Proceedings of Global Business Research Conference
7-8 November 2013, Hotel Himalaya, Kathmandu, Nepal, ISBN: 978-1-922069-35-1
Pricing and Costing in Professional Service Firms
Antonella Cugini1 and Silvia Pilonato2
Among the difficulties that professional service firms (PSFs) need to face today
literature highlights two main phenomena:
1.
the supply of high complex services (usually with low volume) increasingly
more variegated to meet clients preferences and needs: consequently the production
process is not ‘fixed’ but rather ‘designed’ by the characteristics of the clients, which is
increasingly more variegated, in order to adapt to differences in client preferences.
Consequently, to calculate the cost of providing the services required by the clients, it is
first necessary to identify the relationship between the activities carried out by the
company and the individual services offered to the clients and then to calculate the cost
of the services that the client uses.
2.
the need to reconcile customization strategies with cost containment policies
to increase efficiency: this is a particularly complex issues where the bigger share of
cost is indirect. The understanding of the effects of cost management policies aimed at
increasing company efficiency and effectiveness has been further advanced by process
value analysis and business process reengineering: however, none of these
approaches assumes a customer perspective, as costs analysis is still based on an
internal rather than a customer-based assessment.
Measuring costs in companies which provide heterogeneous and interrelated services is
a difficult matter, especially because clients can consume many combinations of
services; such issue cannot be simply solved by measuring the time that people take to
carry out the various tasks, as some authors claim. Moreover, when value refers both to
the service dimension and to the relational dimension (as in PSFs) traditional cost
management tools provide little guidance about how to link firm costs to sale prices.
These findings indicate the need to deepen our understanding of the cost side of value
creation in service companies, in order to identify the links between the value a
company creates for its customers and the related absorption of costs. In this vein,
(marketing) literature provides a fundamental insight in recognizing that services are
composed of attributes (also called service components) which are the true root of
value-for-customer. This paper, based on a case study, draws upon previous research
on value for customer and strategic cost management to investigate the link between
PSF’s costs and pricing/value drivers through service attributes and to highlight the cost
accounting system which can impede or facilitate the management of the cost-value
relationship. The paper contributes to this emerging research stream by further
disentangling the links between cost formation and value creation: the analysis: our
analysis addresses these issues by focusing on the service components driving valuefor-customer and establishes crucial nexuses between costs arising from service
provision and value delivery to the different customers.
JEL Codes: M10, M40 and M41
1. Introduction
During the last two decades, “new” production environments grew, especially in the
service industries. Clearly, these industries present different features compared to
the manufacturing ones alongside significant managerial implications. In particular,
literature highlights the increasing importance of services characterized by an high
level of specific expertise or knowledge, constant pressure for customization,
1 Antonella Cugini is Associate Professor of Accounting, Department of Economics and Management,
University of Padova, Italy; e-mail: antonella.cugini@unipd.it
2 Silvia Pilonato is Assistant Professor of Accounting, Department of Economics and Management,
University of Padova, Italy; e-mail: silvia.pilonato@unipd.it
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Proceedings of Global Business Research Conference
7-8 November 2013, Hotel Himalaya, Kathmandu, Nepal, ISBN: 978-1-922069-35-1
difficulties in quality measurement (Goodale et al., 2008; Von Nordenflycht, 2010).
The firms providing these services are often labeled as professional service firms
(PSFs).
The complexity of professional services involves both providers and customers.
From the provider point of view, managing and controlling activities can take a
variety of forms, all of them aiming to manage properly the high knowledge of the
services, their typical service operations and the high professional workforce
involved. Meanwhile, from the customer point of view, each client has usually a
“personal” relationship with the firm and the professional workers (Goodale et al.,
2008), because one of the main aim is that of developing a specific “set of services”
suitable to each customer. As a consequence, firms are required to supply high
complex services increasingly more variegated in order to meet clients requests and,
at the same time, to reconcile these customization strategies with cost containment
policies to increase efficiency.
