The Influence of Activity Based Costing in Finance Sector - Essay Example

Running Head: THE INFLUENCE OF ACTIVITY BASED COSTING The Influence of Activity Based Costing in Finance Sector ofInstitution] Activity-Based Costing Aims This research will explore that the Activity-based costing is a costing representation that distinguishes the cost centres, in an organization and allocates costs to goods and services depends upon the figure of actions or dealings involved in the procedure of supplying a product or service; how much influences the finance sector. Understanding ABC can show the way to better knowledge of an organization business course of actions and basic expenses. ABC is a financial plan and scrutiny process that estimates operating cost by involving overheads to orders, clientele, services and end-items. It permits managers to discriminate between cost-effective and non-beneficial services. ABC facilitates to fill up the spaces of conventional costing by recognizing all the work actions and their costs that enrol in constructing a product, carrying a service, or executing a process. When the solitary expenses are calculated, a representation of the overall cost of a process becomes apparent. The cost of giving out the different division of consumers can yet distinguish by ABC model (Shank, 1996). Consigning Service Department Costs to Activities Daly (2001) elucidate that the central theory behind the Activity-based costing system is that resource operating cost have to be allocated to the activities executed. Expenses acknowledged in the economy are assembled and circulated to these events. This assists the firm to comprehend how much they are paying out on the activities that sustain the making of certain item for consumption or services. Mapping out firm expenditures can start by consulting department executives to find out what primary activities are carried out in each unit and what aspects decide how long a doing acquires. Just the once this record is achieved, one can begin to trace the supply costs to activities. Taking the case of objects managing department in which the public in the department acted upon three fundamental assignments can represent this. These responsibilities comprised of: accepting purchased stuffs, accepting unprocessed materials and distributing materials. It was supposed that every member of staff in the division was uniformly trained and equally remunerated, so the firm made a decision to apply time percentages for handing over material costs to the three responsibilities. The time of the supervisor was spread transversely for all activities executed by the division in percentage to the time laboured by other workers under management. Therefore, exclusive of indulging each sort of work as different, costs were allocated in relation to the effort done. Several departments have persons who appear to work daily, no issue at what altitude of capability their division is functioning. This kind of obligation often is categorized as fixed, because the amount of people who work does not fluctuate with requirements. This view is not acceptable for all the time though, because the majority of departments have various fixed and variable costs. Within a department, workers may be handed over to complete a number of tasks based on the level of order. This kind of task can be marked out to what action is being carried out, and can therefore, be preceded to the concluding cost of the end substance. A quantity of resources might perhaps also be fixed for a division. This might comprise the space in the capacity that the department utilizes and the equipments that the division requires to work. With the technology at present, costing statistics should be readily obtainable to evaluate the variable costs of a division, plus the assigned costs, in concluding the achievability of a project (Locander, 1998). Literature Review Designing the Optimal System Different Perspectives Few years back a research association of banks constructed a report that evidently described how management accounting figures in banking needed to be recalculated. The most considerable finding was that customers who keep low balances use more of the bank's resources and cost than they produce profits for the bank. The consortium noted that most vend banks have a very high percentage of clients who maintain low balances and produce negligible fee income. It revealed that the converse is also right; a reasonably small proportion of clients maintain high balances and recompense large total of fees (Brimson, 1991). These discoveries are unswerving with our own understandings in completing studies to find out effectiveness by client or section. The ending is that high-fee regulars in quintessence back those with low payments. Often the gap can be considerable, for instance, high-value/fee clients generate wages contribution that is three to five times final sum bank earnings. These profits are then diluted by losses incurred on low-balance/fee customers. In one current study in which I took part, 10% of a bank's customers created 90% of the profits, and 60% of the bank's property were tied up in serving the other 70% of the clients (10% of the income). The appraisal legitimized an outlook that was, and stays, extremely debatable amongst bankers. Several individual banks had acted upon ABC before the release of the report; however, many banking employees are exercised to the conventional productivity information. In addition, any implication that low-revenue customers are a bad business intention for banks faces an existing view in banking that low-balance customers are in training to grow to be future profit creators. People in various banks become feared that the detection of low-profit or loss-generating clients might direct to them being discarded, which to many is deplorable. The whole plan of productivity by customer or sector smacked many executives I spoke to over the years as