Proposal Sample- AN ANALYSIS OF THE CURRENT DISASTER MANAGEMENT SYSTEM IN THE TOURISM INDUSTRY OF SRI LANKA

AN ANALYSIS OF THE CURRENT DISASTER MANAGEMENT SYSTEM IN THE TOURISM INDUSTRY OF SRI LANKA

ABSTRACT

Global tourism destinations are of the virtual norm that they are prone to disasters at some point in history due to the geographical diversity. Despite this factor, only few have integrated disaster management plans within the industry.

Therefore, the study illuminates on the importance of disaster management in the tourism sector with special reference to the never anticipated tsunami disaster that wiped out the southern coastal belt of Sri Lanka. The literature of the study critically argues the crucial factors that are associated with an effective tourism disaster management which will eventually contribute to the image of the tourism destination.

 Furthermore, to congregate information on the hypothesis of the variables, a deductive research approach will be adopted that will conduct a survey among the sample that encompass hotels operating in Down South coastal bed that were affected by the recent tsunami and is still vulnerable to natural disasters.

The study will utilize ANOVA and correlation coefficient as statistical techniques for the representation and analysis of the data gathered at the investigation phase.

Keywords; Disaster Management, Tourism Sector/ Industry, Tsunami

CHAPTER 1

1.1. INTRODUCTION

Disasters are classified into several types, namely natural and manmade. Earthquakes, floods, storms, volcanic eruptions are origins of natural hazards. Nuclear wars, atomic bombing, terrorism are of manmade disasters. According to the UN International Strategy for Disaster Reduction (2002), natural disasters comprise of hydro-metrological, geophysical and biological disasters.

The study specifies on natural phenomenon of the devastating tsunami disaster on Boxing Day 2004 that claimed many lives and caused catastrophic damage to most of the South East Asian countries. Given the extreme poverty of these regions, the disaster hindered tourism in the affected areas drastically causing a loss of billions of dollars to the industry. The act of god increased the vulnerability of the tourism sector of Sri Lanka which is a key employer for the country’s economic development and a valuable source of foreign reserves earnings.

Today, Climate control is a global issue and a challenge that tourism professionals are compelled to adhere to. It is evident that Sri Lankan tourism is currently at a booming stage due to the resolution of the civil war. Despite this factor, the industry is not immune to natural disasters as clearly demonstrated by the 2004 tsunami attack. Such major disasters lead to a change in the image of the tourism destination that consequently has a negative impact on the inflow of tourist arrivals to the country. Thus stimulating the need and emphasizing the significance for an effective disaster management.

This study is an attempt to highlight the substance of disaster management by analysing the lessons learned by the local tourism from the tsunami destruction which outlined the lack of risk identification that failed to encourage a proactive approach towards natural disasters. Furthermore, evaluates the prevailing national disaster mitigation programmes and the degree to which it yields success, along with conceptualizing stakeholder responsibilities in terms of preparedness by hotel organizations and supportive laws and regulations by respective authorities in order to improve the image of Sri Lanka to an upscale destination.

1.2. PROBLEM STATEMENT

What are the critical factors that determine an effective tsunami disaster management in Down South Coastal area hotels of Sri Lanka?

1.3. PROBLEM JUSTIFICATION

The experience and the lessons learned from the 2004 tsunami disaster specified certain problems that have lead to the implementation of tourism disaster management in Sri Lanka. First, the nation lacked a primary master plan for the management of inevitable disasters in terms of prediction, warning, evacuation and emergency relief activities that are related to proactive approach.

The immediate impact was reported by the government of a loss of USD 250 million to the tourism sector, followed by a drastic drop in the number of tourist arrival. The Down South coastal area was claimed to be the most affected zone, that damaged the livelihoods of 30,000 people involved in tourism including 107 deaths of tourists. Enormous impact was created on the Southern coastal line that has some of the world’s best known beaches and of which 48 hotels reported to be affected by the calamity.

The lack of coordination collaboration among stakeholders such as tourism organization and emergency response units were poor, where disaster awareness programmes were nil and community lacked knowledge on the existence of tsunamis and how to escape one. The absence of a fully responsible governmental unit outlined the incompetent institutional arrangement to address disasters at a national level and the lack of debriefing period to exchange experience to gain insights in order to seek improvement to prevent future disaster occurrence are examples of facts that justifies the above problem statement.

1.4. OBJECTIVES OF THE STUDY

1.      To find out the catastrophic effects of the tsunami devastation with regard to Down South tourism in Sri Lanka.

2.      To find out the significant changes that has occurred in the hospitality industry due to the tsunami disaster.

3.      To evaluate the existing deterrent measures engaged by the tourist authorities, in order to mitigate future occurrence of tsunami.

4.      To find out the relationship between the types of hotels and disaster recovery plans.

5.      To find out the challenges of implementing disaster management in the tourism industry.

1.5. SIGNIFICANCE OF THE STUDY

To analyse the integrated approach taken towards a tourism disaster management by the country is the primary value of the study and the following are the target beneficiaries;

·         Tourists - to change the prevailing perception or rather behaviour of tourists towards the tsunami affected destinations and to guarantee safety and the effectiveness of the measures to mitigate future disaster occurrence.

·         Tourism Authority - to gain insights from the past disasters in order to offset pessimistic images for promotional purposes and to attract new tourism opportunities.