About this issue, recent literature (Von Nordenflycht, 2010) developed a framework
to analyse the distinctive features of PSFs. The author focused on three
characteristics that could be present, with different degrees, in a broad set of
professional service firms:



knowledge intensity: “(it) is perhaps the most fundamental distinctive
characteristic of PSFs… (it) indicates that production of a firm‟s output relies
on a substantial body of complex knowledge” (p. 159). This implies that firm
relies mainly on intellectually skilled workforce, with important managerial
consequences in term of its strong bargaining position relative to the firm,
strong preference for autonomy, difficulties in quality assessment, low degree
of standardization of the services supplied to the customers.
low capital intensity: it refers to the low amount of “nonhuman” assets involved
in the production processes. This has implications in terms of the increasing
importance of employees‟ skills and reduction of outside investment role.
professionalized workforce: this encompasses several features, for example:
the knowledge base of the activities provided, the regulation and control of
such activities, the presence of ethical professional codes defining the
appropriate behavior of professionals. In general it results in higher levels of
organizational inefficiency.
Among the broad set of firms predicted by this framework, the law and accounting
firms (defined as “classic PSFs”) are described as firms characterized by diffused
informal management processes, little strategic planning, few formal control system
(Pierce et al., 2005; Von Nordenflycht, 2010).
All these features have clearly strong implications also for the costing method
adopted by these firms. In particular, the traditional costing methods used before the
development of the activity-based costing may systematically distort the product
costing (Johnson and Kaplan, 1987; Labro, 2006), because they are based on the
concept of “physical” product and usually underrate unit cost when firm‟s provision
processes are characterized by low volume and high heterogeneity. Such inaccuracy
has significant consequences also in the price definition policies because it leads to
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Proceedings of Global Business Research Conference
7-8 November 2013, Hotel Himalaya, Kathmandu, Nepal, ISBN: 978-1-922069-35-1
wrong decisions taken on the basis of incorrect cost information. What PSFs need is
an accurate costing system that allows to estimate costs in order to better reflect the
cause-and-effect relationship in resource consumption patterns and to identify the
right source of value for customer. Such issue is also a traditional topic studied by a
part of literature (the marketing one): it provides a fundamental insight in the
relationships between firms and clients, recognizing that services are composed of
attributes (also called service components) which are the true root of strategic value
perceived by customers.
This paper deals with this aspect, that is the cost accounting system suitable for a
(classic) professional service firm. It contains three main contributions to the exiting
literature in managing professional service firms and related to cost accounting
systems.
First, it shows support for the service components also for PSFs, underlining that
they might become the real object of cost measurement. Second, by linking
professional services, service components and cost accounting system, it sheds light
on the accuracy of the ABC system in the identification of the cost of services
provided by these particular firms. Third, it links the (accounting) concept of unit cost
to customer value drivers; therefore it identifies links between internal processes and
specific exogenous factors (such as clients‟ needs and requests), that impact price
policies and firm‟s profitability.
The rest of the paper is structured in the following matter. In the next section studies
on service components and cost accounting are explored. The third section contains
the description of the case study, an Italian classic PSF that developed a detailed
cost accounting system based on activities, in order to overcome the limits of the
previous system. The last section contains a summary of findings and conclusions.
2. Cost Accounting System for Professional Services
To date, researches in management accounting and cost information in service
organization is still reduced, while it appears to be an issue extremely important both
in accounting and in service literature (Berts et al., 1995; Modell, 1996; Auzair et al.,
2005; Gunaserakan et al., 2005). Among the main issues, strong emphasis is given
by the literature to concerns about the behaviuoral implications of the application of
management accounting in service contexts as well as the influence of contingent
variables on the design of management control system in service organizations.
Structural aspects (Modell, 1996), such as costing and performance measurement,
is often considered solved by the identification of specific techniques that allow to
overcome the “traditional” problems in service organizations, simultaneity of
production-consumption phases and intangibility of the service provided.
