Activity-Based Management

ACTIVITY-BASED MANAGEMENT
 A management tool that involves analyzing and costing activities
with the goal of improving efficiency and effectiveness.
 ABM focuses on ways to improve the setup process and ways to
eliminate the demand for set-up activity.
 ABM applications can be classified into two categories:
operational ABM and strategic ABM.
Operational Activity-Based Management
 Operational ABM enhances operation efficiency and asset
utilization and lowers costs; its focuses are on doing things right and
performing activities more efficiently.
 Management techniques used in Operational ABM:
 Activity Management
 Business Process Reengineering
 Total Quality Management
 Performance Measurement
Operational Activity-Based Management
 Activity Management - the process of recording the day to day doings of an employee
 Business Process Reengineering - involves the radical redesign of core business
processes to achieve dramatic improvements in productivity, cycle times and quality
 Total Quality Management - is defined as a continuous effort by the management as
well as employees of a particular organization to ensure long term customer loyalty
and customer satisfaction.
 Performance Measurement - the process of continuous communication and feedback
between a manager and employee towards the achievement of organizational
objectives.
Strategic Activity-Based Management
 Strategic ABM attempts to alter the demand for activities and
increase profitability through improved activity efficiency.
 Management techniques used in Strategic ABM:
 Process Design
 Customer Profitability Analysis
 Value Chain Analysis
Strategic Activity-Based Management
 Process Design - a method used to create a new workflow from scratch.
 Customer Profitability Analysis - a tool from managerial accounting that shifts the
focus from product line profitability to individual customer profitability
 Value Chain Analysis - used to improve the business’s individual processes, enhancing
the company’s efficiency and establishing a competitive advantage.
Other Techniques Used in ABM
Cost-driver Analysis
 Cost-driver analysis examines, quantifies, and explains the effects
of the cost driver on the cost of an activity.
 Tools used in cost-driver analysis:
 Benchmarking - a process where you measure your company’s success against other
similar companies to discover if there is a gap in performance that can be closed by
improving your performance.
 Cause-and-Effect Diagrams - a worksheet used to identify source and reason for
defects in products.
 Pareto Analysis - a technique for identifying the most important clients/products/issues
in your business so that you can focus on the most significant things first.
Activity Analysis
 Activity analysis identifies and describes the activities in an
organization. Activity analysis is the examination of the process
steps within a selected area of an organization.
A firm performs an activity for one of the following reasons:
 It is required to meet the specification of the product or service or satisfy customer
demand.
 It is required to sustain the organization.
 It is deemed beneficial to the firm.
Thank You For Listening!