Organization Sustaining Activities
Organization sustaining activities refer to tasks and operations that benefit an entire organization, rather than any specific product, service, or customer. These activities are necessary for the overall functioning of a company and its strategic objectives, but cannot be directly traced to individual products or services.
These activities can include:
- Facilities management: This includes maintaining and managing a company’s buildings and grounds, security services, utilities, property taxes, and more.
- Executive management: Activities performed by top executives like strategic planning, investor relations, and corporate governance fall under this category.
- Human resources: HR activities like hiring, training, benefits administration, and performance management benefit the organization as a whole.
- IT infrastructure: This can include maintaining and managing a company’s IT systems and services, data management, network security, etc.
- Regulatory Compliance: This includes activities necessary to ensure the company meets all legal and regulatory requirements.
The costs associated with organization sustaining activities are often considered overhead costs. Since these costs can’t be directly traced to a product or service, they’re often allocated based on a company’s cost allocation rules or simply treated as period costs and expensed in the period incurred.
Example of Organization Sustaining Activities
Let’s use the hypothetical example of a manufacturing company, SuperWidgets Inc., to illustrate organization sustaining activities:
SuperWidgets Inc. makes a variety of widgets for different industries. While a lot of the company’s costs can be traced directly to the production of specific types of widgets (like raw materials and assembly labor), there are several activities and costs that are necessary for the business as a whole:
- Facilities Management: The company has a large manufacturing plant where all its widgets are made. The cost of maintaining this plant – including utilities, cleaning, maintenance, and security – are organization sustaining activities, as they are necessary regardless of the number or type of widgets being made.
- Executive Management: The CEO and other top executives spend their time on strategic planning, decision-making, and other high-level tasks that benefit the entire company, not any specific widget or customer.
- Human Resources: SuperWidgets Inc. has an HR department that handles recruitment, benefits administration, and training for all its employees. These are all organization sustaining activities since they aren’t tied to specific widgets or customers.
- IT Infrastructure: The company has an IT department that manages their network, email systems, and proprietary software. These activities benefit all areas of the company.
- Regulatory Compliance: SuperWidgets Inc. operates in a regulated industry and therefore has a legal team to ensure they comply with all necessary regulations. The cost of this team and their activities are another example of organization sustaining activities.
These organization sustaining activities are all crucial for SuperWidgets Inc.’s operations, but their costs can’t be traced directly to specific widgets. They would likely be treated as overhead and allocated among all products, or expensed in the period incurred.