needless, unworkable, and possibly intimidating. Presently, it seems that more bank workers are coming about to a more modern notion of customer/section profitability (Caplan Dennis, Nahum D., 2005). Manufacturing View Is Contradictory For Banking Usually, bank profitability data has been developed using cost-distribution technique from generally accepted accounting principals (GAAP), that is, fair allotment of operating cost to products. For the majority of people, because accounting logic was in fact generally admitted it was also presumed to be accurate and helpful for decision-making functions. A good number of people, nevertheless, do not have knowledge that cost distribution for economic reporting functions under GAAP was developed in order to match cost with profits in some sensible way (Davis, 1991). The "sensible way" was to imagine that expenses are all gained to generate products that clients will charge and be fanatical to provide financial support. Accountants utilized by banks are forced to follow GAAP with the intention of producing accounts and evaluate income. Most accountants would agree that earnings figures so calculated are premised on a range of views. Few accountants would propose that numbers generated for monetary reporting are apposite to support meticulous operational judgments. It is not that financial consequences are incorrect; rather, it is that they may be misconstrued and the numbers can be mismanaged. According to Committee and Grinnell (1992), within conventional cost-clerical systems, accountants recognize a denominator to deal out all of the working expenses of each cost center to an entity that symbolizes products of the trade. The denominator most regularly used is somewhat that could be observed to contribute to the setting up of the products. The usual denominator used for cost distribution is one that fluctuates with income level and typically is a quantity that is only pertinent to one activity. For example, it is motivating to note that in many divisions, where cost is allocated on the base of number of operations processed, that the real proportion of assets consumed in handing out transactions is often on the order of 40% of the overall possessions used by the division. Thus, 60% of the assets of the division are allocated based on a denominator to which they are isolated and the data produced is not representative of the details. In all prospect, accountants know that the cost circulation takes place in this way, but most think that their goal is to create some just division of cost. In the accounting model, it really doesn't matter that there is this falsification of cost, because it is supposed that these other costs are obliged to facilitate the execution of operations, and that is satisfactory. The perception of the "product" entrenched in the GAAP mental representation was developed for constructing firms earlier in the century. Until the last decade, this model was professed by most people to be a practical technique of fulfilling all cost-accounting requirements, these being for decision making functions as well as accounting profit and loss account evaluation (Gering, 1999a). Now that many corporates generate results by means of ABC that are relatively different from cost bookkeeping, the legitimacy of GAAP cost allotment for purposes other than making of financial descriptions has been demonstrated insufficient. A critical aspect of the unsuitability of fixed costing is the use of the theme of products as the core object for cost distribution. This is because the expression product refers to a prudent and substantial output; in contrast, banks carry out services in which execution of business deals is the fundamental matter. Because each agreement has matchless characteristics, it is imperative to analyze the services presented by banks as patently different from products formed by manufacturing. Each transaction in a financial service association is built by actions. A transaction is the closest unit that a bank really has to the idea of a creation. When bank employees refer to a product, what they are actually depicting is account natures or individual billable services, which in turn are made up of many and different transactions. Undeniably, the use of GAAP cost distribution to depository cost accounting for decision support purpose makes available numbers that could be exceedingly confusing. Enchantingly, non-accountants in banks acknowledge information based on GAAP to control decisions. GAAP holds the weight of law, and its methods are traditionalized and presupposed to be accurate by managers. Whether or not GAAP clarifications embody the best approach to explore financial and management information is not generally realized. Central to the question of the satisfactoriness of GAAP cost distribution is the explanation of products and services, which are very dissimilar things (Gering, 1999b). A product is a tactful and substantial object that can be physically stored and stimulated. In banking, each operation is ethereal and has an exclusive feature such as the identity of the account owner, account form (product), the worth, and the mode by which the transaction is routed. So, the idea of a product in banking is totally diverse from that which was used to build up cost accounting in construction companies. Take into account that ABC is broadly accepted as the most fitting substitution for fixed cost distribution in engineering companies. To many in stock market side, use of the idiom product as contrasting to service may seem like a semantics subject; however, that merely highlights the problem. In reality, use of the expression product causes banks to pay no attention to the client productivity aspect of their business, because it is not obligatory for financial exposure. That's why; bank-operating directors believe that accountants are providing great weight information, which they are usually. But, in today's highly