Activity Based Management Essay

Decent Essays
Cost Management is a combination of philosophy, an attitude and a set of techniques to create more customer value and to achieve lower cost. It goes beyond historical measurements and reporting to assess the impacts of current and proposed decisions. Activity Based Management (ABM) is one of the major disciplines of cost management that focuses on the management of activities as a way to improve customer value and profit.

The Basics Concept of Activity Based Management
The battle to sustain and increase corporate profitability grows ever more arduous in most sectors of the economy. Margins are caught in a pincer movement by both the steady improvement in competition, and the increasing awareness of customers. We need to grasp every
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To implement ABM successfully, managers need the right information to understand and address following two key issues:
• How the company can position itself better in the market – for which accurate product and customer profitability information is vital.
• How it can improve its internal capability and lower unit costs – for this, it needs to understand and change the procedures, systems and processes that create products and deliver services to customers.
Most organizations are complex. Building an ABM model of a business requires a structured approach and the dedication of a team to achieve a result in a reasonable timescale. But building a model is only the start.

Advantages of ABM:
• ABM provides visibility in the way costs flow through the business
• ABM establishes the links between activities and those factors, internal or external, those drive the level of activity up or down
• ABM eliminates the false divide between direct costs and overheads
• ABM separates out those costs that deal with today’s business from those that secure the future
• ABM ignores gross margin and uses accurate product and customer contributions as the basis for comparing product and customer profitability
• ABM exchanges the stilted definitions of value-added and non-value-added for sensitive categories that highlight the subtle impact of internal process failures and external customer behaviors.

Areas of Potential Difficulty and
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