of creation. It is important to note that human resources costs are often a significant expense, and organizing personnel accounting is crucial to ensure accurate cost tracking. Additionally, it is important to keep in mind that not all human resources may be reflected in the personnel system, as some resources may be outsourced.
When identifying equipment as resources, the list of fixed assets in the accounting system serves as a starting point. However, depreciation and other lifecycle events are accounted for in fixed asset accounting, leading to multiple lines for one piece of equipment. Working with the head of the unit, a logical list of equipment as resources can be created. The equipment must be linked to its corresponding item on the list of fixed assets for easy retrieval of depreciation costs. Adding a resource tag to depreciation records as they are created will help organize equipment as resources.
For premises, there may not be a single source in the accounting system, but it’s best to describe them as we use them in our lives. If the premises are owned, they are fixed assets. If rented, there may not be a single list in the accounting system.
When it comes to describing IT systems, the fixed assets list can be useful as servers, equipment, and software licenses are often listed there. Describing IT systems in detail can be complex, so let’s start with the basics. First, identify all the fixed assets that support the company’s infrastructure such as networking tools, mail servers, intranet, file servers, etc. Second, consider any enterprise resource planning software (ERP) as it generates significant costs and should be described as a separate resource. There may also be systems that serve specific functions and are only needed by specific positions or services, such as treasury in banks or contract management in insurance.
For other direct-cost inputs, such as advertising costs associated with product groups or representation and sales costs associated with customer groups, we can start from the cost objects already outlined. Practical application and implementation of activity-based costing : - if we have a product (product group), then we often have direct costs associated with it – advertising, etc; - if we have a customer (customer group), then we often have costs associated with this too – representation expenses, sales costs, etc;
A resource is defined by:
A unit of measurement, or “driver," that characterizes the resource’s involvement in an activity (e.g. material cost in products)
Volume, or the optimal maximum amount available in driver units
Unit price, calculated by dividing the total cost of the resource by its volume (optimal ability to participate in activities). Note that the description of resources may not be perfect at first, but it’s important to understand the logic and adjust as needed when analyzing costs or building an ABC model. A well-organized list of resources forms the foundation for resource consumption accounting.
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