Activity Based Costing / Management

Activity Based Costing (ABC) is an approach to measuring costs. It is used by people in commerce, industry, and government organisations to trace costs to activities, and subsequently to product, services, customers or other cost objects. Often activities are also been analysed to highlight improvement opportunities by identifying non value adding activities, or work tasks that don't increase "customers" perception of the value of products or services.

Activity Based Management (ABM) is an approach to optimising an organisations performance by creating an environment in which process orientation and customer focus is clearly understood and rewarded. ABM recognises workflows which cross departmental boundaries to produce outputs valued by customers. This facilitates an improvement culture by emphasising the importance of outcomes. Most importantly, ABM develops a framework to measure time, quality, cost and service level performance to drive continuous improvement.

ABM works well when built on solid foundations.

The 10 Foundations of ABM are:

1. Manage activities
2. Focus on activity outputs
3. Build robust processes
4. Involve customers & suppliers in activity planning
5. Optimise value adding activities
6. