The adoption of an enhanced overhead costing system in a South African state university : the case of Durban University of Technology

Abstract

Budgetary constraints associated with freezing of fees and limited government funding have increased the pressure to reform cost management strategies in state-funded South African universities. The main concern is that the data being generated in the allocation of overheads in universities is distorted and inaccurate. Activity based costing (ABC) could help solve these problems. However, there is a lack of empirical studies regarding the adoption and implementation of the ABC system in South African state universities. The aim of this study was to determine and analyse the factors that influence the adoption and implementation of ABC as a cost management strategy in a state university in SA, using Durban University of Technology (DUT) as a case study.

A mixed methods approach was used which included a questionnaire and interviews. The study adopted the embedded mixed methods approach beginning with the quantitative method (questionnaires) that involved a detailed exploration of the current costing system used at DUT and the perceptions on the factors that facilitate or hinder the adoption and implementation of ABC. This was followed with the qualitative method that used semi-structured interviews conducted with employees from the finance and the selected academic departments. A detailed study was then carried out in the university library to determine activities, cost pools and cost drivers that could be used to develop an ABC model. The quantitative and qualitative data were analysed using the Statistical Package for Social Sciences (SPSS) (version 25®) and NVivo, respectively.

The study showed that DUT is using a traditional costing system. A uniform cost base (number of students) is being used to assign most of the overhead costs to respective programmes. The findings of this study indicated that ABC has not been adopted at DUT. There was little support on the adequacy, transparency and accuracy of the current overhead costing system. Despite these shortcomings of the current system, more than half of the respondents agreed that changing the overhead costing system is not a strategic priority in the university. Perceptions regarding ABC showed that five out of eight themes developed could assist in the adoption and implementation of the ABC system. Supportive factors that could positively influence the adoption and implementation of ABC at DUT included the organisational strategy, information technology, decision usefulness of cost information, contextual/environmental factors and the organisational structure. However, system adaptability, which included adequacy of skills, top management involvement and consensus about and clarity on the objectives of the ABC system, was considered a barrier to the adoption and implementation of ABC. There were mixed views on the technical factors as well as some behavioural and organisational factors. The perceptions investigated in the in-depth interviews revealed resistance to change emanating mainly from perceived complexity, associated prohibitive cost of implementing the ABC system and uncertainty of the long-term benefits of the ABC system. The detailed study in the university library showed that the activities recorded could be grouped into cost pools and activity-related cost drivers could be used to apportion services to university programmes. The information that could potentially be used to initiate ABC was, therefore, available. Based on this information, an ABC model was developed.

Overall, the findings of the study help to understand the current overhead system at DUT as well as perceptions on the factors that influence the adoption and implementation of ABC. The information could inform strategic initiatives related to ABC and the model developed for the university library could be used as a template for a university-wide ABC implementation.