·         Government - to identify the existing gap of effectiveness of the national disaster management programmes in order to improve and plan for future disasters and contribute to economic development.

·         Hotel Organizations – to identify the importance of disaster management and integrate related strategic management policies in hotel operations in order to improve the company image.

·         Insurance Companies – in order to gather information to alter or modify necessary insurance policies with relation to natural disasters

·         Hotel employees – provides comprehensive information to understand the importance of preparedness in terms of engaging in necessary training.

·         Community- gain knowledge about the occurrence of tsunami and learn how to escape one in order to prevent damage to the livelihood of the people.

1.6. SCOPE AND LIMITATIONS OF THE STUDY

The scope of the study is limited to analysing tourism disaster management with special reference to the 2004 tsunami devastation and fails to address other types of natural disasters that the tourism industry is exposed to.

The Sri Lankan coastal line coverage is of 1,330 kilometres of which 1,126 kilometres were affected. The study will only consider the South coastline and the rest will be omitted.

The research is furthermore limited to a hotel sample unit of five star, four star and three stars operating in selective areas of Down South coastal region of the Southern Province district of Sri Lanka. This sample may include hotels that were affected by the tsunami and new hotels which were established recently which did not suffer the damage.

CHAPTER 2 – LITERATURE REVIEW

2.1 INTRODUCTION

The emergence of disaster management in the tourism industry has been advocated by much academic research due to the intensity and frequency of natural disasters with relevance to the geographical diversity of tourism. (International Federation of Red Cross and Crescents Societies 2006 cited in Hystad and Keller, 2008)

Studies by Burby & Wagner (1996) and Drabek (1992, 1994) have further emphasized that tourists are vulnerable to disasters than locals due to the fact that they are less independent in terms of their unfamiliarity with regards to local hazards and relied resources to avoid risks. Therefore, Sonmez et al, (1999) recommended that hospitality companies should manage disasters in a manner that gives priority or rather responsibility toward their guests.

According to Faulkner (2001); Kash & Darling (1998); Ritchie (2004), there is minimal proactive planning in the industry despite the increasing natural devastations; there by shedding light on the importance of disaster management in the tourism industry.

Faulkner (2001) had identified the need for long term disaster management therefore his study proposes a framework towards disaster management that includes six phases, namely; preparation, response, emergency, initial recovery, long term recovery and re-establishment.

Moreover, similar scholars such as Moe and Pathranarakul (2006) have identified an integrated approach towards natural disaster management and likewise Kurita et al (2006) attempts to evaluate the tsunami public awareness and the disaster management system of Sri Lanka.

 2.2 HOTEL STRATEGIC MANAGEMENT

Prior academic studies on tourism disaster management have emphasized on the fact that tourism industry is susceptible and vulnerable to disasters (Santana, 1998) such as the Southeast Asian tsunami that had catastrophic impact on the industry (Okumus and Karamustafa, 2005). Many arguments have been presented to address whether or not strategic management facilitates organizations to prevent or mitigate adverse effects of a disaster that unexpectedly originates from the external environment (Preble, 1997).

However, David (2003, p.15, cited in Tew et al., 2008) claims that organizations tend to be “more proactive than negative in shaping its own future” and “exerts control over its own destiny” due to strategic management. Therefore, there is a general notion that strategic management allows organizations to deal with disasters effectively. (Tew et al., 2008)

According to Yu et al (2006) tourism operators must develop a disaster management plan and integrate it to the organizations’ strategic planning and review the strategic plan frequently to identify any amendment in the strategic direction. Finally, training throughout all levels of the organization is vital for the disaster management plan to be effective since it is essential for managers to be prepared to cope with future occurrence of disasters (Chong, 2004). Siomkos et al, (2006) shared a similar view with relation to Greek luxury hotels’ proactive practices towards disaster management that stressed on the level of preparedness. Udugama’s (2008) concept paper on Sarvodaya highlighted the need for training of management and staff of the hotel community in order to foster disaster resilient and also to provide a disaster preparedness certification to make Sri Lankan hotels desirable.

 Handerson’s (2005, 2007) studies on hotels in Phuket, revealed a different management approach towards the 2004 Tsunami in terms of CSR (Corporate Social Responsibility) activities that were critical factor for tourism disaster management. Contradicting arguments and criticism by Edgar and Nisbet (1996) stated that long range strategic planning is of little benefit to hospitality operators due to the inevitable nature of disasters and suggested that hotels should not try to overcome the environment rather change and adapt accordingly. Hence, it is noteworthy to state that there is a significant relationship between Hotel strategic management and tourism disaster management.

2.3 GOVERNMENT REGULATIONS

Studies by Hystad and Keller (2008) identified a destination tourism disaster management framework of which they emphasized on stakeholder responsibility for a successful tourism disaster management.

According to Cioccio & Michael, (2007); Faulker &Vikulov, (2001); Hystad and Keller (2005) majority of tourism organizations do not integrate disaster management strategies into their business; instead they tend to assume that a superior authority initiates a tourism disaster management plan. Therefore, it is evident that the government is the key stakeholder for the coordination of activities required for an effective disaster management. (Moe and Pathranarakul, 2006)

Buffer zones were announced to restrict reconstruction in tsunami affected countries (Wong, 2009).  Based on the lessons learned from the 2004 tsunami disaster, the government of Sri Lanka had considered various countermeasures (Kurita et al., 2006) which included the no-build buffer zone of 100m in the South. The Sri Lankan legislation with regards to the buffer zone was rather confusing since hotels were allowed to remain within the zone with restrictions for new ventures (Wong, 2009).

