Delivering the keynote address at the CII-organised two-day second International Conference on Total Cost Management -- The Tool for Survival and Growth -- here on Tuesday, Kaplan noted that it's time corporates began talking about application of ABC techniques over the entire spectrum of an organisational activities including product mix, functional areas, operational needs, customers' requirements etc.

Stressing the critical role of understanding capacity, he said a multi-dimensional reporting system has to be put in place to ensure that resources of the company are managed at least cost.

Current trend worldwide, Kaplan said was to take an integrated view of the entire cost management process and leverage capacity (also referredto as resources) in the best way to achieve strategic goals. The ABC model could create unused capacity but there is need to move to customised operations to exploit unused capacity that has been created. While adoption of improved management practices like TQM could improve operational efficiency, it cannot help cut costs.

According to Kaplan, during a recessionary period the resource cost is the same, but activities are down. Hence activity-driven cost rates are up and these lead to price increases.

But the organisation can also increase prices by 50 to 100 per cent and not worry about costs or losing market shares by catering to highly customised products. However, he said unless unit costs are cut by measuring estimates of capacity in standard unit of time for each activity, the benefits of using resources optimally will be dissipated and excess capacities could increase costs.

But the integrated systems approach also presents a difficulty. Managements are unwilling to see unprofitable products,poorly designed products, inefficient processes or excess capacities or even bad customers. They tend to take productive action only when the bottomlines are hit. Even financial institutions resist new ideas.

Kaplan suggests that the ABC model can be implemented on a new enterprise resource planning (ERP) packages which will enable things to be done much faster. ERP will help real time access to information but the operational flow system of the organisation must be able to dial up the ABC system which must be updated to meet all requirements of multi-dimensional reporting.

Sundaram Clayton Ltd managing director Venu Srinivasan in his special address pointed out that project management in India was very weak and adding up to cost-overruns because of delays in execution of projects. Also Indian industry lacked cost ownership and leadership from the top to stem the problems of cost mismanagement. The cycles of new product development, engineering management and delivery were all ignored and added to costsbecause of delays and lack of commitment. Although concepts like total quality management and total cost management are being talked about, by and large companies ignored quality and costs.

Indian industry has also not bothered much with time management as it has not yet felt the need to market with speed. Time management has an immediate and significant impact on costs.

Venu Srinivasan also felt that before the ABC or other cost management systems are put in place, the workers must be taken into confidence and only if they are involved with the cost management concept from the very beginning, organisations can expect some results. This is crucial especially in times of recession when workers need to be deployed efficiently to control costs. Additional excess capacity caused by a recession must be used efficiently to bring about value addition and thereby overcome problems of excess capacity.