Hong Kong Division, March 2004

P r e s i d e n t i a l E n g a g e m e n t s

2004

14 Jan Annual Dinner 2004, HKICS2 Feb Inauguration Ceremony of Accountancy

Society, City University of Hong Kong5 Feb Spring Dinner 2004, HKU SPACE5 Feb Opening Ceremony and Business Forum

of Accounting Week 2004, AccountingStudents’ Society, HKUST

9 Feb ACCA Hong Kong Spring Dinner, ACCAHong Kong

9 Feb ICAA Hong Kong Group Spring Dinner2004, The Institute of CharteredAccountants in Australia

10& Public Sector Reform Conference “Changing11 Feb the face of Government - Making it

happen”, Efficiency Unit HKSAR12 Feb Spring Dinner 2004, HKSA19 Feb Opening Ceremony of Exhibition 2004,

Hong Kong Inter-Tertiary AccountancyAssociation (HKITAA)

19 Feb Open Day, Ho Tung Secondary School25 Feb Spring Dinner for Year 2004, The Society

of Chinese Accountants & Auditors26 Feb UCL Graduation Ceremony, HK College of

Technology International8 Mar The 13th Inauguration Ceremony of

CUSA 2004-2005, The Society ofAccountancy, Student Union of theChinese University of Hong Kong (CUSA)

15 Mar Cocktail Reception to welcome Mr. PhilipYang as the new Chairman of HKIAC,Hong Kong International ArbitrationCentre

19 Mar 30th Anniversary Dinner-Year 2004, TheAssociation of International Accountants,Hong Kong Branch

20 Mar A C C A C e n t e n a r y C o n f e r e n c e -Accountants Reloaded, ACCA

3 Apr Faculty of Business Administration GalaDinner to celebrate the 40th Anniversary,The Chinese University of Hong Kong

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Feature

Member profile

Activity

6A China Overseas Building, 139 Hennessy Road,Wanchai, Hong KongTel: 2511 2003 Fax: 2507 4701Web Site: http://www.cimaglobal.com

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Switching from Input Accounting to Output/OutcomeManagement at OFTA

Dr Horace Yuen, Managing Director, ABCM Consulting (China) LtdDr Joseph Yau, Council Member of CIMA Hong Kong Division and Assistant Professor, School of

Business & Administration, The Open University of Hong KongAlan Lung, General Manager, ABCM Consulting (China) Ltd

“The ABCM exercise in OFTA gives us anopportunity to evaluate services costs and re-deploy resources in a more effective manner.But senior management should be prepared tocommunicate openly and explain the reasonsbehind an ABC exercise to avoid having thepotential misconception problems,” WONGKwok-shu, Assistant Director, Office of theTelecommunications Authority (OFTA)

OFTA could have been your average HKSARGovernment Department . Not much isspectacularly different at OFTA. But thechange brought about by the introduction ofActivity Based Costing and Management(ABCM) at OFTA is no less than revolutionary.

To begin with, OFTA is the executive arm ofthe Telecommunications Authority, a statutorybody created in July 1993. As the technical andeconomic regulatory authority of the telecomsindustry, OFTA has a role of ensuring faircompetition within the telecom industry. It alsohas a role and a vision of ensuring that HongKong gets the best telecoms services to meetthe challenges of the information age.

OFTA places high priority on training anddevelopment. This is a carefully consideredmanagement goal as OFTA sees this as the onlyway to keep up with the rapidly changingtechnological environment. OFTA operates ona t rading fund bas is and recovers i t sadministration costs through the collection oftelecommunication licence fees.

A systematic way to understand thekey and other product costs

“Having established the costing of OFTA’s keyproducts, the next logical step is to establish thepricing of other OFTA “products” based ontheir true costs. From management point ofview, it is extremely important to ascertain therelative cost and benefits of each ‘product’delivered by OFTA to its customers. A typicalexample is ‘an investigation triggered by publiccomplaints on radiation risks of transmitters’.In this example, the cost of each investigationneeds to be allocated properly to a combinationof telecom licencees, for example, pager andmobile telephone operators that trigger theinvestigation costs”, said Mr. K.S.Wong.

