CASE STUDIES IN
PERFORMANCE
MANAGEMENT
A Guide from the Experts
TONY ADKINS
John Wiley & Sons, Inc.
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CASE STUDIES IN
PERFORMANCE
MANAGEMENT
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CASE STUDIES IN
PERFORMANCE
MANAGEMENT
A Guide from the Experts
TONY ADKINS
John Wiley & Sons, Inc.
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This book is printed on acid-free paper.
Copyright © 2006 by SAS Institute. All rights reserved.
SAS and all other SAS Institute Inc. product or service names are registered trademarks or trade-
marks of SAS Institute Inc. in the USA and other countries.
®
indicates USA registration. Other
brand and product names are trademarks of their respective companies.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any

5. Industrial management—Cost effectiveness—Case studies. I. Adkins, Tony (Tony C.)
HF5686.C8C295 2006
658.4′013—dc22 2005029726
Printed in the United States of America
10987654321
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Dedicated to my wife, Judy, for her unselfish support and
dedication to our family
To our three children, Justin, Brendan, and Colin
Thanks!—Go Cougs!
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CONTENTS
Preface ix
Acknowledgments xi
About the Contributors xiii
Foreword xvii
1 Performance Management 1
2 LubeOil: Shaping Business Today and in the Future 21
3 HomeHealth: Delivering Activity-Based Costing 39
4 SuperDraft: Activity-Based Costing/Management and
Customer Profitability 65
5 Canarus: Performance Management—The New
Ammunition for Armed Forces 81
6 Standard Loan: Interest in Activity-Based Costing
Rates High 95
7 Sierra Trucks: Trucking along with Activity-Based
Cost/Management 109
8 Sierra Trucks: Implementing Real Activity-Based

ably surfacing that information in a way that it can be used to make decisions.
Many organizations use a scorecard for that. It could be a true “Balanced Score-
card,” as Robert S. Kaplan and David P. Norton describe in their book, The Bal-
anced Scorecard: Translating Strategy into Action or a simple metrics report.
Implementations that end in success typically use their cost information, in some
way, for planning and budgeting. They may not have matured to a completely in-
tegrated system that automates their capacity information and their budget execu-
tion, but at a minimum, they take a greater understanding of their costs into their
budgeting process.
Recently the fanaticism has been over methodology and modeling approach,
top-down versus bottom-up, consumption based versus driver based, time- or
event-based versus traditional ABC. All of these approaches are valid; however,
there is no one-size-fits-all. In the foreword of this book, Gary Cokins outlines
some of these approaches. I have implemented ABC models with small and large
companies in over 15 countries, and they have all used multiple approaches in
their cost model. Some costs are driven with traditional drivers, some are driven
with a rate-based driver, and some simply use traditional allocations. None of
these methodologies is new; ABC implementations have been using all of them
since the mid- to late 1980s. There is expertise out there to help companies decide
on a best fit for them.
The key, which you will see in many of these cases, is to evaluate your needs
with a pilot project and design the model around your own needs.
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This book is a collection of case studies taken from actual companies. The
names of the companies have been changed in the interest of anonymity. This
book is for anyone who wants to gain a better understanding of performance and
cost management and how activity-based costing is the basis for understanding an
organization’s cost structure.
Tony Adkins
March 2006

contributing to this work. Thanks to Gary Cokins, Tom Kang, John Miller, Ashok
Vadgama, Jonathan Hornby, John Antos, Alan Stratton, Jeffrey Thomson, Don
Bean, and Professor Ed Blocher.
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Finally, I cannot forget Sheck Cho, Natasha Andrews, and Helen Cho and
everyone at John Wiley and Sons for their willingness to work with me on the pro-
ject and their flexibility and insight into the manuscript.
Tony Adkins
March 2006
xii ACKNOWLEDGMENTS
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xiii
ABOUT THE CONTRIBUTORS
John Antos is president of Value Creation Group, Inc., an internationally recog-
nized consulting group providing innovative strategic and operational solutions in
areas such as activity-based management/costing/budgeting, strategic planning,
balanced scorecard, outsourcing, performance management, reengineering, qual-
ity and value management. Mr. Antos has been president, chief financial officer,
treasurer, and controller of various companies. He is the coauthor of Activity Man-
agement for Services Industries, Government Entities, & Nonprofit Organizations
and Driving Value Using Activity Budgeting (both from John Wiley & Sons).
Don Bean is product manager, Activity-Based Management Solutions, at SAS
Mr. Bean sets the strategic direction for SAS Activity-Based Management solu-
tions. He has spearheaded product management and development efforts for ac-
tivity-based analysis, scorecarding, and financial management solutions at ABC
Technologies, which was acquired by SAS in March 2002. He is recognized glob-
ally as an expert in activity-based management, appearing as a speaker for Bet-
terManagement Live seminars in North America, Europe and Asia. Before joining
ABC Technologies, Mr. Bean spent 10 years in sales and product management
with Control Data and FaxBack.