Moe and Pathranarakul’s (2006) study on an integrated approach towards disaster management advocated that governmental supportive laws and regulations is a CSF (Critical Success Factor) for successful disaster management. In addition to this, Tingsanchali (2005) argued that due to 34 laws that are associated to disasters in Thailand, many tourism organizations faced authority confusions. Hence, it is theoretically pointed out that supportive laws and regulations must be established and enforced for effective disaster management.

As stated by Hystad and Keller (2008) the role of a government becomes crucial during a post- tsunami recovery period and there by hotels expect Tourist Authorities under the state governance to provide leadership for the collaboration between tourism organizations and emergency response agencies. The study further states that the resolution stage should be a debriefing period among the respective authorities and hotels for the transfer of knowledge among the groups in order to improve tourism disaster management. 

2.4 LOCAL PRESSURE GROUPS

As identified by Ritchie (2004) the media is considered to be a crucial stakeholder in the event of a disaster with relation to the communication of information to various public including tourists. He further elaborates on its importance due to its ability to restore confidence in a disaster affected tourist destination during its long term resolution stage.

Contradicting arguments have been made by similar studies on the negative media coverage due to severe impact of disasters on the hospitality industry. Hall (2002) gave emphasis to the influential power of the media that may consequently result in a shift of the public’s image of a destination and tourist perceptions on disaster management in the tourism sector.

Faulkner (2001) claims that media will make possible to disseminate warnings on potential disasters and simultaneously hinder the execution of an emergency operation by broadcasting false information and further criticising such operations. However, media is an essential ingredient in Faulkner’s (2001) framework towards a tourism disaster management.

Based on the main findings by Vassilikopoulou et al (2009), the study suggests that hotel operators should establish a positive interaction with the media through a two way communication. Additionally, the media must be exposed to accurate information that will improve the tourism sector’s image.

Apart from the media, studies by Udugama (2008) show that the THASL (Tourist Hotals Association of Sri Lanka) has a significant influence on the development of the local tourism sector. It is known to be the only formal body representing all hotels in Sri Lanka and contributes to the formulation of disaster management plans for the country’s hospitality industry. 

These arguments presented in this section demonstrate the relationship between local pressure groups and its impact on tourism disaster management. Therefore it is advisable for hotels to develop a network of contacts and encourage long term mutual beneficial relationships with the respective pressure groups (Vassilikopoulou et al., 2009). 

2.5 GOVERNMENT INFRASTRUCTURE

Recent studies indicated that the government of Sri Lanka was inadequately prepared for natural disasters since the country never anticipated a major tsunami. Although the government has initiated disaster mitigation plans, the lack of experienced officials, insufficient resources and the absence of a proper disaster management system fell short to accomplish productive results (Kurita et al., 2006).

Moe and Pathranarakul (2006) had identified that the lack of a proactive approach consequently led to the catastrophic damage and significant number of deaths including tourists. However, the same study outlines the CSFs (Critical Success Factors) for a viable disaster management that highlights the need for an effective information system that is important for sharing vital information among stakeholders to engage in planning and early warning.

Another key factor identified by the authors is effective disaster logistics that includes technology such as GIS (Geographic Information System) and furthermore underlines the requirement of sufficient funds which are all of Government stakeholder responsibilities. A study by Oloruntoba (2005) on post tsunami recovery supports and shares a similar view.

Studies by Gamage and Halpin (2007) on the status of information and communication technology (ICT) imply that it is mainly concentrated in the urban area there by indicating a slow and uneven growth which constitutes a problem for the productive outcomes of the early warning mechanism.

Arguments presented by Perry (2007) reveal that government infrastructure is very much needed for natural disaster management planning. Therefore it is evident that the lack of government infrastructure impedes the efficacy of a tourism disaster management. 

2.6 PREVIOUS TSUNAMI IMPACT

The Sri Lankan tourism sector along with other Southeast Asian countries suffered a tremendous loss due to the calamity of the 2004 tsunami. Ritchie (2004) identified that tourism is an important economic sector in this region that contributes to the majority of the nations’ growth and survival.

Therefore, due to the immense pressure on tourism managers, the need to assess the extent of the damage is important to devise strategies to cope with the impact that hampers the interest of tourism.

Studies by Robinson and Jarvie (2008) specified that tourism in the coastal belt of Sri Lanka that consisted of hotels, restaurants and other entertainment facilities were either partially or completely wiped out. A total of USD 250 million of the tourism sector was estimated by the World Bank (2005, cited in Robinson and Jarvie, 2008).

The authors further stated that the tidal waves had a major impact on the island’s inland tourism due to the misperception that the entire land was affected that lead to a decrease in the inflow of tourist arrivals..

Another consequence of the tsunami would be the increase in travel insurance as disclosed by Zhang’s (2005) study on tourism in China. It was evident that the disaster encouraged or rather promoted the purchase of casualty insurance.

Wang’s (2009) investigation revealed that the impact of disasters in terms of safety impedes the tourism demand.

