Activity Based Management (ABM)

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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…show more content…
Ways in which ABM supports strategic analysis include strategic planning, consolidation of operations analysis, acquisition analysis; and analysis of revenue and profitability growth potential.

Benchmarking is a methodology that identifies an activity as the standard, or benchmark, by which a similar activity will be judged. It is used to assist managers in identifying a process or technique to increase the effectiveness or efficiency of an activity. ABM supports different types of benchmarking, including internal benchmarking, industry/competitive benchmarking; and best-in-class benchmarking.

Operations analysis seeks to identify, measure, and improve current performance of key processes and operations within a firm. Areas where ABM is useful include “what-if” analysis, project management, creation and use of activity-based performance
Measures, capacity management, constraint analysis; and process-based costing.

Profitability/pricing analysis is a key area for any company. ABM assists a company in analysing the costs and benefits of products and processes in both the “as is” and post improvement “to be” scenarios. ABM also supports prelaunch analysis and improvement of product profitability. Areas in which ABM has proven useful in adopting organizations include product/service profitability analysis, business process
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