Implementation of activity based costing in financial institution in Indonesia-pilot project in housing loan department in selected banks

Date of Publication


Document Type


Degree Name

Doctor of Business Administration

Subject Categories

Finance and Financial Management


Ramon V. Del Rosario College of Business


Management and Organization Department


ABC has been recognized as a management innovation offering a new approach in costing system to provide more accurate information for decision making. ABC was first used by John Deere Component Works in the 1960s and since then it has been widely implemented in the manufacturing and service industries. In financial institutions, ABC was first used in the early 1990. However in Indonesia, the implementation has not been as widely as in other countries. In fact, it is believed that no financial institution (bank) has applied ABC method. Therefore, this research was conducted by implementing pilot project of ABC in the housing loan department in selected banks in Indonesia. The objectives of the research were to find out features of ABC that were applicable and situational variables that were favorable and unfavorable in the implementation of ABC in banks in Indonesia. It was also intended to compare the ABC and Traditional method in the managerial decision making process and propose a new framework for productivity analysis. The Mabberley/Price Waterhouse ABC Model was used in this research. However Phase IV Development of the ABC System was excluded and replaced by manual process and Phase I and II was used in limited version. The selection of the banks was based on their total assets or business activity in housing loans. Housing loan was chosen because the process is simple, it is available in most of the banks, and the challenges in the business keep increasing. The data was gathered using a set of questionnaires distributed to the head of the bank branch, the head and officer of housing loan department and the head of accounting department. Methods and Implementation of Activity Based Costing x De La Salle University concept used in Kocakulah (2007), Kaplan and Anderson (2007 a, b) and Cross, Majikes and Keller (1997) were applied in this research to calculate the product cost in ABC and Traditional costing and also to measure the unused capacity. As contribution to management theory and application, this research introduced the Rochadi Productivity Matrix which is a productivity analysis tool to help to pinpoint what and how to improve the productivity of an organization. This research found that not all of the features explained in the literature of ABC were applicable. It was due to the early stage and the limited area of implementation. The applicable features were ABC as a mean to capture variations in demand placed on shared resources by individual products, to measure product and customer profitability for business performance analysis, and to translate costs into work activities. This research also found that ABC was better than Traditional method in enhancing managerial decision making by providing the information about the true cost of the product (lower product cost in ABC versus over-costing in Traditional method), the product cost for every loan whether or not the loan is in the portfolio, the information about unused capacity which is valuable in examining efficiency and business expansion evaluation and also as protective capacity information. The same as Kocakulah (2007), this research found that ABC showed higher profit than Traditional method. In some cases, Traditional profits were negative which could mislead the management to discontinue the seemingly unprofitable loans. Furthermore, ABC delivered more information that is deviation of the sum of product profitability in ABC from the overall profit of the branch. This Implementation of Activity Based Costing xi De La Salle University deviation serves as a useful indication of what was going on with the company efficiency, something that Traditional method could not provide. In terms of situational variables favorable for the implementation of ABC, the questionnaires revealed that mission and vision of the banks, banks infrastructure and information system, branch heads attitude towards ABC, the culture of continuous improvement in the banks, and management considerations in distributing housing loan to clients were all favorable. While the unfavorable variables were rejection to implement ABC, unfamiliarity of most of bank officers with ABC and unawareness about the importance of customer profitability analysis. For productivity analysis, the Rochadi Productivity Matrix showed that none of the respondent banks was in Quadrant I - Optimal hence none has been able to optimally utilize its employees. The best performing bank was Bank M (bank which was chosen because it has a large business in housing loan) in Quadrant II Room for Growth meaning that the bank has opportunity to grow without hiring new people. Most of the respondent banks (7 banks) were in Quadrant III Sleeping suggesting the banks should put more efforts to attract more customers. The other 2 banks were in Quadrant IV Wasteful which is a warning that the employees have been working inefficiently and the work method has to be improved.

Abstract Format






Accession Number


Shelf Location

Archives, The Learning Commons, 12F Henry Sy Sr. Hall

Physical Description

1 computer optical disc ; 4 3/4 in.


Activity-based costing--Indonesia; Financial institutions--Indonesia

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