Scrutinizing the gravity of the impact of the tsunami disaster will outline common problems that are associated with disaster management (Moe and Pathranarakul, 2006) which will further stimulate the need for one in the tourism sector that ensures safety of tourists. Analysis of such consequences of natural disasters will seek for solutions within a disaster management context (Ichinosawa, 2006).  

CHAPTER 03 – RESEARCH METHODOLOGY

3.1. CONCEPTUAL FRAMEWORK

Independent Variables                                                         Dependent Variable

Figure 1 – Conceptual frame work Source: (Author’s work, 2010)

Government Infrastructure

Previous tsunami impact

Local Pressure groups

Government regulations

Hotel strategic management

H1 11

H2

H3

H4

H5

Tourism Disaster Management

 

 

3.2 HYPOTHESIS

Ho – there is no positive relationship between tourism disaster management factors and tourism disaster management.

Ha – there is a positive relationship between tourism disaster management factors and tourism disaster management.

	Hypothesis
H1	Ho1 - there is no positive relationship between Hotel strategic management towards disaster mitigation and tourism disaster management. Ha1 - there is a positive relationship between Hotel strategic management towards disaster mitigation and tourism disaster management.
H2	Ho2 – there is no positive relationship Government regulations between and tourism disaster management. Ha2 - there is a positive relationship between Government regulations and tourism disaster management.
H3	Ho3 - there is no positive relationship between Pressure Groups and tourism disaster management. Ha3 - there is a positive relationship between Pressure Groups and tourism disaster management.
H4	Ho4 – there is no positive relationship between Government Infrastructure and tourism disaster management. Ha4 – there is a positive relationship between Government Infrastructure and tourism disaster management.

H5	Ho5 - there is no positive relationship between Previous tsunami impact on Down South tourism and tourism disaster management. Ha5 - there is a positive relationship between Previous tsunami impact on Down South tourism and tourism disaster management.

Table 1- Hypothesis                                                    Source: (Author’s work, 2010)

3.3 POPULATION

The population for the study comprises of hotels operating in the Southern coast of Sri Lanka. The prime reason for the chosen population is due to the extent of the severe impact of the 2004 calamity of tsunami to this region, which consequently led to the partial or complete closure of majority of the hotels in Galle, Hambantota and Matara (Gupta, 2005).

The Down South coastal belt is best known for its’ beaches and other assets that are main tourist attractions. Among them is the Dutch Fort in Galle that was designated by UNESCO as a World Heritage Site and additionally the surf, snorkelling and diving destinations such as Hikkaduwa and Unawatuna that were vulnerable to the tidal waves. Therefore, it is the ideal population to identify the critical factors for an effective tourism disaster management.

3.4 SAMPLE TECHNIQUE

The study will initially utilize the clustering method due to the grouping of the population. Later the stratified sampling technique will be applied to derive at a sample which will encompass homogeneous descriptive categorization of 3 to 5 star hotels which is known as strata. This method will facilitate to eliminate errors and reduce biasness of the research. 

3.5 SAMPLE

As per the above sampling technique, the sample size will consists of 3, 4 and 5 star hotels of the Southern coastal line that were affected by the tsunami tragedy and is yet exposed to future occurrence of potential tsunami disasters. The following exhibit and table illustrates the derived sample of 35 hotels that is essential to congregate information to determine the purpose of the study.

3.5.1 Sample illustration

35 Star Hotels

Location	5 Star Hotels	4 Star Hotels	3 Star Hotels
Bentota	·  Saman Villa ·  Taj Exotica ·  Heritance Hotel ·  Triton	·  Tamarind Hill Hotel ·  Bentota Beach Hotel ·  Indiriwa Beach Resort	·   Hotel Serendib ·   Hotel Club Villa ·   Induruwa Beach Hotel ·   Emerald Bay Hotel ·   Lihiniya Surf Hotel
Hikkaduwa			·   Coral Sands Hotel ·   Amaya Reef ·   Coral Gardens Hotel ·   White House Villa ·   Sunils beach
Galle	·  The Fortress	·  Jetwing Light House Hotel ·  Galle Fort	·   Closenberg Hotel ·   The Fortress ·   Villa Araliya
Unawatuna		·  Kosgoda Beach Resort	·   Off Rocks Villa ·   Unawatuna Beach Resort
Hambanthota	·  Elephant corridor	·  YalaVillage	·   Peacock Beach Hotel
Matara	·  Weligama Mandara Resort ·  Amanwella Resort		·   Surf Lanka Hotel ·   Weligama Bay Beach ·   Dickwella Resort

Table 2- Sample Unit - Hotels of Down South                     Source:(Author’s work, 2010)

3.6 RESEARCH APPROACH

The study will adopt a deductive approach considering the time contingency and the research characteristics. Such an approach was previously used by similar studies (Hystad and Keller, 2008) to test the relationship or rather the validity of the hypothesis on a top down approach. 

3.7 RESEARCH STRATEGY

A survey method was conducted as the research strategy to congregate information for the analysis of the hypothesis. In terms of gathering primary data a questionnaire is distributed among the sample for the essence of the investigation. Furthermore, interviews will be held with respective authorities to obtain quality comprehensive information (Kurita et al., 2006).

Secondary data will be associated with books, journal articles, statistics and census for the measurement of the appropriate variables.

