27-07-2012, 02:21 PM
ACTIVITY BASED MANAGEMENT
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A procedure that originated in the 1980s for analyzing the processes of a business to identify strengths and weaknesses. Specifically, activity-based management seeks out areas where a business is losing money so that those activities can be eliminated or improved to increase profitability. ABM analyzes the costs of employees, equipment, facilities, distribution, overhead and other factors in a business to determine and allocate activity costs.
Activity Based Costing
ABC is not a method of costing, but a technique for managing the organization better. It is a one-off exercise which measures the cost and performance of activities, resources and the objects which consume them in order to generate more accurate and meaningful information for decision-making. ABM draws on ABC to provide management reporting and decision making.
Difference Between Activity-based Costing And Activity-based Management?
ABC has been around for some time. It has promised companies a new way to understand costs and a new way to limit these costs to the products and customers driving them.
It has been heralded as the cost accounting model that would help management improve profitability.
And it is fair to say that it does do that if:
1. management gains a thorough understanding of its
business processes and cost behavior during the
ABC analysis process; and
2. management applies the insights gained during ABC
fact gathering and analysis to improve decision making
at both operating and strategic levels. This is the
essence of ABM.
Put simply ABM is ABC in action.