Services Costing in Contact Centre Outsourcing Operation: An Activitybased Costing Model Approach

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1 Services Costing in Contact Centre Outsourcing Operation: An Activitybased Costing Model Approach Ahmad Kaseri Ramin¹,Aini Aman² ¹ UniversitiTun Hussein Onn Malaysia ²Universiti Kebangsaan Malaysia Abstract Contact Center Outsourcing (CCO) has been identified as the knowledge-based business services which a tremendous growth over the last decade despite many challenges including the continuous escalation of operational cost. Technologies and human capital related costs make up two major components of cost of producing contact centre services. The allocation of costs which iscrucial towards deriving anaccurate units cost of services. Therefore the study was conducted to identify major component of contact center outsourcings activities, cost drivers and to map costs allocation matrix towards ascertaining each costs element to unit services. A series of interviews were conducted among managers and officers in the contact center operation. Rigorousreview of process documents werealso performed to retrieve information related to activities costs pool and operational processes. Activity based costing model (ABC) was used to map cost allocation matrix.it can be concluded that the major components of activities for CC operations were HC, IVR, EC, MO, QA and TA. The cost structure for a unit cost of services was 74% dominated by VHRC whilst technology related costs represented approximately 10% of total unit cost.keywords Activity Based Costing, Contact Centre Outsourcing, Call Centre, Cost Management, Services I. INTRODUCTION The role of contact centers (CC) as a viable channel for customer point of interactions has been recognized by most commercial firms and the government s agencies particularly in the developed and advanced economies [1] Realizing the strategic importance of contact centers to most organizations, its operations should reflect the paradigm of modern knowledge-based service which integrate the intensity in technology, human capital skills and efficient of processes [2]. Therefore the key success factor for contactcenters lies to the ability of managers in maximizing the trade-off between quality services and costs in order to stay relevant in the industry [3]. CC s nature of operation is regarded as human capital intensive in which the direct labor cost represents major component of total operating cost. Managing labor costs, technology related costs and overhead required comprehensive and careful planning and monitoring. A. Contact Center II. LITERATURE The advancement of ICT has influenced most of CC operations to innovate and adopt modern features and capabilities such as an automatic calls distribution (ACD) and inter-active voice response (IVR) as to improve productivity [4]. Towards the early 2000s contact centers became one of the most rapid growing sub-sectors of employment providers in many countries [5] including outside United Stated and Europe. Initially, contact centers were not regarded as an industry [6] but rather a mere form of work activities of organizations related to telephone enquiries. The advancement of ICT has facilitated the growing demands for new business processes approaches on the legacy system of many firms to meet the expectations for better customer relationship managements [7]. Further changes in customer demand [8] and the need for customized services have made possible for commoditization and globalization of services such as contact centers which previously produced internally are now outsourced [9]. B. Costs Structure Previous finding on contact center relates its operations as involving low-margin value-added activities, due to perception on low wages and poor working condition [10].Realizing the strategic importance of contact centers to organizations, its operations should reflect the paradigm of modern operation management with the capabilities in managing services quality, operational efficiencies and costs. A typical CC operation consist of three main components of resources namely the Technology, Processes and Human Capital. Technology aspect associated with the 58