3.8 OPERATIONALIZATION

Name of the variable	Definition	Type of Question/ Description	Type of Data	Measurement
Independent	The extent to which hotels have integrated disaster management into strategic management	I believe my staff members are well trained and know how to protect themselves from a tsunami.	Interval	Likert Scale
Hotel Strategic Management
Government Regulations	The extent of the government’s influence on mitigation of disasters.	Government has enforced supportive laws to mitigate tsunami disasters.	Interval	Likert Scale
Local Pressure Groups	The impact of local pressure groups on tourism disaster management.	Media’s influence is important to determine an effective tourism disaster management.	Interval	Likert Scale

Previous tsunami impact	The extent of damage to the tourism sector by the tsunami.	Local tourism sector have obtained insights and knowledge from the lessons learned.	Interval	Likert Scale
Government Infrastructure	The inadequate resources for the implementation and effectiveness of the tourism disaster management.	Lack of government infrastructure is a challenge to overcome in tourism disaster management.	Interval	Likert Scale
International Standards	The set standards by international bodies the tourism sector has to adhere to.	Local tourism sector’s disaster management is in par with international standards.	Interval	Likert Scale
Dependent	The effectiveness of the prevailing tourism disaster management.	A successful tourism disaster management is crucial to promote Sri Lanka as a viable destination.	Interval	Likert Scale
Tourism Disaster Management

Table 3 - Operationalization Chart                             Source: (Author’s work, 2010)

3.9 PROPOSED STATISTICAL METHOD

For the evaluation of the significant relationship between the dependent and independent variables Analysis of Variance (ANOVA), correlation coefficient and T- statistics will be used since previous research such as Vassilikopoulou et al (2009) and Chen (2010) approve the above methods to be suitable for the representation of data.  

CHAPTER 4 – CONCLUSION

The predicament of the study is to emphasize on disaster management in the tourism industry, with relevance to identifying the factors that determine an effective tsunami disaster management in the Southern coastal belt of Sri Lanka.

The objectives for the study were there by devised accordingly. The critical literature review theoretically demonstrates the significant relationship of the respective hypothesis based on previous academic research.

A stratified sampling method will be applied to develop a precise sample size. Additionally, deductive research approach will be adopted in order to congregate information on the validity of the hypothesis in terms of a questionnaire and face to face interviews with the chosen sample for the collection of primary data.

Coping with natural disasters is a challenge in modern tourism management and is beneficial to the tourism sector when executed properly. Thus, the prime aspect of the study will enable the domestic tourism sector and other key stakeholders such as tourists to conclude whether or not Sri Lanka is a viable tourism destination.

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Facilitate Activity Based costing in Sri Lankan companies

Abstract

 The research study has based on activity based costing with the objectives which are; to find out the implementation problems of applying activity based costing, to discuss solutions for those problems and to facilitate activity based costing in Sri Lankan companies. The literature review has based on an exploratory research of ABC method implementation in Serbia. According to the guidance of Professor Kennedy Gunawardana, a mini research works has been conducted by selecting three manufacturing companies which are using activity based costing. The data collection method was interviews with relevant managers and accountants of the company. By conducting those interviews major four issues have been identified and those have included as a summary in findings. Finally it has concluded with several suggested solutions for identified issues in order to achieve the vital objectives of the research.

  

 INTRODUCTION

Background

Costing systems play an important role in overhead costs allocation on results of production, providing in the same time the management of one company with important information about: production price of product or service; the sale price (pricing strategy); information that assists in business planning and controlling; and information that help managers in process of alternative decision-making.

Traditional costing systems allocate production overhead costs to products and services according to the volume-based cost drivers. In production companies cost drivers are usually machine-hours, the time that worker spends using a machine in order to produce one product, or direct-labour hour which is the employee’s time spent in production of specific product. Those drivers are correlated with amount of working hours of employees and machines that are directly engaged in production of products. The greater amount of costs will be allocated to the products or service that requires more labour or machine hours to be completed. This is logical and practical solution of a very complex problem, but it cannot be applied in service providing organizations without sacrificing precision in cost allocation.

  

Objectives

·         To find out the implementation problems of applying activity based costing

·         To discuss solutions for those problems

·         To facilitate activity based costing in Sri Lankan companies

  

 LITERATURE REVIEW

Robert S. Kaplan introduced in 1988 new costing system (classic model) as a response to disadvantages and shortcomings of traditional costing methods.1 Activity based costing system (ABC) quickly found its way to production companies. The main difference between this method and traditional costing methods is in the treatment of indirect costs. There is a direct connection between the results of production and directs costs (such is the price and quantity of wood used in production of chairs or tables), making its allocation simple. The problem lies with indirect costs; such is the cost of electricity used for lighting in production plants, because they have no direct causal connection with results of production. Total costs could be also classified to costs of production and period costs. Product cost is a cost assigned to goods that were either purchased or manufactured for resale, while period costs consist of costs recognized as expenses during the period in which they incurred and therefore will be covered with periodical result. Overhead production costs are not easily traced to the results of production, since these costs often have no direct relationship with one individual product/service or activity. In average, production costs, in production companies, measure from 40% to 60% of total costs. However, in service-providing entities, such as commercial banks, indirect costs make up the largest part of total costs. In such situations, accurate cost accounting is required, and Activity-based costing suits this requirements the most.