Instead, an in depth analysis of these aspects shed light on some specific problems
that should be solved in order to develop a suitable costing system for service firms
and in particular for PSFs. One of the main issues concerns the identification of the
final object of cost allocation and the analysis of its resource consumption. While in
manufacturing companies the physical product represents usually the cost object, in
service firms difficulties arise because the final output is not identified by an unique
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Proceedings of Global Business Research Conference
7-8 November 2013, Hotel Himalaya, Kathmandu, Nepal, ISBN: 978-1-922069-35-1
service, but often by a broad set of services chosen by each customer. This aspect
has significant implications also for the identification of the value perceived by
customers (encompassed by the sale price), because the identification of the object
that links the company and the customer is far more complex. This difficulty varies
depending on the characteristics of the output of the service companies: first of all,
the presence of nonmaterial components and the composite nature of the service
(services provided usually vary depending on the consumers requests during time
and spaces available). Finally, in many cases the service assumes a variable profile
which depends on how the customer decides to use it: unlike a physical product, a
service can rarely be considered as a predefined set of characteristics (Gronroos,
2000). Therefore it is necessary to shed light on the specific features of services
provided and on the internal processes involved in the resource consumption. In this
vein, some authors proposed a detailed analysis of the services, based on the
description of their components (Lovelock, 1994; Gronroos, 2000). According to
these authors, these components can be classified into three main groups: core
service (provided by the key components creating value for the customer), facilitating
services (auxiliary components that make it possible to use the core service),
supporting services (auxiliary components used to increase the value of the service
and/or to differentiate the service).
In order to achieve our aim, that is to identify a cost object for professional service
firms, the concept of “service component” is very useful, because within the
relationship between customer and firm it is an essential source of value and
therefore it represents the basic element of the internal provision process as well as
the focus of customer‟s attention linked to his availability to pay the defined price.
Therefore the service component could also become a useful reference point for the
calculation of costs, making it possible to measure and compare the costs sustained
by the company to produce and deliver the value perceived by consumers (Carù et
al., 1999). In this vein each service component could represent the final object of cost
allocation. The next step requires to identify which cost accounting system could be
able to calculate its cost.
From this point of view, it is interesting to highlight that, regarding professional
services, some authors (Fitgerald et al., 1998) claim that they are dominated by labor
costs, which are easily assigned to individual tasks measuring the time carried out by
people for each task. Therefore in their opinion it is suitable to define a traditional
systems of budget control that make it possible, when there is a low number of
clients and tasks, to use the cost information to help pricing decisions. On the other
hand, measuring costs is not so easy in companies which provide numerous,
heterogeneous, inter-related services and where clients can consume different
combinations of services The same authors have observed that in some service
companies cost information is used for planning and control processes, but not as a
support to the pricing process. They claim the ABC as a suitable cost accounting
system especially for services characterized by heterogeneity of output, by a variety
of clients, and substantial indirect and fixed costs. As we saw in the previous
paragraph, such features describe exactly the main characteristics of professional
services defined by literature.
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Proceedings of Global Business Research Conference
7-8 November 2013, Hotel Himalaya, Kathmandu, Nepal, ISBN: 978-1-922069-35-1
ABC accounting system is therefore characterized by a greater accuracy in the
allocation of indirect costs and in the identification of specific resource consumption
patterns in the provision process.