2 investment in CC infrastructure including the Equipment, Space, Telecommunications networks and systems. The processes in managing the CC operation requires standard operating procedures and best practices to ensure smooth operation of the end-to-end processes within the services provided for customers. This includes calls routing, complaints management, agents scheduling and performance monitoring. These processes are usually handled through support systems which widely available in the market. The third components of costs structure is the cost associated to human capital. In a typical CC operation, the human capital costs represent approximately 60%-70% of operating costs [11] III. METHODOLOGY The study was conducted at medium size ( seats) sample firm of CC outsourcing provider. The combination of contents analysis and interviews were employed to capture both secondary data (costs information and documented operational processes) and primary data on the identification of resources pool, activities and cost drivers for the purpose of mapping costs allocation matrix towards ascertainment of cost per unit of services provided. A total of 12 purposive sampling respondents were involved in the interviews representing expert personals namely; 4 managers, 1 finance analyst, 6 team leaders,1 quality control executive and 1 performance monitoring executive. The responses from the interviews provided valuable information on the characteristics of CC costs structure and main processes within the CC operations. Activity-Based Cost (ABC) Modeling The ABC modeling for CC cost allocation matrix started with the identification of Resources pools which was classified into two main categories namely the CCtechnology cost pool and non-technology cost pool. The technology cost pool captured all resources as a result of investment on technology and CC technical infrastructure (capital expenditure-capex). The non-technology cost pool was mainly associated with human resources and administrative costs. Both cost pool was further segregated to direct and indirect costs according to the nature of costs behavior [12]. The second step involved the identification of main activities within the operational processes of contact centers. There were six main activates identified namely; handling all incoming and outgoing calls(hc),interactive voice recording transactions (IVR), /chats(EC), monitoring (MO), quality assurance (QA) and training activities (TA). The third step implemented was the identification of activities driver associated to activities and cost pools. The activities drivers identified were; number of contact or call or HC and number of transactions for IVR and EC. Both QA and TA cost driver was determined based on the number of program handled. The fourth phase in developing ABC cost matrix for CC, involved identification of cost objects related to the activities which were identified earlier in the second phase. The HC cost objects identified were inbound (IB) and outbound (OB) related to customer services. The second cost object identified was the technical support (TS). The other cost object was identified according to specific project team formed in the respective operation of CC. The final stage was the allocation of cost to cost object to arrive at the unit cost or transaction for the CC services. Fig.I showed the cost allocation matrix mapping using ABC model for CC operation. GL Accounts Resource Pools Activities Activity Drivers Cost objects Direct Costs Staff Cost-FTE No of calls (minutes) CC -Non Technology Costs Indirect Costs Training Costs Quality Assurance No. of transactions Direct Costs CC - Technology Costs Network Costs / Infrastructure Depreciation (capacity costs) Indirect Costs Admin Utilities/Facilities rental/ Facilities Maintenance Handling Calls IVR transactions /Chat Monitoring QA Training s No of QA programs /No. of programs No. of Trainings Inbound 1 Outbound Technical support Other specific project team N The identification of cost pools have generated different cost category namely; (i) variable human resource costs - VHRC, (ii) technology cost-tecc, (iii) networks and telecommunication costs-(netc,(iv)space and facilities costs -SFC and (v) other overheads OHC. Unit Costs Cost per Contact or transaction Fig.I: Mapping Contact Center Costs -ABC Model AKR@

3 The allocation of costs to cost object from the cost pools was derived from the cost driver rate (CDR) calculated for each activity. Calculation of cost driver rate was based on individual total costs process and total resources consumed using the following;..(1) in which TCP represented the total costs pool whilst TRP reflected the total volume resources consumed for cost pool. The allocation of fixed cost to cost object were calculated using, (2) The cost categorization per unit (cost per contact) showed in the following Table III. It was found that the VHRC represented the biggest portion (74%) of total cost component per unit services in the call center operation. Included in OHC were the fixed human resources cost approximately 5% which based on the fulltime equivalent- FTEs head counts. Taking into account both variable and fixed human resources cost, the human resources cost represented approximately 80% of total cost components. in which TRC represented the total resources consumed by cost object. TABLE III. Cost allocation per unit services IV. RESULTS The study has identified cost driver categorization as depicted in Table I. TABLE I. Activity Cost Driver Activities HC Handling Calls IVR Interactive Voice Recording EC and Chats (social media channel) MO Monitoring QA Quality Assurance TA Training activities Cost pools identified in the study highlight two major components of Variable and Fixed costs as depicted in the following Table II. TABLE II. Classification of Variable and Fixed Costs Cost Category VHRC TECC Costs included Cost Driver No of calls or contact No of Transactions No of Transactions Salaries, wages, employee provident fund, recruitment costs, training costs for agents and team leaders. Depreciation of fixed assets, maintenance, lease costs for equipment, software - processes monitoring applications Variable or Fixed Variable Fixed NETCC Telecommunication costs, data networks, Fixed depreciation on network infrastructure SFC Rental, maintenance, utilities for facilities Fixed OHC Fixed salaries, administrative costs Fixed Cost category % of component VHRC 74.0 % TECC 4.0 % NETC 4.5 % SFC 4.3 % OHC 13.2 % Total 100 % V. DISCUSSION The finding showed that, a typical contact center operation with the average capacity of 250 to 500 seats, consumed approximately 75%-80% of human resources costs as compared to only 8%-10% technology related costs. It is imperative for contact center service provider to focus on specific strategy of optimizing human resources particularly for agents level in which cost of attritions, recruitment and training continue to escalate over the times. The mapping of operation costs using ABC cost model has indicated that major activities within the contact center operation required careful process identification as a result of the existent of overlapping activities within the operation. Therefore, the identification of relevant cost drivers for each activity became difficult to conclude. Determining the right cost driver is crucial for any ABC implementation [13] as it can distort the unit cost assign to product or services. In addition, any implementation of ABC required organizational support [14] as to enable the organization determines and defines each processes. 60

