Surveying hundreds of people every month is not a costing system. It is the reason TDABC exists.
Time-driven activity-based costing was born in financial services, because conventional ABC collapsed there. Surveying hundreds of staff every month and waiting over a month for a report does not survive transaction volume. TDABC replaces the surveys with two parameters: a capacity cost rate per group, and time equations that model how each transaction actually consumes time.
Cost and Profitability Consulting · 150+ models since 2010 · TDABC
TDABC for banking and insurance uses a capacity cost rate per processing group and time equations per transaction type, giving per-transaction, per-channel and per-customer cost without surveys. It exists because conventional ABC collapsed inside a large financial institution: hundreds of staff surveyed monthly, reports taking over a month, a model always out of date. As illustrative sector patterns, a European bank replaced a failed ABC model with TDABC in its securities and derivatives processing, and a European insurer used it for profit per customer and per channel. Estimated time equations scale where monthly surveys collapse.
ABC did not slow down. It fell over.
Activity-based costing asks people what fraction of their time each activity took. In a small operation that is tedious; in a bank it is impossible. Surveying hundreds of employees every month, then waiting over a month to compile a report, produces a number that is both expensive to make and already out of date when it arrives. TDABC was created precisely at this breaking point: replace the survey with an estimated time equation, and the model updates itself as volumes change instead of requiring another round of interviews.
A rate per group, a time per transaction.
The capacity cost rate is the cost of a processing or service group divided by its practical capacity, so idle time does not hide in the rate. The time equation is the minutes each transaction consumes, with conditional terms for the things that vary, manual versus electronic, a dispute, an exception. Two inputs, and they scale across securities settlement, claims handling, account servicing and the front office alike.
Transaction cost = capacity cost rate x time equation Settlement = 2 min base + 1 min per line + 12 min if manual exception + 20 min if dispute Capacity cost rate = group cost / practical capacity (practical capacity at 80-85% of theoretical)
Illustrative. The exception and dispute terms are where a high-touch process pulls away from the electronic baseline.
THE CLOSE: FROM A MEMORY TO A NUMBER
Illustrative sector pattern. Legacy ABC reporting took over a month; TDABC collapses it to days. A number that arrives in time to act is a different tool from one that arrives as history.
Where the surveys collapsed, the equations held.
The proof is in the replacements. As illustrative sector patterns, a European bank swapped a failed ABC model for TDABC in its securities and derivatives processing, and a European insurer built profit per customer and per channel in the front office on the same method. The shared lesson is consistent: estimated time equations survive transaction volume, and the same engine then feeds customer profitability, channel pricing and the close. One cost model under the whole institution, updating itself instead of waiting for the next survey.
Frequently asked questions
- What is TDABC for banking and insurance?
- Time-driven activity-based costing uses two inputs: a capacity cost rate per processing or service group, and time equations for how each transaction type consumes time. It gives per-transaction, per-channel and per-customer cost without surveying staff, and it survives the transaction volumes of a bank, which conventional ABC does not.
- Why did ABC fail in financial services?
- Activity-based costing in a large financial institution meant surveying hundreds of employees every month and waiting over a month for a report. It did not survive transaction volume, and the model was always out of date. TDABC was invented precisely to replace it: estimated time equations instead of monthly surveys.
- Has TDABC actually replaced ABC in banks?
- Yes. As an illustrative sector pattern, a European bank replaced a failed ABC model with TDABC in its securities and derivatives processing, and a European insurer used it for profit per customer and per channel in the front office. The shared lesson is that estimated time equations scale where monthly surveys collapse.
Build the cost engine that survives your volume.
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