Activity-based management
- Activity-based management
Activity-based management (ABM) is a method of identifying and evaluating activities that a business performs using activity-based costing to carry out a value chain analysis or a re-engineering initiative to improve strategic and operational decisions in an organization. Activity-based costing establishes relationships between overhead costs and activities so that overhead costs can be more precisely allocated to products, services, or customer segments. Activity-based management focuses on managing activities to reduce costs and improve customer value.
Kaplan and Cooper (in Kaplan, R. S., & Cooper, R. (1998). Cost and effect: Using integrated cost systems to drive profitability and performance. Boston: Harvard Business School Press.) divide ABM into operational and strategic:
"Operational ABM" is about “doing things right”, using ABC information to improve efficiency. Those activities which add value to the product can be identified and improved. Activities that don’t add value are the ones that need to be reduced to cut costs without reducing product value.
"Strategic ABM" is about “doing the right things”, using ABC information to decide which products to develop and which activities to use. This can also be used for customer profitability analysis, identifying which customers are the most profitable and focusing on them more.
A risk with ABM is that some activities have an implicit value, not necessarily reflected in a financial value added to any product. For instance a particularly pleasant workplace can help attract and retain the best staff, but may not be identified as adding value in operational ABM. A customer that represents a loss based on committed activities, but that opens up leads in a new market, may be identified as a low value customer by a strategic ABM process.
Managers should interpret these values and use ABM as a “common, yet neutral, ground … this provides the basis for negotiation” (Kennedy, T., & Bull, R. (2000). The great debate. Management Accounting , 78). ABM can give middle managers an understanding of costs to other teams to help them make decisions that benefit the whole organisation, not just their activities' bottom line.
External links
*McGuire, B. L. et al. (1998). [http://www.findarticles.com/p/articles/mi_qa3682/is_199801/ai_n8759740 "Implementing activity-based management in the banking industry"] Journal of Bank Cost & Management Accounting.
Wikimedia Foundation.
2010.
Look at other dictionaries:
activity-based management — A system of management that seeks to optimize the value added activities performed by the USPS enterprise while at the same time minimizing or eliminating the non value added activities, resulting in overall improvements in the effectiveness and… … Glossary of postal terms
Activity-Based Management - ABM — A procedure that originated in the 1980s for analyzing the processes of a business to identify strengths and weaknesses. Specifically, activity based management seeks out areas where a business is losing money so that those activities can be… … Investment dictionary
activity-based management — The use made by the management of an organization of activity based costing. The identification of activities and cost drivers encourages the management to review how projected cost levels compare with the activity levels achieved … Accounting dictionary
activity-based management — The use made by the management of an organization of activity based costing The identification of activities and cost drivers encourages the management to review how projected cost levels compare with the activity levels achieved … Big dictionary of business and management
Activity-based Costing — L’activity based costing, ou méthode ABC est une méthode de gestion de la performance qui permet de comprendre la formation des coûts et les causes de leurs variations. Sommaire 1 Enjeux et histoire de la méthode ABC 1.1 Enjeux de la méthode ABC… … Wikipédia en Français
Activity Based Costing — L’activity based costing, ou méthode ABC est une méthode de gestion de la performance qui permet de comprendre la formation des coûts et les causes de leurs variations. Sommaire 1 Enjeux et histoire de la méthode ABC 1.1 Enjeux de la méthode ABC… … Wikipédia en Français
Activity-based costing — L’activity based costing, ou méthode ABC, est une méthode de gestion de la performance qui permet de comprendre la formation des coûts et les causes de leurs variations. Sommaire 1 Enjeux et histoire de la méthode ABC 1.1 Enjeux de la méthode ABC … Wikipédia en Français
Activity Based Costing — Die Prozesskostenrechnung (PKR) ist ein Instrument, das die Kosten der indirekten Leistungsbereiche (z. B. Beschaffung, Marketing, Vertrieb und Logistik) abbildet und eine beanspruchungsgerechtere Verteilung dieser Gemeinkosten ermöglicht. Sie… … Deutsch Wikipedia
Activity based cost — Die Prozesskostenrechnung (PKR) ist ein Instrument, das die Kosten der indirekten Leistungsbereiche (z. B. Beschaffung, Marketing, Vertrieb und Logistik) abbildet und eine beanspruchungsgerechtere Verteilung dieser Gemeinkosten ermöglicht. Sie… … Deutsch Wikipedia
Activity-based costing — (ABC) is a costing model that identifies activities in an organization and assigns the cost of each activity resource to products and services according to the actual consumption by each in order to generate the actual cost of products and… … Wikipedia
