Strategic investment analysis using activity based costing concepts and analytical hierarchy process techniques

Strategic investment analysis using activity based costing concepts and analytical hierarchy process techniques

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Article ID: iaor19961537
Country: United Kingdom
Volume: 34
Issue: 5
Start Page Number: 1331
End Page Number: 1345
Publication Date: May 1996
Journal: International Journal of Production Research
Authors: ,
Keywords: analytic hierarchy process
Abstract:

An increasing number of organizations are using Activity Based Costing (ABC) to gain insight into manufacturing activities and processes as well as product costing. The natural logic of ABC can also be applied to strategic decisions. This paper presents a methodology that ties investment decisions to ABC concepts using the Analytical Hierarchy Process (AHP). By using AHP, both monetary and non-monetary benfits can be included in the analysis. First, the relationships between goals, activities cost, and performance measures are developed, then they are combined to make two models: a cost impact model and a performance impact model. The final selection is made using a cost vs performance graph. The goal of the decision process is to evaluate investment alternatives based on their impact on activities and their contribution to organizational goals.

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