Costing IS services—avoiding the sting in the tail

Activity-based costing (ABC) is an accounting methodology that is said to analyze business costs more precisely than tradi-tional cost accounting to give managers a more accurate picture of where resources are used and where costs are being incurred. The IT division of a large multinational company that uses ABC models alongside traditional cost models is studied to determine if the ABC models are improving the accuracy and relevancy of decision making. The results suggest that ABC is providing a clearer understanding of business processes, better cost control, and allowing managers to make more in-formed decisions.