Capturing Process Knowledge and Measuring Systems' Cost Savings Through Business Activity Modeling and Activity‐Based Costing

Abstract

The motivation for business change is to either improve the quality of products or services or decrease the costs of current operations that create those products or services. Because implementation of an information system causes business change, that implementation should demonstrate some explicit value in improvement of quality or decreased costs (or both). Quantifying the value provides justification for information systems implementation. Through a case study of four real‐world examples, this paper shows how time‐based activity costing determines costs associated with a set of business activities prior to a business change and then again after the implemented system. Four separate municipal organizations' business activity models were built prior to implementation of web‐based electronic payment systems and then after the implementation. Activity‐based costing analysis demonstrated benefits of reduced costs in a range from 15% to 28% in three cases. However, costs actually increased by 7% in a fourth case. In this fourth case, quality improvements were difficult to quantify, but workers felt that the increased costs were worth the changes in business activities. Copyright © 2015 John Wiley & Sons, Ltd.