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out a plan to roll-out the ABC modelingthroughout the entire department using itsown staff resources in Stage Two. Stage Threewas the further conceptualization wherebystaff at each level have the implications andbenefits of the ABCM implementationexplained to them. Stage Four is the full roll-out of ABCM which is expected to becompleted in the 2004/2005 financial year. Inthe current stage Four, OFTA has avoidedsetting targets that are too aggressive. It alsorestricts the numbers of resource items,activities and cost objects, to 165, 600 and 50respectively. Furthermore, OFTA allowsenough time for checking, reviewing andenhancing the whole ABCM model.

OFTA decided against trying to achieve avery high degree of detai l in ABCMimplementat ion. For example in datacollection, instead of asking staff to returntimesheets everyday, OFTA decided thatreturn on a weekly basis is good enough. Inaddition, OFTA has planned to automate thedata integration between ABC database anddata gathering process in order to captureregular cost and driver data more effectivelyand efficiently.

Moving on to strategicmanagement - resourcemanagement and resourceplanning

In OFTA, high service cost does not necessarymean the need to reduce or stop the servicesbeing delivered because the public interestmust be balanced against the cost. Howevermore accurate cost information will helpOFTA to prioritise services and provide moreu n d e r s t a n d i n g o f t h e c o s t s o ftelecommunication licences.

OFTA is looking forward to the possibility ofusing cost trend data, which will be built upover the next few years, to plan for thedeployment of resources. Mr. Wong believesthat skeptics of the ABC methodologies inGovernment should first try a pilot.

Mr. Wong also believes that advocates ofABCM should not be looking at organizinglarge forums to promote the ABCM conceptin the Civil Service. “Nor should they belooking at large departments that are input-oriented at the very beginning. The TradingFund departments with strategic output-oriented activities will most probably needsuch methodology to help them better managetheir resources”, said Mr. Wong.

This is conceptually different from thetraditional costing exercise where costs areassigned based on revenue or head count.Instead the real challenges are to find out whatare the ‘cost triggers’ which drive the costallocation to each activity relevant to theproducts / services in question.

Setting priority and using ABCinformation to manage OFTA

Knowing that certain products / services havea r e l a t i v e l y h i g h e r c o s t m i g h t n o tautomatically mean that OFTA should stopdelivering these products / services. Publicinterest must be balanced against cost. But, atthe very least, ABC makes OFTA more costconscious. Higher cost awareness at OFTAhas caused better priority to be assigned. Forexample, the low demand and relatively highcost of providing a 24-hour complaint hotlinefor radio interference would indicate thatOFTA should reduce the service hours. Thistype of cost and performance information isextremely useful in enabling OFTA toeffectively re-deploy their resources.

Looking ahead, OFTA hopes that ABCM canbe more broadly applied within OFTA in thecontinuous refinement of ABC information tofacilitate resources management and pricingdecisions.

Four stages of implementation atOFTA

Misconception is not an uncommon problem.Before the launch of ABCM, staff oftenquestioned the agenda behind such anexercise. Is this a cost-cutting or “BPR”exercise? Are they trying to cut my job?

The ABCM exercise in OFTA has givenmanagement an opportunity to evaluatecurrent services and to re-deploy the resourcesto new and more useful services, moreeffectively. To make ABCM a success, seniormanagement should be fully committed to theproject and prepared to communicate openlywith all staff involved. They should explainthe reasons behind an ABC exercise to helpallay the concerns of staff as well as to avoidany potential misconception behind thescenes. This exercise needs commitment atthe highest level. Benefits must also beexplained to the skeptics. In the case ofOFTA, staff discussions at each of the fourstages of implementation were held.

At Stage One, OFTA commissioned externalconsultants to provide conceptual training andto conduct a pilot study. From the experiencegained in the pilot project, OFTA has mapped