viable and rapid moving business situation, operating executives need unusual and definite information to aid them make healthier decisions. Many persons undergo challenged by this argument, generally because the data challenges some very critical postulations about banking financial side. Sometimes, people favor older logics, because they take ease in GAAP accounting, they have been functioning with GAAP-based records for an elongated time, or they conjecture if the new data could have other imperfections. People fret that new and more precise profitability information could be treacherous because someone may make a decision to dispose of all low-value, loss-generating customers devoid of identifying their potential future importance. Or they assume that without the less lucrative regulars, the bank would require to decrease its number of workers. While there is a factor of certainty in these concerns, banking proceedings and dealings are varying in response to the far-fetched opportunities presented by new computing and interactions potentials. As banks modify the way in which they manage, they must also regulate their cost accounting and arrangements schemes work. ABC Links Expenditures to Revenue-Generating Products, Services, Customers or Channels ABC generates quite different outcomes, because when applied appropriately it suggests the way in which real activities actually devour resources. ABC then applies the production of activities to the objects of those actions, for instance, the rate of a deal call is allocated as a cost of serving the particular customer or division according to the level of specification required in the examination. Note that if there is no product orientation to an activity, then no allocation is endeavored. There are countless diverse transfer paths in ABC, but the codes of assignment are very clear-cut. If a supply or doings is truly utilized by an object, then the outlay will be consigned to that item. If the entity does not use certain resources or doings, even if they were present, then not a bit of their cost is assigned to the objects (Daly, 2001). Using this strategy, ABC discovers the definite cost of activities by resolving what resources were used by every activity and how much they charge. To be effectual, activities should be classified properly, that is, the activity is factual and all objects activities are recognized, whether they add to the executing of transactions or not. For instance, when employees are engaged in an extraordinary project, they are carrying a legitimate activity, but it is not engaged with transaction procedure. If functioning on special assignments is material, that is, devours more than 5% of the time of the workers engrossed, it must be categorized. Expenditure of resources consigned to an activity will include both handy operating cost and the expenses of those resources and doings that are offered by other divisions that facilitate the presentation of activity in the heir sector. Activity drivers are the number of members of staff of the activity cost teams that are used to allocate costs to goods depends upon the figure of actions or dealings involved in the procedure of supplying an object or service. A driver is generally a measure related to the end result of the activity and is completely specific. For example, a driver might be the amount of telephone calls for an outbound client contentment evaluation activity; for a call center action, the driver could be the figure of calls attended. In a division, the amount of accounts settled might control how much attempt is paid out on reuniting accounts (Goulden, 1995). Activity cost statistics can be implemented in various different ways. The cost of activities can be compared across cost centers and divisions that perform related tasks so that finest and lowest cost performances can be identified and intentions established. Also, ABC information can be used to identify "non-value-count" activities, so that people can put effort on eradicating them. Additionally, most banks are quite engaged with process enhancement, and ABC offers information on what methods cost. Process cost information can be used to recognize high-cost practices in order to rank improvement labors as well as to carry out cost/benefit study of substitute improvement options. And cost information can be exercised to plan and supervise activity and process performance. After estimating the cost of activities, their output is assigned to the objects of those activities. Usually the objects in banking are transaction forms. There is another class of activity assignment for activities that are performed to continue the business, which means that the activity is not used to construct a product or service a user or sustain a channel. For instance, a business-maintaining activity would be developing latest computer software or preparing a financial plan. The costs of supporting activities are secluded from other objects; they are paid for beyond profits (Miller, 1992). Transactions in banking normally have numerous characteristics. For instance, defraying a check will relate to a check for a particular client and kind of account that was carried out through a specific approach. These measurements relate to other attributes, such as clients or channel (telephone banking or banking device). This implies that transaction-type cost objects need to have all attributes identified and loaded into a record for categorization. Revenue can then be resolved by account and ABC cost used to find out profitability. Distressing to say, this situation, although it sounds immense, not often successful. The main hesitant block has been the lack of attempt devoted to handling the change process. From the outside, this seems an opposition, but in truth, companies have restricted resources. How do they decide which transformations to implement and in what sequence Here is where cost accounting should intercede with