Since the literature on ABC is extremely rich (Beaujon et al., 1990; Brimson, 1991,
1998; Brimson et al., 1994; Cooper et al., 1989, 1991, 1999; Kaplan et al, 2004), we
propose here a brief summary of the main features of the ABC system. The focus of
the analysis is on the “activity”, that is defined as a combination of people,
technology, raw materials and environment aimed at realising a final output. In this
sense, ABC allows to overcome one of the main limit of traditional methods that are
strictly designed to reflect the firm‟s organizational structure and do not correlate
costs to the value generated for the customer. Using ABC, the focus is placed on the
management of resources that cut across organisational units and represent often
core resources or competencies that impact the company's ability to compete in
different markets (Hergert et al., 1989). This aspect is particularly significant in
service companies in which the production process often takes on a cross-cut
sequence as regards the organisational structure. Also for this reason, literature has
presented many studies about the adoption of ABC system by service firms; they
are, for example, banks, insurance companies, railway companies, data
management providers (Rotch, 1990; Cooper et al., 1991; Innes et al., 1993).
In this paper we describe a case study regarding the adoption of ABC system in a
professional service firms where cost objects are defined by the service components
provided to clients.
3. Measuring the Cost to Serve the Customer in a Certified
Accountants
SR is an accountancy practice which provides accounting and fiscal services. There
are about 60 employees and the organizational structure is a functional one.
Before the introduction of ABC system, client cost allocation was carried out
measuring the hours dedicates to the client and then they are multiplied by an
average hourly cost of the employee that is calculated by dividing the total annual
cost of the company by the production capacity of its professional employees
expressed in hours. The profitability of the client is calculated annually by subtracting
from the client annual revenue the annual cost calculated as described before.
When the ABC methodology was introduced, about 60 activities were indentified,
listed in table 1. After that, the next step was the calculation of the total annual cost
consumed by the activities.
The costs exclusively concerning the activities (specific costs) were objectively
attributed; instead common costs were attributed using specific resource drivers. The
analysis of the common costs was quite complex because they were not analyzed
overall, but one at a time. A brief description of this analysis is shown below,
providing the analysis for three kinds of cost: building, work stations, personnel.
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Proceedings of Global Business Research Conference
7-8 November 2013, Hotel Himalaya, Kathmandu, Nepal, ISBN: 978-1-922069-35-1
Cost of the building: it mainly concerned with rentals and shared costs, illumination
and heating, cleaning, and depreciations charges. It was attributed to each
organizational unit on the basis of the squared meters occupied and in turn attributed
to the people that use the space.
Cost of the work stations. Two different type of work stations were identified: the
simple work station and the senior work station: the difference among the costs of
each work station was based on the resources consumed, above all the quality and
the quality of the office furniture.
Cost of the personnel. The annual cost was obtained by adding together all
expenses connected to the human resources: basic salary, various additional
payments, allowances, overtime, national insurance and welfare contributions, any
funds set aside for severance pay or deferred payments of other kinds. This cost
was then divided by the number of total working hours in order to identify a specific
hourly cost for each employee or group of employees.
The hourly cost is then multiplied by the number of hours consumed by each client in
order to find the exact cost of each activity used by the client.
The costs of the individual clients are linked to the type and the characteristics of the
services components they require. In fact the services provided by SR vary
according to the characteristics of the clients and their demands. It follows that the
activities which make up the process of service provision do not represent fixed links
in a chain which grows in a pre-defined sequence, but rather they may be
constructed in different ways depending on the characteristics of the client.
Consequently, to calculate the cost of providing the services required by the clients,
it is first necessary to identify the relationship between the activities carried out by
the company and the individual services offered to the clients and then to calculate
the cost of the services that each client uses.
