What is Time-Driven Activity-Based Costing?
TDABC is an advanced cost management methodology developed by Robert Kaplan and Steven Anderson that simplifies traditional ABC while delivering more accurate and actionable results.
The Core Innovation
Unlike traditional ABC which relies on surveys and subjective allocations, TDABC uses just two parameters: the cost per time unit of supplying capacity, and the time required to perform each activity. This simplicity makes it scalable, updateable, and precise.
Traditional costing methods were designed for a simpler era. They allocate overhead using broad averages, treating all products and customers as if they consume resources equally. In reality, a small custom order might consume 10x the resources of a standard bulk order, yet both receive the same overhead allocation.
TDABC captures these differences through time equations, mathematical expressions that model the actual time required for each activity, adjusting automatically for complexity, volume, and special handling requirements.
Why Traditional Costing Falls Short
Most organizations discover that 20-40% of their products and customers are actually unprofitable when true costs are revealed.
Traditional ABC systems are expensive to build, difficult to maintain, and often abandoned within 2-3 years. TDABC solves these problems by using time as the single cost driver, dramatically simplifying the model while increasing accuracy.
How TDABC Works: The 6-Step Methodology
From initial setup to ongoing profitability insights, here is how TDABC transforms your understanding of costs.
Identify Resource Groups
Map organizational departments and resource pools that supply capacity. Each group has people, equipment, and technology working together.
Calculate Capacity Cost Rate
Divide total resource costs by practical capacity (typically 80% of theoretical) to determine the cost per minute of supplied capacity.
Build Time Equations
Define time equations that estimate how long each activity takes, incorporating variables for complexity differences.
Assign Costs to Objects
Multiply time consumed by each activity by the capacity cost rate to assign precise costs to products, customers, and channels.
Analyze Profitability
Calculate true profitability at every level. Build Whale Curves to visualize cumulative profitability and identify profit creators and destroyers.
Take Strategic Action
Use insights to reprice unprofitable products, restructure customer relationships, optimize processes, and reallocate resources.
TDABC vs. Traditional ABC
A side-by-side comparison shows why leading organizations choose TDABC.
| Dimension | Traditional ABC | TDABC |
|---|---|---|
| Implementation Time | 6-12 months | 2-4 months |
| Data Collection | Employee surveys, subjective estimates | Time observations, process data |
| Maintenance | Full rebuild to update | Adjust time equations incrementally |
| Accuracy | Diminishes over time | Improves with each update cycle |
| Scalability | Breaks down with complexity | Handles millions of transactions |
| Unused Capacity | Hidden in allocations | Explicitly identified and measured |
| Cost to Maintain | High (often abandoned) | Low (incremental updates) |
Industry Applications
TDABC has been successfully applied across virtually every industry.
Healthcare
Measure true cost per patient pathway, identify variation in care delivery costs, optimize resource allocation. Learn more →
Manufacturing
Understand true product costs including setup, changeover, quality inspection. Learn more →
Financial Services
Measure cost-to-serve per customer segment, product, and channel. Understand true relationship profitability.
Education
Understand cost per program, course, and student. Optimize resource allocation across faculties.
Government
Measure cost per service delivered, identify efficiency opportunities, justify budget allocations.