keting, SAS. In that position, he ensures that SAS understands and delivers man-
agement solutions that help customers achieve their desired goals with a clear
understanding of cost. Doing this involves close collaboration with business
thought leaders from management schools to commercial and public sector orga-
nizations. Mr. Hornby works closely with SAS research and development, strat-
egy, and implementation teams globally. Prior to joining SAS, he had 15 years of
business experience in the financial sector in activity-based management, process
reengineering, performance analysis, and marketing.
Thomas M. Kang is president and chief operating officer at CSMG, where he
leads the company’s strategic planning and operations. Prior to joining CSMG,
Mr. Kang spent 10 years at Mobil Corporation, in strategic planning, business per-
formance evaluation, operations management, systems implementation, and orga-
nizational reengineering. While at Mobil, he led a global initiative on the
implementation of strategic business evaluation models involving market seg-
mentation/evaluation/improvement/investment techniques; today those models
are still in use.
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John A. Miller is director of Client Services, Arkonas Management Consulting
Services. He is an internationally recognized expert and leading authority in the
area of activity-based management and related performance measurement and
process improvement initiatives. He is the author of Implementing Activity-Based
Management in Daily Operations (John Wiley & Sons), which has been pub-
lished in four languages. Mr. Miller has over 35 years of experience, a large por-
tion of which has been in industry, where he held the positions of chief financial
officer for a publicly held New York Stock Exchange manufacturing company and
for a privately owned independent exploration and production oil and gas com-
pany. In addition, he has held positions of corporate director for Strategic and Op-
erations Planning for two other large, publicly held Fortune 500 companies. As a
former partner at Arthur Andersen & Co. and founder of his own consulting firm,

cost, process, and performance management. Previously he was the manager for
Data Management at Motorola Semiconductor Product sector in Austin, Texas. He
has extensive experience in implementing integrated financial and business process
modeling systems and driving strategic initiatives in the United States, Europe,
Asia, and Mexico. He has held various positions in finance and operations in
multinational companies in the United States and United Kingdom. Mr. Vadgama
is a visiting lecturer at Northwestern University and the University of Texas. He
was also an editor for the Corporate Controller journal and Handbook of Cost
Management (Warren, Gorham and Lamont). He is the coauthor of Data The
DNA of Business Intelligence (Bookman Publishing). His articles have been pub-
lished in various finance periodicals.
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xvii
FOREWORD
GARY COKINS
With this book, Tony Adkins has made an important contribution to the body of
knowledge of managerial accounting. It offers examples of problem solving that
could have only been applied by using the progressive power of information tech-
nology that was only recently developed and mastered in the 1990s. Have there
been other books written about activity-based costing and management? Of course.
I even authored a few. So have several of the contributors to this book. But the ma-
jority of material written about activity-based management (ABM)—the increas-
ingly accepted term for measuring costs with activity-based costing math but also
changing things with the insights gained—described outcomes from before ABM
software was advanced to the stage to accommodate much more flexible modeling,
including multistage cost assignments, multidimensional viewing, and scoring
costs with attributes (i.e., value-added versus non–value-added), to name a few.
Tony is proof of a hypothesis I have long held that it is easier for an individ-
ual (like Tony) with strong capabilities in information technology (IT) to learn