There are many definitions of the word - activity. Activity is every repeated action, movement or order of operations, carried out in order to execute the business function; and it can be described with a verb or noun, for example starting the machines or unloading of raw materials.

(Rainborn and others, 1996) According to Brimson, activity can be defined as appropriate combination of people, technology, raw materials, methods and environment necessary for the production of certain products or services, which describes what one company does and how it uses its time and resources in order to achieve its goals. (Brimson, 1991) From these definitions it can be concluded that activity is a very small part of the business of one company that employs and spend its resources, and can be divided into smaller fractions. When implementing activity-based costing system for the first time, it is very important to develop suitable activity dictionary which is the list of activities that company perform in its business. While composing activity dictionary, organizational structure and size of a company can be helpful. When defining activities, complex business is divided into basic operations and activities that can be perceived and managed. Different data collection methods and techniques can be used here, such as conducting interview with key staff, using diaries or notes of employees and direct observation of activities. Nevertheless, the basic principles of efficiency and materiality should not be ignored.

Traditional costing systems have four very complex stages in cost allocation; Activity-based costing system has only two. In the first phase of cost allocation, according to Activity-based costing method, total indirect costs are determined on company or business unit level. The next step is to define the activities that have to be accomplished in order to provide a service or to have a product being finalized. Activity-based costing system assumes that the execution of a certain activities drives the creation of production costs opposing to the assumption of traditional costing systems that suppose that results of production (products and services) cause the existence of these costs. Therefore, indirect costs are allocated on activities or activity cost pools in the first stage of this method based on pre-defined cost drivers. The second stage of activity-based costing method distributes total amount of allocated costs of activity centers to cost objects.

Cost drivers are associated with the nature of activity performed. As example, in trading company, where one activity can be purchasing of goods to be sold, the number of suppliers and/or the number of purchase orders could be recognized as cost drivers. All costs calculated in order to get one purchase order to be accomplished will be allocated to that activity. In second phase of Activity-based costing method, allocated costs are being distributed to cost objects (in this example the good to be sold) according to cost driver - number of purchase orders accomplished for purchase of that good to be sold. Therefore, inventory that has been purchased in greater amounts or several times more than the others groups of inventories will be allocated with higher amount of indirect overhead costs or the more the activities are performed the higher will be the overhead cost applied to cost object.

The previous paragraph described classic model of Activity-based costing method, however in 2004 Kaplan introduced more up to date model: Time-driven Activity-based costing. This model is even more suited and adapted for application in service-providing companies, though it can be applied in manufacturing companies as well. Time-driven Activity-based costing can successfully implemented in commercial banks. As an example, we can analyse one sector within the bank – credit department. Activities centers could be defined as: loan approval, customer complaints processing and other requests. The main difference between classical and modern model is the inclusion of new dimension: the capacity utilization. Namely, it is estimated practical capacity at the level of one sector or company, which represents the approximate number of working hours provided by employees that will be exploited in certain period of time. Unused capacity includes the time employees spend on breaks, arrival and departure from work and time that is not directly linked to the performance of the operations or activities. Furthermore, allocated indirect costs at the level of sector can be divided with number of working hours in order to calculate the amount of costs needed for execution of one unit of time – hours or minutes. Previous calculation is needed for cost allocation to activities.

By multiplying working hours needed for one activity to be accomplished with cost per working hour, indirect costs are being allocated to activities or activity centers. The second stage of Activity-based costing method distributes allocated indirect costs of activities to cost objects (single client, or group of clients), by recording all activities conducted for each group of customers6. Using this calculation, the total indirect costs for each group of clients could be calculated, by adding all distributed costs for each client. This information is necessary for pricing strategy. Still, there is a portion of indirect costs that cannot be allocated, no matter which costing method company implies, and has to be covered with periodical result. Sometimes this amount of costs can be sufficient to turn positive periodical result to negative. Therefore, it is necessary to strive for thorough and complete indirect costs allocation.

When discussing real life implementation of activity-based costing, there are numerous companies that have been used Activity-based costing method in profitability studies to help them decide which products or clients to cut or keep. But ABC system helps in decision making in so many other ways. Thousands of firms have adopted or explored the feasibility of adopting Activity-based costing, but many have given up, or their programs are stagnating.

The need to measure more precisely how different services and products use resources has led companies such as American Express, to refine their costing systems introducing Activity-based costing system. Other examples of successful Activity-based costing integration are service providing companies such as The Cooperative Bank, Nawaloka Hospital,. Also, many retail and wholesale companies (a retailer and distributor of grocery store products) and Owens and Minor (medical supplies distributor) have used Activity-based costing method, alongside with giant Hewlett-Packard. Finally, the initial cost of Activity-based costing system implementation is either insignificant or less than 1% of the sales (in most companies) and accordingly the payback period is less than one year, which concludes that integrating new costing model in company doesn’t have to be expensive.

 FINDINGS

Data collection method – Interviews

Companies:

Finlays Teas(pvt) Limited

Macbertan (Private) Limited                                 

New Pearl Trading Company

By considering all the ideas and facts which were collected by interviews from above three companies it could be identified under following four major headings.

Issues relating to number of activities.

One issue examiners frequently confront humorously, more often than not by the individuals who have grasped the ABC idea most eagerly is the allurement to assemble an action list that goes down to too fine a level of subtle element. There are handy issues connected with displaying an excess of exercises ascertaining the model takes longer, keeping up the action rundown is an authoritative bad dream, and ordering exercises to distinguish squandered movement turns into a more burdensome occupation.