an answer. By having a fine understanding of the current procedure and the costs related with each task, cost accountants can compute (or logically estimate) the impact of each amend on the cost of the ensuing products. Management would then have the information to conclude which changes should be put into practice. In most cases, this does not take place. Changes are usually gave precedence based on corporate policy. It is left up to likelihood to determine whether the changes really help the companies or not. Hardly ever does anyone go back and compare the actual savings produced by a change to the predictable savings that were used in the cost validation. Measurement is a prerequisite for progress. The companies that know this axiom and apply it will be able to manage change inside their operations for the betterment of their companies. Cost accounting provides outstanding measurements of product costs. ABC provides an extra level of measurement by evaluating the activities that go into creating the products and services offered by a company. Any alteration that is suggested would need to be justified by estimating the impact on the activity and product unit costs. Component costs, not whole costs, are the critical aspect here. No one can pledge sales volumes, but exact activity unit costs and product unit costs are possible to track. Directors with this type of information would then be capable to prioritize changes based on those promising the greatest improvement in unit costs and unit profitability. Even projects that might amplify expenditures (activity unit costs) in a given cost center could be justified, if the increase was more than counterbalance by decreases in other cost centers and it resulted in a total decrease in product unit costs. Using such a strategy, managers are able to build up a corporate perspective that is not restricted by departmental budget controls. They also develop a better team concept because everyone is striving toward the same goal and parochial concerns become less disruptive (Lawson, 1994). Activities are computable course of actions or methods that a given area must act upon to complete their tasks. Performing activities forms products, including both supplies and services. Therefore, the cost of a product is equal to the sum of the cost of the activities that went into producing every product. Let's look at an advance-banking example to help illuminate the benefits of ABC. In our case, a branch instigated conventional mortgages (product) by performing the following sets of activities (direct and overhead): loan deals functions (for which a charge is rewarded), loan dispensation, branch maintain, countersigning, closing, post-closing, document management, delivery, excellence control, branch supervision and home organization support. The unit cost of this product is $2,512, while the unit returns are $3,405.00 and the unit yield is $892.50. When changes are applied and estimate unit costs should be used to determine the blow of that change. In our first change, the sell branch wants to change the method it performs the processing activity that would consequence in a cost reduction from $330 to $319 for each loan request. If the expected amount of loan applications is 400 units, then the cost investments are $4,400. Given that the cost to implement the change is less than the savings, it is simple to determine if this change is cost valuable. It is also easy to see that the unit cost of this product will lessen from $2,512 to $2,501 and that the unit profit will rise from $892.50 to $903.50. The profit margin would also rise from 35.52 percent to 36.12 percent. Such a noteworthy improvement in profit margins can signify the difference between productivity and mere endurance. Another reason ABC is a better measurement device than the budget strategy is shown in the following illustration: Presume the underwriting division had budgeted to perform 400 units of activity through the month at a cost of $52,000 and actually used up only $50,000 on an amount of 300 units. Using the budget policy, underwriting would be rewarded for "coming in under budget." Using the ABC approach, underwriting would be chastised for allowing unit costs to jump from the projected amount of $130 to $166.67. Our second change imagines that underwriting computerizes its activity so that the cost of the activity rises from $130 to $135 (which consists of the cost of the mechanization). This mechanization also eradicates some roles in the excellence control activity, which lessens their costs from $140 to $125. The cost of manufacturing this product would be decreased from $2,512 to $2,497 and the productivity of the product amplified from $892 to $907. By viewing at the mutual benefits rather than just divisional costs, countersigning has increased the profit periphery of generating a loan even if its departmental costs have augmented (Stock and Lambert, 2001). As CEO of this business profiting from the information achieved from ABC, you would decide to employ the second change over the previous one because it effects in a smaller unit cost ($2,497 vs. $2,501) and a larger unit of profit ($902.50 vs. $907.50). Without ABC, it is less evident which amendment should take main concern, principally when you have to increase the costs in single area that is underwriting and the cost savings help another region (excellence control). Indeed, devoid of this company-wide quality standpoint, it is highly improbable that underwriting would yet consider about changing its formula if it demanded increased costs to the division. If you want joint effort, you have to promote that type of philosophy; ABC aids directors look at their routines and how they influence the products and opportunities their company grants. These are apparently oversimplified models. In veracity, you must keep in mind whether expenses are fixed or changeable, direct or overhead and controllable or not controllable