The problem was not with ABM principles but rather with how ABM was
being implemented. It will be tough to stop the use of ABM-principled account-
ing because it correctly answers eternal questions that managers will forever be
asking. What do things cost? Where do we make or lose money? What will be the
future impact on spending from possible planned changes?
Before I provide further background about this important issue of growing the
adoption rate of ABM and sustaining ABM environments once up and running, let
me give you with the answer up front. ABM is indeed alive and well. This book
provides evidence of real implementations with real significant results to prove it.
In fact, in my opinion, Tony’s book chronicles arguably the most successful adop-
tion of an accounting initiative related to cost management and performance man-
agement. The rate of adoption of ABM systems, however, is simply going slower
than many of us who implemented its earlier versions in the 1990s thought it
would. But it has continuously ascended since I got involved with it.
I am honored that Tony invited me to write the foreword for his book. The
past few years I have had the privilege to present seminars around the world on the
broader topic of performance management that includes ABM, strategy maps,
and balanced scorecards, just to name a few of its components. (I describe perfor-
mance management as one of Tony’s contributors in Chapter 1.) As background,
I was fortunate to have gotten involved with the ABM movement as a consultant
with KPMG Peat Marwick in the mid-1980s and then was trained by Professors
Robert S. Kaplan and Robin Cooper of the Harvard Business School. Bob and
Robin were pioneers in researching, documenting, and applying ABM.
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Once you are exposed to the logic of and superior visibility from ABM, you
wonder, “Why doesn’t everybody use this practice?” But now that roughly 25
years have passed since Kaplan formally introduced ABM, I too have wondered
what accounts for its slower-than-expected adoption. In my travels abroad I rou-
tinely ask this question of trusted practitioners in the field. The initial explanations

management based on a cost versus benefits test. If you keep the administrative ef-
fort to operate ABM low and the benefits from using the data for decision analy-
sis high, ABM systems will be adopted and sustained. My sense is that in this next
decade or two, ABM will become as widely accepted as standard cost accounting
is today. But some hurdles for ABM to overcome lie ahead.
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CONFUSION WITH ACCOUNTING
It is understandable that people with nonfinancial backgrounds and training have
difficulties understanding accounting—and for many of them, accounting is out-
side their comfort zone. But there is a gathering storm in the community of man-
agement accountants, where a need for so-called advanced accounting techniques
(e.g., resource consumption accounting, time-based activity-based costing) is con-
fusing even the trained accountants—even seasoned ABM practitioners. What is
the problem?
The fields of law and medicine build on each decade because their body of
knowledge is codified. In a sense financial accounting’s GAAP, although varying
from country to country, also has codified rules and principles (but with lots of
loopholes) to support external reporting for regulatory agencies and bankers. Un-
fortunately, unlike financial accounting with its codification, managerial account-
ing has no such framework or set of universal standards. Accountants are left to
their own devices, which are typically the methods and treatments at their organi-
zation that they inherit from their prior managers whom they succeeded. Accoun-
tants burn the midnight oil with lots of daily problems to solve, so getting around
to improving (or reforming) the accounting information for their managers and
employees is not a frequent routine. And the escalation of global compliance re-
porting, such as with Sarbanes-Oxley, is major distraction from investing time to
evaluate improvements to an organization’s managerial accounting system.
But in managerial accounting, although rules are many, principles are few.
Sadly, many accountants apparently missed the schoolday class that defined the

and labor time effort of work tasks is first measured and then the equivalent costs for
both direct material and labor are assumed as constant and applied in total based on
the quantity and volume of output: products made or services delivered. Of course,
the actual expenses paid each accounting period to third parties and employees will
always differ from these costs that were calculated “at standard,” so there are vari-
ous methods of cost variance analysis (e.g., volume variance, labor rate or price vari-
ance, etc.) to report what actually happened relative to what was expected.
The overarching point here is that an organization’s initial condition—the
types of products and services it makes and delivers as well as its expense struc-
ture—governs its initial costing methodology.
ENTER A NEW CHARACTER: SHARED AND INDIRECT EXPENSES
For organizations that were founded with recurring products and work, typically
with longer product life cycles, none of them can last long term as only a one-trick
pony. Inevitably proliferation of different types of products (e.g., colors, sizes,
ranges) or standard service lines evolves to remain a viable organization. Increases
in the diversity and variation (i.e., heterogeneity) of outputs quickly results in
complexity that causes the need to add people and system resources to manage
that complexity. Gradually these support expenses are no longer insignificant or
immaterial, and the organizational managers begin requesting visibility of these
costs, not only as part of the organization’s monthly expenses but also as they are
associated with each product or standard service line—the calculated costs.
This need by managers to view output costs, not just input expenses incurred,
ultimately leads an organization to experience one of those punctuated reform
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changes along the accounting system’s stages of maturity—full absorption costing
with so-called overhead cost allocations.
Of course, this is where concepts such as support department–to–support de-
partment step-down overhead expense allocation, and in the 1980s its more granu-
lar method, activity-based costing, evolved. And many readers know the story from

are facing another set of mountain ranges. These mountains come with names
xxii FOREWORD
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