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Activity Based Costing Example

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"Knowing our cost of activities, services, and customers has made a big difference in the way we design our services, plan, and manage our business. AIM has made us all more effective"
Jim Karagiorgis, Chief Transformation Officer, Master Six Sigma Black Belt, Vytra Health Plans, speaking about AIM-Activity Information Models.

Activity Based Costing Example 1

This chart provides the activity cost for each line of business (insurance product). It is used by an insurance carrier and it was created during a 9 week project that was conducted with the company's offices throughout the USA.

Activity Cost for Line of Business
	Total	N/A admin task	Auto	Work Comp	D&O	Marine	Umbrella	General Liability	Not Core Policy
Total	$44,109,928	$6,481,378	$5,148,441	$2,939,963	$2,652,969	$3,063,519	$4,737,194	$18,307,341	$779,123
Admin task	$7,156,166	5,867,007	253,673	69,687	218,607	139,164	220,558	336,488	50,983
Renewal Inforce Policy	$23,443,201	466,384	2,518,179	1,548,393	1,725,274	1,674,722	2,880,048	12,145,463	484,739
Renewal Decline	$471,611	6,774	53,840	69,882	31,833	44,808	70,091	182,871	11,512
Renewal Cancel	$374,719	0	28,976	50,133	19,317	36,530	68,014	151,192	20,558
Renewal Correction	$318,788	0	60,641	26,718	6,983	11,707	67,833	137,505	7,401
Submission Quote	$5,454,183	85,519	1,085,507	656,154	296,851	173,046	489,436	2,644,645	23,024
Submission Decline	$128,474	1,645	4,934	20,139	6,578	9,045	49,338	35,972	822
Submission Reject	$44,195	0	3,289	4,112	0	5,547	13,157	17,268	822
Quote New Line Inforce	$2,892,618	37,826	324,572	143,485	152,042	418,286	547,429	1,139,876	129,101
Q/NL Correction/Re-write	$77,700	822	11,303	1,645	2,467	10,690	14,801	35,972	0
Endorsement	$3,414,947	6,578	796,127	270,272	184,795	408,907	303,332	1,412,867	32,070
Audit	$262,621	8,000	2,467	65,366	6,578	121,004	4,934	37,004	17,268

Activity Based Costing Example 2

This chart provides the monthly cost of the resolution status for types of calls that an insurance company's call center handles. It is used to understand and reduce the costs of calls that are not closed to customers' satisfaction. The department improved "closed to customer satisfaction" by 16% and also reduced activity costs by more than $250,000. It was created during a 12 week project that was conducted with the company's call center.

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Activity Based Costing Example 3

This 3 part chart provides the process cost and hours for this portfolio of CD products. It is used by a bank to determine CD product profitability and forecast how staffing requirements will change as CD product volume changes. It was created during a 7 week project that was conducted with the company's centralized time deposit department.

CD Product Process Model Time Percent
Percent of the department's time that is spent on each process for each CD type.
Process	Total	1 Month	3 Month	6 Month	12 Month	18 Month	36 Month
Total	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%	100.0%
Account inquiry	5.2%	7.1%	2.6%	3.1%	3.4%	4.2%	12.5%
Address change	0.3%	0.0%	0.7%	1.6%	2.4%	3.0%	3.4%
Cancel	5.5%	0.0%	4.3%	20.0%	10.3%	11.3%	6.3%
Investigation	2.9%	5.8%	3.4%	3.9%	3.5%	4.2%	6.3%
Maintenance	13.0%	18.5%	18.1%	6.3%	6.9%	7.7%	8.9%
Monetary transaction	38.4%	33.0%	43.7%	46.9%	51.7%	23.3%	25.0%
New	32.6%	35.5%	27.0%	17.7%	20.9%	45.3%	36.3%
Partial pay	0.7%	0.0%	0.1%	0.3%	0.6%	0.8%	1.1%
Reconciliation	0.3%	0.1%	0.1%	0.2%	0.3%	0.2%	0.2%


CD Product Process Model Hours

Process	Total	1 Month	3 Month	6 Month	12 Month	18 Month	36 Month
Total	61,098	9,773	10,814.0	14,227.0	16,722.0	5,739.0	3,823.0
Account inquiry	3,177	694	281.164	441.037	568.548	241.038	477.875
Address change	183	0	75.698	227.632	401.328	172.17	129.982
Cancel	3,360	0	465.002	2845.4	1722.366	648.507	240.849
Investigation	1,772	567	367.676	554.853	585.27	241.038	240.849
Maintenance	7,943	1,808	1957.334	896.301	1153.818	441.903	340.247
Monetary transaction	23,462	3,225	4725.718	6672.463	8645.274	1337.187	955.75
New	19,918	3,469	2919.78	2518.179	3494.898	2599.767	1387.749
Partial pay	428	0	10.814	42.681	100.332	45.912	42.053
Reconciliation	183	10	10.814	28.454	50.166	11.478	7.646

CD Product Process Model Cost

Process	Total	1 Month	3 Month	6 Month	12 Month	18 Month	36 Month
Total	1,611,154	257,714	285,165	375,166	440,959	151,337	100,813
Account inquiry	83,780	18,298	7,414	11,630	14,993	6,356	12,602
Address change	4,833	0	1,996	6,003	10,583	4,540	3,428
Cancel	88,613	0	12,262	75,033	45,419	17,101	6,351
Investigation	46,723	14,947	9,696	14,631	15,434	6,356	6,351
Maintenance	209,450	47,677	51,615	23,635	30,426	11,653	8,972
Monetary transaction	618,683	85,046	124,617	175,953	227,976	35,262	25,203
New	525,236	91,488	76,995	66,404	92,160	68,556	36,595
Partial pay	11,278	0	285	1,125	2,646	1,211	1,109
Reconciliation	4,833	258	285	750	1,323	303	202

Activity Based Costing Example 4

This chart provides an insurance company with its Client Segment cost (listed across the top in revenue groups)
and the detailed cost for each segment's Line of Business (product). A set of these are used by branch managers to manage their customer segment profitability and Line of Business costs. It was created during a 6 week project that delivered a wide array of cost models to their 12 branches.

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