by administration. Also, the activities would need to be followed in much more depth, not assembled as we have done here. High-quality ABC methods can assist you evaluate your costs in multiple manners. Getting Started With Activity-Based Costing The place to initiate is to understand the competitive production matters of your bank and to establish how important ABC will be for your company. Typically, financial associations must have two convincing reasons to put into action ABC: First, ABC is to aid data removal and simulation modeling to hold up marketing proposals highlighting sales efforts to attain regulars who will supply new basis of proceeds and earnings. Secondly, data on activities and procedures is used to constrain productivity development. We suggest that you instigate by acquiring guidance on what ABC is and how to apply it. When you realize the fundamentals, you should review the business concerns faced by your company. It is essential to vend the benefits of ABC to leading supervisors in your bank, because ABC wants the contribution of people from all gatherings. Just the once, you have set up the business folder for implementing ABC; you can grow a policy and an accomplishment map. Different advising and software organizations will struggle for your consideration and the chance to sell their supplies and jobs. Every one has distinct strong points and flaws. Therefore, do your training. ABC Defined ABC works within the framework of GAAP policies of accrual accounting but deal with cost relatively in a different way by sketching costs of resources, or indirect costs, devoured in carrying out business to activities and from there to the elements of those activities rooted in their use. Underneath ABC, resource drivers are used to allocate the cost of resources to activities and activity drivers are used to allocate the cost of activities to cost objects. The terminologies used here connote that a resource is the physical constituent that is essentially used by the business to carry out activities that are used to change inputs into outputs. The term resources comprise people, supplies, buildings, and machines; a resource driver is a size of the physical quantity of resources devoured in conducting an activity; an activity is a set of tasks that all have a common objective and a similar activity driver and are carried out in a department; an activity driver is a evaluation of the frequency and strength of the demands put on activities by cost objects. It is used to allocate costs to cost objects; a cost object is the receiving element that collects the yield of activities. For instance, cost objects can be customers, services, products, and channels. Cost objects are characterized by the yield of the activities that essentially add up to their formation or subsistence; a basic principle of ABC is that of causality, where it is acknowledged that the level of activity is ground in the amount of driver units required by products and services relative to the requirement from customers (Lewis, 1991). The consequences of this initial analysis can be astonishing. Frequently, there is a big discrepancy between management's impressions and what is truly needed to process, examine, or service some loans. When cost and time are linked with these activities, the revelation can be even greater. Perform Time-Measurement Studies There are several ways to evaluate how employees spend their time. Employees can maintain a record of the time that they spent on each activity using a bar-code scanner. Each worker merely wand the activity when he or she finishes the function and enters a volume figure for that activity (for instance, a credit examiner who completes adding financial data into a spreadsheet wands that act and keeps the record of the number of time financial data will be inserted in such a manner for a particular loan). After that, the data is downloaded to a database and reunited every day. Even though this tactic gives very perfect results and is also simple to execute, it can be expensive. A less costly and less accurate method to calculate time is by using logbooks. Workers record the time that they used up on activities daily as the day ends using paper logs or software. Or, an activity dictionary could be given to the employees and they were asked to approximate how they use up their time in an average week. This inexpensive approach is also the least precise. It can be apposite for departments where work progressions are not intricate and activities are not forced by volume. In a marketing department, for instance, projects and time pledges often ebb and flow widely (Ginger, 1994). However, measurement of time requirements needed to be decided, and the process needs to be kept simple. It can be simple to recognize hundreds rather even thousands of activities; but the augmented precision often adds little worth to tactical decisions. Examine Cost Structure Once time estimates have been established, one can assign activity costs. If a loan-processing center is considered, the costs embrace the full recompense (remuneration and benefits) of workers who process the credits (credit analysts, insurer, support staff), pertinent worker expenses (phone, supplies, rent, computer downgrading,), systems cost (depreciation and preservation of the loan system), direct costs (credit reports), and various other costs (for example, counseling). These costs can be translated into hourly rates for each group of employee. To calculate the activity cost, hourly rate is applied to time depleted on each activity. As an example, an insurer's recompense of $1,050 per week ($26 per hour) is added to pertinent expenses such as phone, supplies, rent, and various other costs of $14 per hour for a total insurer cost of $40 per hour. If making a decision as to whether or not to make a loan takes about 12 hours of an insurer's time, the bank is spending $480 in an insurer's time for each loan