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Royal Liver implements transfer pricing scheme with ALG Software

07 October 2004  |  274 views  |  0 Source: ALG Software

Royal Liver, UK financial services provider, has implemented a transfer pricing system as part of its Activity-Based Management project with ALG Software.

The scheme will improve the transparency of cost allocation across the company and help senior staff to control, manage and understand the costs within each business unit.

Royal Liver introduced ALG Software’s Metify Activity-Based Management (ABM) model to understand its direct and indirect costs and analyse profitability associated with its products and services. The transfer pricing system, which is the most recent use of the ABM solution, will enable business units within Royal Liver to fully explain their business drivers and their impact on unit effectiveness. The model provides a focus for improving how costs are allocated at the lowest level, optimising Royal Liver’s business performance.

A review of the cost allocations takes place each quarter to ensure allocations are in line with current working practices. These results are fed back to staff and stakeholders, highlighting levels of expenditure and allowing resource planning to take place sooner to ensure capacity is more closely aligned with demand.

Eric Bennett, Senior Management Accountant at Royal Liver, comments, "The introduction of transfer pricing was part of an overall process designed to deliver cost efficiencies and maximise income opportunities."

"The use of transfer pricing enables the company to identify those parts of the business that were economic and those that were uneconomic. In the latter case, it also enables business managers to focus on the areas of the business for which cost reduction has been a short-term imperative."

In the longer-term, Royal Liver is planning to improve its costing model even further so that management will receive information on how different distribution channels and an individual product's cost, performance and profitability impacts the organisation.

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