Activity-based costing at HSBC Malta p.l.c. : a feasibility study on centralised services

Abstract

Activity-based costing is a methodology that views costs from a different dimension when compared to traditional costing systems. Traditional costing systems have been found to be inappropriate due to a change in the cost structures of modern organizations where a larger proportion of indirect costs are being incurred when compared to direct costs. Can activity based costing be applied to financial institutions? Pressure groups and a substantial increase in competition, a result of de-regularisation, are forcing profit margins to become tighter due to a reduction in revenue earning potential. Thus financial institutions have to understand how and what is causing them to incur costs. This would lead them to greater efficiencies resulting in an overall reduction in non-value adding activities. This study focuses on an important section within HSBC's Centralised Services and determines whether it is feasible to apply activity-based costing within such an environment. It also considers whether there are any real benefits to be reaped by implementing such a system.