In any case all the more critically including more detail doesn't give better data. At the point when a model contains a great many exercises, its hard to home in on germane data you can't see the timberland for the trees. Numerous exercises will have irrelevant sums apportioned to them. It's best to consider how you will utilize the movement investigation before you characterize the exercises, and afterward pick a level of subtle element that is proper.

Case in point, in case we're setting up a vital examination, its most likely sufficient to characterize as few as 20 or 30 exercises. In actuality, these exercises most likely would be at a sufficiently high level to be named techniques for instance, a progression of related exercises that make the "client deals request methodology"—instead of the individual exercises that structure a piece of that process, for example, "take client arrange by phone." Dividing the procedure cost by a suitable driver, for example, number of client deals requests, gives a measure that can be utilized to stand up in comparison the same process in different organizations, or for exploring conceivable outsourcing choices. What's more, in the event that you accordingly conclude that you need to grow the examination to, say, 50 or 75 exercises, its sensibly simple to do as such without principal changes in the mode.

For strategic displaying, you have to work at a more itemized level. This is an absolute necessity when examining squandered expenses, in light of the fact that it gets to be important to examine exercises identified with slip amendment, duplication, and holding up. More detail is additionally required for item, client, and channel costing, so we can allocate diverse exercises to distinctive mixes of exercises utilizing distinctive expense drivers. A regular strategic model may investigate somewhere around 200 and 300 exercises and maybe 10 or 20 drivers. Business process change obliges exercises to be dissected at a low level—maybe down to assignment or, more probable, a mix of undertaking and movement level.

In the event that the entire business is to be inspected, business process change some of the time brings about more than a thousand exercises. Displaying at such a level could turn out to be a perplexing and protracted methodology, and the requirement for such an itemized methodology would significantly rely on the association's circumstances and its requirement for such data.

One beginning stage is to add to a generally straightforward key ABC model, which focuses administration toward ranges that need consideration. More itemized displaying activities can then be run, concentrating on those ranges of concern. On the other hand, in case you're keen on expense adequacy, eventually you have to model at the strategic (action based) level—else, you can't separate between those exercises that include esteem and those that do

Issues in Selecting cost drivers

A standout amongst the most troublesome parts of ABC execution is recognizing and selecting suitable drivers. One reason is on the grounds that its not generally instantly obvious what drives a specific movement. For instance, the driver for the action "pursue clients on phone" could be the quantity of past due receipts, the estimation of late receipts, the quantity of calls, or some other measure. Moreover, despite the fact that the conspicuous driver to this action may be the quantity of late receipts, the underlying driver may be that flawed products cause clients to postpone installment. As a general rule, the main driver for the most part gives administration the most helpful data. Particularly in the early period of ABC usage, it may not be clear which driver is generally critical. It regularly doesn't get to be clear until after the action expense has been computed, however in the event that our product arrangement is sufficiently adaptable, its a sufficiently basic employment to switch a movement starting with one driver then onto the next. This needn't be an issue, yet we have to be interested in the thought that we may—and likely will—need to change your suspicions about driver assignments. Pick an answer that permits us to change suspicions effectively.

An alternate potential entanglement is that actually when a driver is unmistakably critical, the driver information may not be effectively accessible. Potentially the information isn't recorded anyplace or assets aren't accessible to concentrate the driver from the IT frameworks so you must be arranged to bargain and maybe utilize distinctive drivers, regardless of the possibility that just briefly until the suitable information can be separated or begin to be gathered. To ease this to some degree, its a smart thought to begin driver gathering early. Experience demonstrates that getting hold of the driver information is frequently a bottleneck in ABC ventures. Beginning early minimizes the danger of a bottleneck as well as permits the business to begin gathering information that it doesn't right now track.

Expand the profit of your work by receiving a couple of straightforward standards regarding the matter of picking movement drivers. Initially, attempt to point of confinement the quantity of drivers. You can likely pick 10 or 20 drivers that fit most exercises, and those identified with the most unreasonable exercises. For a couple of minimal effort exercises, the profit of investing a great deal of time and exertion on getting information for a couple of obscure drivers likely won't be justified regardless of the inconvenience. For those few minimal effort exercises, appoint the best-fit driver from the remaining rundown or acknowledge that the action has no association with clients or items, and regard it as unallocated. On a comparative tack, when gathering information, organize your time so we can focus on the most expensive drivers.

In the event that we have to, its very substantial to gauge the most essential drivers. At the point when a driver is in the main 10 however information isn't quickly accessible, utilize our administration group and staff's experience to gauge the volumes, or if proper, example the information for a brief time to give an evaluation of the yearly driver volume. Albeit by definition gauges and tests are under 100% precise, its ideal to have data that is helpful and almost right instead of no data by any means. The length of administrators and staff who are near to the methodology are included, the appraisals will end up being astoundingly precise and absolutely adequate to create a sensible distribution of expense to clients.

