Activity
Based Management and Activity Based Costing
If you're a business owner and you're not currently using Activity Based
Management or Activity Based Costing, you could be losing your shirt and not
even know it! ABM and ABC are the latest tools for competitive advantage and
even the smallest business owner can benefit from them. And, it's really as
simple as ABC!
One business owner can attest to what ABM and ABC has revealed in his
company. This particular general contractor was working several job construction
sites simultaneously. The method of communication he used was cellular
telephones. It had been dividing the overhead of the cellular telephones equally
between the two jobs. Although, on one of his job sites the cellular telephone
was rarely used. Traditionally, both cellular telephones usage and charges would
be divided equally among the two jobs. But with the accountability factors of
using ABM and ABM, he is now able to realize that the overhead he was
attributing to both cellular telephones was not justified. By using;
ABC he would be accurately assigning the cost where it belonged and develop a
more accurate overhead picture. And, the use of cellular telephones is really
only one aspect of this owners business. If you multiply this by every overhead
category the business might have, like office supplies, vehicles, and travel,
you can see how distorted the profit picture becomes.
ABM and ABC are really accountability factors. They're a computerized
measuring tool that is used nationwide to determine where your profit is and
where it isn't.
John King, President of Roster Network, Inc., a Fort Wayne, Indiana based
business resource company calls ABM and ABC the management keys to the future
"If you're company isn't using Activity Based Management and Activity Based
Costing consistently, you're definitely using a very old-fashioned style of
management says King. "ABM and ABC takes all the question out of
accountability and gives you the real bottom line."
Activity Based Management techniques have helped lead management to find
ways to significantly improve bottom line profits and returns. ABM techniques
have helped companies better understand product cost and profitability, identify
opportunities and develop improved performance measures. While ABM may sound
like a relatively new buzzword to many, it's really a management style technique
that was first introduced in the New England States back in the early 90's.
Some say it's been trial and error since, and like any new idea, it had a
lot of bug-a-boo's to work out. Activity Based Management is really a process
that makes everyone within the company accountable for the bottom line,"
says Mike Abel, of Christen Souers
Gehres, CPAs and Family Business Advisers, a Fort Wayne based CPA firm. Abel
says Activity Based Management really is a three-pronged approach to improved
management. "ABM is primarily used to improve business processes, provide
strategic product cost data, and promote continuous improvement efforts,"
says Abel. "It takes some patience to methodically, put the
program in place, and customize it For each individual company, but in the end
you will immediately recognize the benefits."
How do you know if your company would benefit from ABM and ABC? According
to the experts at Roster Network Inc. almost any company would! "Activity
Based Management and Activity Based Costing focuses on the management of
activities within the company. It's a vital tool used to improve the value
received by the customer, and the profit achieved by providing this value,"
according to King. This discipline includes cost driver analysis. activity
analysis, and a performance measurement. The major source of
information that ABM draws on is Activity-Based Costing. ABC has to be
integrated with all the other aspects of the business such as marketing and
sales to help you define what it really costs to produce your product. Although
ABM and ABC are often combined and compliment each other, they are not the same.
ABC's primary function is to provide measurements of the cost and performance of
activities, resources and cost objects. It also assigns resources to activities
and activities to cost objects based on their use. Activity Based Costing
recognizes the casual relationships of cost drivers to activities. ABM's primary
concern is to focus on the management of activities as the route to improving
the value received by the customer, and the profit achieved by providing this
value.
According to Mevatec Corporation who tracks the activity of companies
using Activity Based Management, seventy percent of the implementations fail.
Follow-up research indicates that they failed only because they did not have an
organized method of compiling data, and the companies did not realize the
significance of compiling daily reports that would be vitally important to those
compiling the data.
Roster Network, Inc. has tracked the activity of Activity Based Management since its inception, Roster provides a program specifically designed to educate and train personnel on how to use its Position Matrix System to stream-line the introduction of the program.