4 VI. CONCLUSION The overall cost management of business operation is dependent on its ability to effectively manage its limited resources. Whilst ABC did not guarantee for cost accuracy calculation, however it provide useful information on sources and consumptions of costs for each activities. Planning and monitoring costs is more effective by examining the activities rather than detail cost line-items. Despite many challenges in implementing the model, the ABC cost modeling does provides an alternative for CC services providers a tool to capture and analyze its operating costs for better decision-making. [12] Kaplan, R. S. (2006). The Competitive Advantage of Management Accounting. Journal of Management Accounting Research, 18(1), [13] Skoda, M. (2009). The Importance of ABC Models in Cost Management. Ananals of The University of Patrosani Economic, 9(2), [14] Ahmadzadeh, T., Etmadi, H., & Pifeh, A. (2011). Exploration of Factors Influencing on Choice The Activity Based Costing System in Iranian Organizations. International Journal of Business Administration, 2(1), REFERENCES [1] Taylor, P., & Bain, P. (2007). Reflections on the Call Centre: A Reply to Glucksman. Work, Employment and Society, 21(2), [2] Hampson, J., Junor, A., & Barnes, A. (2009). Articulation Work Skills and Recognition of Call Centre Competencies in Australia. Journal of Industrial Relations, 51(1), [3]Aksin, Z., Armony, M., & Mehrotra, V. (2008). The Modern Call Center : A Multi-Disciplinary Perspective on Operations Management Research. Production An Operation Management Society, 16(6), [4] Robinson, G., & Morley, C. (2006). Call center management: responsibilities and performance. International Journal of Service Industry Management, 17(3), [5] Weinkopf, C. (2002). Call-cenre work: Specific characteristics and the challanges of work organisation. Transfer: European Review of Labour and Research, 8(3), [6] Jobs, C., Burris, D., & Butler, D. (2007). The social and economic impact of the call center industry in Ireland. International Journal of Social Economics, 34(4), [7] Winiecki, D. J. (2007). Subjects, Subjectivity, and Subjectification in Call Center Work: The Doings of Doings. Journal of Contemporary Ethnography, 36(4), [8] Bolton, S. C., & Houlihan, M. (2010). Bermuda Revisited?: Management Power and Powerlessness in the Worker- Manager-Customer Triangle. Work and Occupations, 37(3), [9] Abraham, M. (2008) Globalization and the Call Center Industry. International Sociology, 23(2), [10]Hannif, Z., Burgess, J., & Connell, J. (2008). Call Centres and the Quality of Work Life: Towards a Research Agenda. Journal of Industrial Relations, 50(2), [11] Strategic Contact (2008). Cost Structure and Distribution of Today s Contact Center. Strategic Contact Cemter Inc, White Paper,

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