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Proceedings of Global Business Research Conference
7-8 November 2013, Hotel Himalaya, Kathmandu, Nepal, ISBN: 978-1-922069-35-1
Table 1: The Activities of SR
Activities
1. Gathering documents together
2. Registering invoices
3. Calculating IVA (VAT) for periodic settlement
4. Registering Prima Nota and supplementary documents
5. Checking clients’ current accounts and petty cash
6.Check clients’ situation with creditors and suppliers
7. Writing and checking annual balance sheet
8. Writing and checking mid-year balance sheet
9. Writing supplementary---10. Writing economic statement
11. Writing mid-year economic statement
12. Filling in annual IVA return
13. Filling in and sending sector analysis
14.Routine meetings with clients
15. Preparing form 770
16. Meeting new clients
17. Assigning the person clients refer to
18. Writing the deadline and operations schedule
19. Checking and monitoring accounts clerks
20. Management and control of the “extra” accounting deadlines
21. Checking annual balance sheets of the clients in general
22. Checking annual IVA returns
23. General assistance for internal accounting
24. Management support (owner and admin)
25. Management and selection of candidates’ CVs
26. Updating accounts
27. Research and targeted reading
28. Management of extra documents
29 Filling in, checking and sending form 770
30 Collecting documents for income-tax returns
31. Processing income-tax returns (UNICI and 730 forms)
32 Calculating partial payments of ICI
33. Calculating and checking partial payments made for income-tax
34. Checking and sending income-tax returns
35. Management of INPS documents for traders and craftsmen
36. Management of tax litigation
37. Scheduled meetings with clients
38. Non-scheduled meetings with clients or colleagues
39. Visits to public institutions or organisations
40. Co-ordination and general management of the practice
41 Secretarial duties
42. Cash-desk services and charging clients
43. Payments on behalf of clients
44. Registering invoices for the practice’s purchases and sales
45. Checking invoices, current account balances and petty cash
46 Writing the practice’s internal balance sheet
47. Managing new and existing contracts
48. Managing Social Security and other institutions’ cases
49. Filling in EMEMS reports
50. Filling in DM10 forms
51. Managing and updating “compulsory records”
52. Preparing monthly salaries
53. Preparing CUD forms
54. Filling in INAIL reports for self-severance pay
55. Daily updating of salary department
56. Periodical updating
57. ENASARCO management
58. Co-ordination and supervision of salary department
59. Answering telephone calls (switchboard)
60. General outgoing calls on the practice’s behalf
61. Telephone consultancy/assistance
62. Additional activities
TOTAL
Total cost of Total hours of Hourly cost
activities
acivities
of activities
149.318
5.590
26,71
1.094.646
40.800
26,83
86.510
3.240
26,70
653.929
24.000
27,25
130.786
4.800
27,25
43.595
1.600
27,25
566.738
20.800
27,25
348.762
12.800
27,25
107.631
3.200
33,63
113.126
4.500
25,14
80.737
3.150
25,63
27.077
1.010
26,81
285.751
10.800
26,46
142.876
5.400
26,46
67.814
2.567
26,42
4.428
120
36,90
9.259
258
35,96
76.016
2.060
36,90
20.665
560
36,90
59.042
1.600
36,90
29.521
800
36,90
46.012
1.300
35,39
300.750
9.000
33,42
44.281
1.200
36,90
5.166
140
36,90
43.334
1.125
38,52
141.504
5.400
26,20
134.704
5.760
23,39
279.138
9.660
28,90
17.621
520
33,89
236.203
7.250
32,58
82.346
2.430
33,89
13.555
400
33,89
43.172
1.400
30,84
40.664
1.200
33,89
54.219
1.600
33,89
339.180
9.000
37,69
67.836
1.800
37,69
101.754
2.700
37,69
231.754
2.700
85,83
257.746
9.000
28,64
73.927
3.080
24,00
27.493
960
28,64
88.779
3.100
28,64
240.563
8.400
28,64
4.582
160
28,64
95.199
2.650
35,92
647.189
24.000
26,97
51.775
1.920
26,97
103.550
3.840
26,97
114.337
4.240
26,97
1.752.308
67.460
25,98
75.505
2.800
26,97
75.505
2.800
26,97
93.935
1.690
55,58
164.286
4.200
39,12
55.589
1.680
33,09
12.554
360
34,87
138.504
6.300
21,98
79.145
3.600
21,98
1.461.126
52.425
27,87
453.621
17.300
26,22
12.388.639
436.205
Table 2 shows an example which highlights costs and revenues of the individual
service components provided to a customer and it shows that not all the service
components create a positive margin.
