The Use of Analytic Hierarchy Process in Integrating The Balanced Scorecard and Activity-Based Costing

Activity-Based Costing (ABC) is a method of measuring the cost and performance of activities and cost objects. It helps identify problems or ways to take advantage of opportunities by providing financial and nonfinancial information about activities and cost objects. Balanced Scorecard (BSC) has been accepted by the business world, worldwide, as a very promising tool for the performance measurement of an organization at the firm level. Although ABC and BSC are in practice well accepted as reliable tools for business operations, and seems reasonable to adopt these two as an integrated tool for a better service to the top management and the firm, to our knowledge there are very few if any existing researches covering this specific field. Since BSC is a multi-goals targeting model that focuses on the decision-making problems where multiple criteria are involved, and since each function of the firm usually comprises a large number of embedded activities leading to an exhaustive list of cost drivers, it seems appropriate for this research to adopt AHP in identifying the performance (cost) drivers of the outcome measures of a BSC. Thus, the main contribution of this paper is to demonstrate the potential of AHP as a tool that could easily integrate ABC/ABM and BSC. This integrated system is expected to induce innovation, improve customer service, increase customers and employee satisfaction, and enhance total performance.