Activity Based Management an Overview
Technical
Briefing
APRIL 2001
DEVELOPING AND PROMOTING STRATEGY
Activity-based Management – An Overview
IN THIS BRIEFING… ctivity-based management and activity-based costing (ABM/ABC) have brought about radical change in cost management systems. ABM has grown largely out of the work of the Texas-based Consortium for Advanced Manufacturing-International (CAM-I). No longer is ABM’s applicability limited to manufacturing organisations. The principles and philosophies of activity-based thinking apply equally to service companies, government agencies and process industries. The acronym itself has evolved from ABC to ABCM (activity-based cost management) to ABM, and the application of ABC evolved from a manufacturing product costing orientation to a management philosophy of activity management applied in industries and organisations other than manufacturing.
A
Part 1 General FAQs
Part 2 Practical guidance on implementing ABM
ctivity-based costing and activity-based management have been around for more than fifteen years. Most forward-thinking companies have implemented them, or are in the process of doing so.
A A A
Part 3 Checklist
Part 4 Further reading and bibliography
BC is not a method of costing, but a technique for managing the organisation better. It is a one-off exercise which measures the cost and performance of activities, resources and the objects which consume them in order to generate more accurate and meaningful information for decision-making. ABM draws on ABC to provide management reporting and decision making. BM supports business excellence by providing information to facilitate long-term strategic decisions about such things as product mix and sourcing. It allows product designers to understand the impact of different designs on cost and flexibility and then to modify their designs accordingly. ABM also supports the quest for continuous improvement by allowing management to gain new insights into activity performance
Briefing
APRIL 2001
DEVELOPING AND PROMOTING STRATEGY
Activity-based Management – An Overview
IN THIS BRIEFING… ctivity-based management and activity-based costing (ABM/ABC) have brought about radical change in cost management systems. ABM has grown largely out of the work of the Texas-based Consortium for Advanced Manufacturing-International (CAM-I). No longer is ABM’s applicability limited to manufacturing organisations. The principles and philosophies of activity-based thinking apply equally to service companies, government agencies and process industries. The acronym itself has evolved from ABC to ABCM (activity-based cost management) to ABM, and the application of ABC evolved from a manufacturing product costing orientation to a management philosophy of activity management applied in industries and organisations other than manufacturing.
A
Part 1 General FAQs
Part 2 Practical guidance on implementing ABM
ctivity-based costing and activity-based management have been around for more than fifteen years. Most forward-thinking companies have implemented them, or are in the process of doing so.
A A A
Part 3 Checklist
Part 4 Further reading and bibliography
BC is not a method of costing, but a technique for managing the organisation better. It is a one-off exercise which measures the cost and performance of activities, resources and the objects which consume them in order to generate more accurate and meaningful information for decision-making. ABM draws on ABC to provide management reporting and decision making. BM supports business excellence by providing information to facilitate long-term strategic decisions about such things as product mix and sourcing. It allows product designers to understand the impact of different designs on cost and flexibility and then to modify their designs accordingly. ABM also supports the quest for continuous improvement by allowing management to gain new insights into activity performance
References: for Implementation Issues Friedman, A and Lyne, S (1999), Success and failure of activity-based techniques, CIMA. Friedman, A and Lyne, S (1995), Activity-based techniques: the real life consequences, CIMA. Innes, J and Mitchell, F (1991), Activity-Based cost management: a case study of development and implementation, CIMA. Maxwell, J C (2000), Failing forward: turning mistakes into stepping stones for success, Thomas Nelson. Miller, J A (1996), Implementing activity-based management in daily operations, John Wiley. 6 Part 4 – Further reading and bibliography I I I I I I http://www.pitt.edu/~roztocki/abc/abc.htm ABM Internet website guide, by Narcyz Roztocki of the Pittsburgh University. Comprehensive internet web links covering all areas of ABM http://www.cam-i.org The CAM-I web site, useful articles and further info. http://www.activitybasedmgmt.com/ABM_ABC_Information.htm Consultancy US website with articles database, definitions of terms and techniques, questions and answers, recommended reading and general info. http://www.eiasm.be/MAR-2001.html CIMA sponsored research seminar, Italy, 2001 on ABC/ABM, call for papers. http://www.icms.net/whatisabm.htm Consultancy site, books, articles, case studies, toolkits, software, ask the experts, definitions. http://www.nan.shh.fi/raw/ima/imabc.htm Information from the US Institute of Management Accountants. Statement on the rationale, scope, definition of ABC, role of the management accountant, organizational change, designing an ABC system, software, making implementation a success. September 30, 1993.