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Proceedings of Global Business Research Conference
7-8 November 2013, Hotel Himalaya, Kathmandu, Nepal, ISBN: 978-1-922069-35-1
Table 2: The profitability of an individual customer
Revenues
Tax and fiscal consultancy and services – Revenues
12. Filling in annual IVA return
22. Checking annual IVA returns
15. Preparing form 770
29. Filling in, checking and sending form 770
30. Collecting documents for income-tax returns
31. Processing income-tax returns (UNICI and 730 forms)
32 Calculating partial payments of ICI
33. Calculating/check.payments for income-tax returns
34. Checking and sending income-tax returns
36. Management of tax litigation
37. Scheduled meetings with clients
39. Visits to public institutions or organisations
43. Payments on behalf of clients
Total cost of tax and fiscal services
Margin per service
Consultancy and accounting services - Revenues
1. Gathering documents together
2. Registering invoices
3. Calculating IVA (VAT) for periodic settlement
10. Writing economic statement
11. Writing mid-year economic statement
13. Filling in and sending sector analysis
14. Routine meetings with clients
20. Mgent and control of the “extra” accounting deadlines
37. Scheduled meetings with clients
43. Payments on behalf of clients
61. Telephone consultancy/assistance
Total cost of accounting services
Margin per service
Consultancy and employment services – Revenue
1. Gathering documents together
43. Payments on behalf of clients
48. Managing Social Security and other institutions’ cases
49. Filling in EMEMS reports
50. Filling in DM10 forms
51. Managing and updating “compulsory records”
52. Preparing monthly salaries
53. Preparing CUD forms
54. Filling in INAIL reports for self-severance pay
61. Telephone consultancy/assistance
Total cost of employment services
Margin per service
Total cost
TOTAL MARGIN PER CLIENT
Incidence of margin on revenue (percentage)
104.000
8.000
536
283
264
1.503
136
652
271
407
432
1.017
1.507
3.015
687
10.709
- 2.709
44.000
801
9.659
534
2.514
1.230
4.413
2.117
1.476
565
57
1.115
24.482
19.518
52.000
801
229
324
809
539
431
20.261
216
216
8.919
32.745
19.255
67.935
36.065
35%
The adoption of ABC system has allowed the emergence of the true costs consumed
by the customers for each service component provided.
Table 2 shows that looking at the service components and the activities it is possible
to represent the overall complexity of the relationship with the customer: such
complexity is captured by measuring the output of the activities consumed by the
individual client. In other words, ABC allows to highlight and measure the existing
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Proceedings of Global Business Research Conference
7-8 November 2013, Hotel Himalaya, Kathmandu, Nepal, ISBN: 978-1-922069-35-1
relationship of consumption between the company‟s provision process and the
customers. This aspect is particularly important in professional service companies,
because in the building up of a long relationship with a customer (in particular when
customers are medium-large companies) the various activities can be undertaken
with a variable intensity depending on the characteristics of the client.
In conclusion, ABC system allows professional service companies to calculate the
„costs to serve the customer‟ defined by the sum of the costs of the service
components provided.
4. Conclusions
As described in paragraph 2, in manufacturing companies the product unit is on the
one hand the principal reference on which the perception of value-for-customer and
the sale price are founded in monetary terms; on the other hand, it is the object to
which costs are assigned, which makes it possible to assess whether the price which
the customer is willing to pay is remunerative for the company.
In service companies it is often difficult to identify the service unit necessary for the
comparison of the price with the cost of its production. This is due to:



the composite nature of the service;
the intangible nature of some services;
the differentiated consumption of the components by customers, meaning that
the service can have a variable profile depending on the customers‟
preferences.
With regard to the first two factors, it is possible assume as a reference the service
components to measure, on the one hand, price and value perceived by the
customer and, on the other hand, the costs needed to provide each component.
