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Activity Based Management (ABM)

Activity Based Management (ABM). Ansari: ABM. Strategic Implications Visibility on the efficiency & effectiveness (the quality) of activities Visibility of costs for process redesign Insight into timing consideration of actions. ABM, cont. Attribute Implications Technical

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Activity Based Management (ABM)

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  1. Activity Based Management (ABM)

  2. Ansari: ABM • Strategic Implications • Visibility on the efficiency & effectiveness (the quality) of activities • Visibility of costs for process redesign • Insight into timing consideration of actions

  3. ABM, cont. • Attribute Implications • Technical • Greater focus on work • Provides cross-functional cost impact • Highlights operational interdependencies • Behavioral • Heightens importance of process knowledge • Reinforces continuous improvement • Empowers employees--be careful of “non-value” terminology • Cultural • Reorients focus on process not people • Challenges current thinking • May add cultural conflict

  4. ABM, cont. • ABM Process • Obtain existing cost information • Determine the major processes • Identify process inputs and outputs • Determine the specific activities • Identify the resources used • Define output measures (what we measure) • Define performance measures (how we measure it) • Assess performance through benchmarking • Brainstorm improvements

  5. ABC, ABM & Strategic Cost Applications • Comparison of cost structure to competition • Pricing, design and other operational impact • Mass customization impact • Behavioral impact of common components • Changes in the production process • Changes in the distribution system • Changes in source and types of supplies/suppliers • Profitability impact • Identification and elimination of non-value added activities • Quality and time implications

  6. Cost Measurement Systems • Focus on “…operating information for results.”

  7. Strategic Mgt. Actg. System • Competitor cost information • Value Chain analysis • Strategic cost analysis…ABM • And others...

  8. CMS-Strategic Triangle • CMS provides cost of quality data • CMS measures costs • CMS determines the impact of time delays

  9. Strategic Cost Information • Which products are the most profitable? • How much does each process cost? • Which customers are the most profitable? • What are the key cost drivers?

  10. Traditional Cost Msmt. Systems • Job-order costing • Process costing

  11. Traditional Weaknesses • Includes only production costs • Insufficient insight into indirect costs

  12. Contemporary Advantages • Comprehensive cost information • Emphasis on operations and activities • Costs are attached to activities • Provides driver visibility

  13. Trad. To Contemp. Conversion • Essentially the same as ABC’s 5 steps.

  14. Traditional Department focus GAAP limitations “Who” is key Narrow view Contemporary Activity focus “Broader” than GAAP “How” is key Comprehensive …a Comparison

  15. CMS-Attribute Triangle • Technical • Better decision making • Better process knowledge • Behavioral • Promotes communication • Assists in managing drivers • Helps to accomplish strategic objectives • Cultural (significant mind-set change) • Shifts orientation from corporate cop to business advisor • Changes focus from fault to cause

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