Content area
Full Text
The 1980s is known as the deregulation period for the banking industry and subsequently the increased competition of the 1980s and continuing in the 1990s. The themes of the 1980s and 1990s include total quality management, customer satisfaction, cost, quality and time, technology, market globalization, availability of capital and markets, and finally activity based costing. The purpose of this study is to summarize and analyze the implementation of ABC in the banking industry.
Total quality management (TQM) is a process of continuous improvement that focuses on increasing customer satisfaction. TQM is founded on the principle that every customer (internal or external) has a set of spoken or latent needs or requirements. The ultimate objective of TQM is to improve the horizontal linkage of operations to produce a product or service.
ABC is a fundamental factor in implementing TQM. The implementation of TQM is greatly facilitated by analyzing organizational activities, linking activities to business processes, evaluating cost of quality (prevention, appraisal, and failure), and determining customer perception of value (valueadded activities). A value-added activity is required to meet customer requirements, modifies or enhances raw materials, is a critical step in getting the product or service to the customer, and adds value that customer might be willing to pay for. If the activity is determined to be a non-valueadded activity, one of four things should happen: activity reduction, activity elimination, activity sharing, and activity selection. Not only does ABC support total quality management, but it also supports process value analysis and benchmarking.
ABC has been used mainly by manufacturing companies, but recently it has been implemented in service, as well as merchandising, companies. Banks are now joining those organizations that implemented ABC for many reasons: profitability (banks found out that they need to know the cost of their products), performance, processing costs, quality and time.
CHARACTERISTICS OF BANK COSTS
Characteristics of bank costs include:
1. Variable Transaction Volume. A large portion of bank expenses are for personnel and equipment directly or indirectly involved in processing checks and other documents. However, the daily volume of checks handled fluctuates widely from one day of the week to the next, from month to month, and from one season to another.
2. Predictability. The predictability of check volume and how...