The third factor relates to the fact that customers consume different components of
the service according to their needs and to the value they wish to obtain from the
supplier. From this point of view, each service has different configurations
depending on the specific profile of services sought by different customers. If
customers consume a service in different ways, we need to calculate the cost
sustained by the company to provide each individual component of the service to the
different customers. So, if it‟s true, according to marketing literature, the value for
customer is generated by the components of the service, and these components are,
in turn, generated by the activities undertaken within the company. These activities,
which can be considered as the „sources of value‟, are the origin of company‟s costs.
For this reason, attention must be paid to those activities which, by consuming
resources, produce the service components which are the origin of customer
perceived value (Brimson and Fraser 1991; Turney 1992). Consequently, the
intensity of fruition of individual components of the service by customers translates
into greater or less consumption of the activities underlying the individual
components and, thus, of the resources necessary (personnel, energy, materials,
etc.) to perform those activities. In this way, it is possible to determine the cost of the
individual service component.
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Proceedings of Global Business Research Conference
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To show the method to calculate the cost of service components in paragraph 3 we
considered a service professional company: given the analyses carried out, the
following are the most significant conclusions.
Firstly, the analysis carried out highlights that PSFs offer a complex set of service
components provided to the individual customer, and the service component are, in
turn, the result of several activities provided by various company‟s units. The
activities are not performed autonomously, but integrate with each other, therefore it
is necessary that they are observed in a process perspective.
As the process is a group of activities that are interconnected and directed towards a
specific final result, the activities are therefore the basic parts of the process, the
boundaries of which are defined by the cause-effect relations that are created
between the activities, and that pass horizontally through the organizational
structure, crossing the barriers of the individual departments.
Looking at the organization as a group of processes, instead of as a hierarchy of
organizational units, is one of the most important requisites for improving
management accounting in professional companies. In this way the emphasis is
placed on the management of resources that cut the organizational structure
transversely and that often represent key resources/competences that influence the
organization‟s ability to compete in different markets.
Secondly, the paper underlines the linkages among three main issues: professional
services, service components and cost accounting system. The result of the analysis
proposed is that the ABC system allows firm to identify the cost of service provided
by these particular firms.
Moreover, the ABC appears to be able to bring the measures of performance in line
with the responsibilities for the result assigned to the organizational units placed at
various levels of the hierarchical structure. Compared to the traditional systems, the
ABC is able to influence the organizational behaviour in accordance with the
strategic goals of the company.
The orientation towards processes does not imply an annulment of the
organizational mechanisms and the hierarchical structures, but their subordination to
this managerial paradigm.
The representation of a company through processes provides a description of the
activities carried out:



different to the organizational one which is generally expressed in terms of
functional and divisional roles and responsibilities;
invariant with regard to changes in the formal organizational structure;
incorporating the strategic aims pursued.
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Proceedings of Global Business Research Conference
7-8 November 2013, Hotel Himalaya, Kathmandu, Nepal, ISBN: 978-1-922069-35-1
Thirdly, the subject of cost calculation should be based on the individual service
components of the offer: the sum of the costs of the individual components allows us
to express the overall cost sustained by the company to create value-for-customer.
In other words, the paper relates the concept of unit cost to customer value driver
and it identifies links between internal processes and exogenous factors (such as
clients‟ needs and requests), that impact price policies and firm‟s profitability. Within
this frame, the service component is the object to which the costs are assigned,
while the customer is a “second level” object to which costs are assigned. In this
vein, the sum of the costs of the individual components expresses the overall
resources deployed by the company in order to create value-for-customer.
Finally, in order to manage the relationship between customer and supplier it is
necessary to break down the supplier‟s production process into activities that
represent a dimension of analysis able to express that relationship. The activities
constitute the reference necessary to measure the customer‟s consumption of the
company‟s costs.
The application of ABC represents therefore the necessary prerequisite in order to
be able to understand and measure the costs incurred by professional service
companies to create value for its customers.
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