Issues in designing the activity dictionary

The action lexicon is more than only a rundown of exercises it additionally goes about as a format for gathering the time spent by staff on exercises. So and in addition giving an info to the model building, it turns into an important asset amid the information gathering stage. This area talks about the different standards that oversee the development of a helpful movement word reference. An outline workshop ought to be held where key administrators meet to examine and concede to an arrangement of methodologies and exercises that are to be demonstrated. The workshop is greatly essential, not just in light of the fact that it permits the venture to profit from the business information and experience of your administrators, additionally on the grounds that it teaches them in the strategy and permits them to admire the purposes behind the undertaking hence empowering their full investment and participation with the finishes of the investigation.

Amid the workshop, recollect what we examined in the past area about the quantity of exercises. Limit the level of point of interest to what is obliged and to what will give the essential results toward the end of the examination. More detail than should be expected results in an unwieldy model—one that is difficult to keep up and from which determinations are difficult to make. Likewise, recollect the remarkable focuses about distinguishing the exercises that are identified with procedure disappointment. On the off chance that we need to make process upgrades as an aftereffect of the ABC examination, its critical that our action lexicon records waste exercises, for example, slip revision, duplication, holding up, checking, and transportation.

A regular impediment to effective ABC demonstrating is the powerlessness to get great quality movement driver information. Your outline workshop ought to at first designate drivers to exercises, and after that endeavor to decrease the quantity of drivers to a greatest of, say, 20. Get all supervisors included to survey the first decision of drivers, so they concur on what it is truly the reason for the action.

Some of the time you won't have the capacity to get hold of the right data for your first-decision driver, so be arranged to bargain. In situations where exercises are known to be brought about by a driver for which information won't be accessible, and no option best fit is accessible, we can part the movement by client/item gather in the word reference and ask directors to gauge the part when finishing the process.  

Issues in choice of modeling tool —spreadsheet or ABC software

There are, essentially, no making tracks in an opposite direction from the way that a product arrangement is important. The main inquiry is whether we ought to put resources into a committed ABC device, or on the off chance that its conceivable to escape with building your own particular spreadsheet-based arrangement.

For an abnormal state, key model, its just about conceivable to escape with a homegrown spreadsheet arrangement. For a prototyping, evidence of-idea activity went for making the approach and putting forth the defense for ABC—committed application programming may not be vital.

Notwithstanding, once the venture pushes ahead to more definite levels, or when clients oblige specially appointed questions, or when you have to keep up the model, a spreadsheet arrangement looks more hazardous. Case in point, take the issue of information volumes. A commonplace key model may have 20 divisions, 30 records, 50 exercises, 50 client/item gatherings, and 10 drivers. Despite the fact that this isn't a tremendously definite model, it can bring about 1.5 million estimation substances. Any spreadsheet takes quite a while to recalculate after even a straightforward information change. Furthermore, spreadsheets do not have the ability to follow back expenses in basic report structure to focus source.

A greater danger is that the spreadsheet arrangement gets to be greatly intricate and hard to keep up actually for the individual or persons who manufactured it. On the off chance that the spreadsheet maker ought to leave, experience proposes that the model must be modified or it falls into neglect on the grounds that nobody has the learning or certainty to disentangle the complex interrelationships contained inside the spreadsheet.

Therefore alone, dependence on spreadsheet models is not suggested for the medium or long haul advancement of ABC. Various ABC programming apparatuses are accessible that make the procedure of model building, information catch, and examination of the outcomes much simpler, both in the introductory building stage and amid the continuous existence of the venture.

A typical misinterpretation is that receiving an ABC framework infers the need to reject the current costing framework and contribute a lot of capital and exertion in another framework. Actually, the best ABC usages are ones in which associations as of now utilize frameworks that give solid information and a decent costing teach in the association. In such associations, ABC is more inclined to incorporate into the current framework instead of supplant on traditional costing methods.

 CONCLUSION

The mini research study has been conducted with the objectives which are; to find out the implementation problems of applying activity based costing, to discuss solutions for those problems and to facilitate activity based costing in Sri Lankan companies. The research has based on activity based costing and literature review has based on an exploratory research of ABC method implementation in Serbia. According to the guidance of Professor Kennedy Gunawardana, a mini research works has been conducted by selecting three manufacturing companies which are using activity based costing. The data collection method was interviews with relevant managers and accountants of the company. By conducting those interviews major four issues have been identified and those are issues relating to number of activities, issues in Selecting cost drivers ,issues in designing the activity dictionary and finally, issues in choice of modeling tool —spreadsheet or ABC software.

It can be suggested following solutions for eliminate above issues,

ü  Make accounting people aware in ABC method and its benefits.

ü  Seek expert’s advice in selecting activity drivers and designing activity dictionary

ü  Use ABC software in managing cost

Finally it can be concluded that ABC is a good costing method and Sri Lankan organizations will be benefited from ABC by apply the method with suggested guidelines above

ERP systems

ERP systems are one of the most commonly used Information systems in larger manufacturing organizations worldwide. ERP is considered a very effective system that enables all the functional areas of an organization to access to information and to share within departments. However despite the popularity of ERP, failure rate of the system is becoming high. This study will analyze the barriers of ERP post implementation in Apparel industry Sri Lanka.

The independent variables of this study have been identified as Misalignment between the organization and package, assimilation, maintenance, employee resistance to change, techno stress, user involvement and employee training & vendor support.

Further 30 ERP implemented apparel industries will be selected as the sample out of the population of top 100 ERP implemented apparel companies in Sri Lanka. Sample will be taken by dividing the total population into three sub segments such as large, medium and small depending on the number of employees in the organization