A Case Study of Activity Based Costing

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A case study of Activity Based Costing
in Lagos State Healthcare



Course Facilitator: Professor Kabiru Isa Dandago

Being a paper presented in the M.Sc. Accounting Programme,
Department of Accounting, Bayero University, Kano-Nigeria

December 15, 2009

The purpose of this study is to examine the healthcare systems, in particular the blood transfusion services in Lagos State Health Services. The study revealed the challenges, the pitfalls and other associated problems of adopting a costing technology which significantly departs from previous practices. The research was based on a single embedded case study approach which analyses the organization under different perspectives, investigating reactions, behaviours and results in three subunits arising from the attempts at ABC implementation. The appropriateness of the method is unique as it differentiates this investigation from previous contributions to the ABC literature. The conclusion delved on the implications for implementation of novel accounting techniques in healthcare settings. The study identified a number of factors which influences the implementation of ABC, such as, top management support, corporate strategy and services, the presence of a champion, external consultants, team size and heterogeneity, a competitive environment, training and interaction with existing systems and the four dimensions of significant influence which are: adoption, design, implementation and use of information. The findings highlighted the progression from implementation of ABC to actual use which was also influenced by the existence of a competitive environment and by effective interaction with existing information systems.

1.0 Introduction
1.1 Background
In today’s world, healthcare systems face pressures to deliver cost efficient care in the face of high demands. Based on these pressures, many initiatives to improve the management and efficiency of healthcare delivery were adopted. This study examines the trajectory – from initial idea to implementation – of the adoption of activity based costing (ABC) with a view to improve the efficiency by one health care organization. The healthcare organization which is discussed in this paper is a blood transfusion service, part of the Lagos State Health Services. This study reveals the challenges, the pitfalls and the problems of adopting a costing technology that is significantly different from previous practices in a healthcare setting. 1.2 Research Context

The Lagos State’s blood transfusion service is currently organized into four centres for the collection and distribution of blood. The role of these centres in the healthcare system is crucial and their management is complex from the raw material procurement phase through to final use. The Lagos State’s transfusion services rely on voluntary donours, most of who donate their blood up to two times a year. Even though, this main input material is free, the costs of transfusion centres are significant as they manage many varied phases within a long supply chain: collection, processing, testing, delivery (on a daily basis) and clinical assistance. It is important to recall that since 1980, there has been an increase in costs within these services because of two major events: the discovery of HIV and of Creutzfeldt-Jakob Disease (vCJD) – the human variant of Bovine Spongiform Encephalopathy (BSE). These two events affected transfusion centres deeply and, therefore, put them at the centre of public controversy. In actual fact, the discovery of HIV altered the relationships of donours, transfusion centres and patients. This situation undoubtedly raised a sense of uncertainty in everyone – citizens, researchers, politicians, doctors – and the consequences for blood transfusion services were significant in many...
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