request. Evidently, other workers are involved and other costs incurred to make each loan decision (loan board, credit analyst's time, etc.); however, the process for handing over costs is the same. By probing costs, the bank can acquire an understanding of the different disbursement to continue an existing rapport or to make a new loan, for instance. This understanding might bring about new pricing plans. To put into practice activity-based costing, it is needed to consider that how the ABC system will act together with present accounting and other reporting systems (Hussey, 1999). For instance, if a present loan system is not compatible with the reporting to a range of lending groups with the compulsory granularity (that is, no escaping by type of credit product), it will be needed to alter the present reporting environment, say by inserting fields to a database to make possible reporting of loans to lending groups. It may also be needed to advance the existing system or purchase a fresh system to meet the requirements for ample profitability reporting (Cooper, 1991). Determining Volume To allocate costs sufficiently, volume data is needed for a usual period of activity. For instance, if a bank wants to allocate costs in a different way in order to consider for the various processing needs of term loans of more than $500,000 and smaller term loans (for instance, a credit analyst may not have to generate a formal memorandum for term loans for less than $500,000), it must be acquainted with how many loans fall into each of these categories. With the correct volume data, one can easily allocate the full cost of hold up activities to revenue centers and then settle on productivity by division, loan program or customer section (Maisel, 1994). With volume knowledge about renewal rates, loans above and below major dollar doorsill, proportion of loan type in portfolio, and endorsement rates for credits, one can develop a cogent ABC model (Chatzkel, 2003). Constant Maintenance Constant maintenance is very important to the data integrity and trustworthiness of the ABC system. If the ABC data is utilized to its full capacity, processes that do not add worth will be reengineered or fragmented (Hammer, 1993). One must examine and update the activity guesstimate since the processes are altered and new products are introduced, if only on a sample basis. Such an ABC data that is obsolete is often no better than the GAAP overhead provisions. Learning from Signet Bank Ensuring constant Information Accuracy Preliminary time measurements should precisely reflect the regular course of business. If a bank has smoothed the loan-underwriting process, one should renew activities in the ABC model. As companies develop, reorganize, and revolutionize, the ABC data must not take a pause far behind these amendments (Marsh, 1989). Timing the Analysis The preliminary time approximations should be made during a period that precisely depicts institution's emblematical workload. If ABC study is carried out during a period of climax activity, the outcome will be skewed. Hence, one should think about aspects like seasonality. For case in point, a bank loan-processing unit performed its study for the period of August and September, when staff went on vacation and a great system conversion had initiated. During this period, staff levels were not high, much time was depleted in training, learning and exercising the new system and the workload was at its lowest in the year. As volume was not high and entire cost remained constant, individual activity costs were worked out at an unnaturally high level and the surplus capacity of the unit wasn't made out well (Bowman, 1997). Making ABC Operational With enhanced cost reporting, management can organize its budgeting process and inducements to minimize costs and develop profitability (Miller J. Gerald, 2001). For example, inducements can be tied to downgrading activities that do not add worth because, with ABC, department leaders are acquainted with which activities are more expensive. This new information can give rise to fears for employees, predominantly if they never have had their time scrutinized earlier. Therefore, it is significant that management converse how the ABC information will be used. For instance, many organizations use the information for cost or productivity analysis, not for performance trailing. Organizations that share their information explicitly often have more accomplishment when they provide information about group efforts and performance, not individual effort. To lessen employee doubt, it is preeminent to report performance evaluations information on a regular basis. Constant reporting of monthly or weekly performance makes it easier for workers to interpret data. When Signet Bank spread its ABC system company wide, the bank worked tough to keep end users acquainted with the new financial performance and activity-based costing alterations. For case in point, the bank issued a newsletter to all financial examiners and managers and carried out meetings for users to ask queries about the new models. Guidance and training was also essential to a triumphant implementation at Signet. Six months earlier implementation and again three months earlier implementation, all analysts or examiners and managers attended training sessions. With the system being rolled out, users could practice queries that outlined old reports or criticize the novel standard performance reports (Fooster, 1999). Barriers to Change Large, full-scale ABC studies can be too costly for smaller organizations. A bank may not be competent to spend the resources essential to carry out the preliminary ABC study or to commit resources to keep the continuing integrity of the data. Before a bank makes a decision to establish an ABC system, it should execute a cost/benefit analysis to check if the expenditure will pay off (O'Guin, 1991). 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