Activity Based Management (ABM)
1.0 Introduction Activity based management (ABM) is a method of identifying and evaluating activities that a business performs using activity based costing (ABC) to carry out a value chain analysis or a re-engineering initiative to improve strategic and operational decisions in an organization. ABM can be divided into operational and strategic. Operational ABM is about “doing thing right”, using ABC information to improve efficiency. Those activities which add value to remain in business can be identified and improved. Activities that don’t add value such as scheduling, moving, waiting, inspecting and storing 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 be used. This also can be used for customer profitability analysis, identifying which customer are the most profitable and focusing on them more.
Activity based costing (ABC) is a costing methodology that identifies activities in an organizations and assign the cost of each activity with resources to all products and services according to the actual consumption by each. This model assigns more indirect cost which is overhead into direct cost compared to conventional costing. ABM is also a process of using information from activity-based costing to analyse activities, cost drivers and performance so that customer value and profitability are improved.
The aim of ABC models is to estimate the cost elements of entire product activities and services. It may help to inform a company’s decision either identify and eliminate those product and services that are unprofitable and lower the prices of those that are overpriced or identify, eliminate production or service processes that are ineffective and allocate processing concepts that lead to the very same product at a better yield which customer valued. Customer value is the value a customer
Activity based costing (ABC) is a costing methodology that identifies activities in an organizations and assign the cost of each activity with resources to all products and services according to the actual consumption by each. This model assigns more indirect cost which is overhead into direct cost compared to conventional costing. ABM is also a process of using information from activity-based costing to analyse activities, cost drivers and performance so that customer value and profitability are improved.
The aim of ABC models is to estimate the cost elements of entire product activities and services. It may help to inform a company’s decision either identify and eliminate those product and services that are unprofitable and lower the prices of those that are overpriced or identify, eliminate production or service processes that are ineffective and allocate processing concepts that lead to the very same product at a better yield which customer valued. Customer value is the value a customer
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