Activity Based Management (ABM), Activity Based Costing (ABC)

How are your products or services costed?
Do you accumulate the costs of the tasks involved by department, and then apply general overheads?
Or do you use activity based costing to produce process costs, and apply process consumption metrics to derive product or service costs?

Activity Based Costing (ABC) has been in wide use in manufacturing industries for many years, it can be readily applied to service industries. It is particularly appropriate for E-business because it is process and service line oriented. It is very effective after sustained growth, when process understanding can decrease due to complexity and increasing functional organisation.

Activity Based Management (ABM) is the application of ABC thinking for process and profit improvement using a ‘snapshot’ approach, avoiding the time and cost of a full ABC system implementation. ABM will generate a number of improvement initiatives and give you a much clearer view of the profitability of your product or service line offerings, which in turn will fundamentally impact your business strategies.

Whilst your finance people should be involved in any ABC project, it is essential that a business owner drive any ABM initiative. This is because although ABC uses dollars for presentation, it is only as good as the understanding of the business processes and resource consumption drivers, which are best understood by your business people. Teams should be formed from mixed disciplines.

If you can see a benefit your organiastion can obtain from an ABM initiative, or if you just want to trial the idea, Talk to Stratege.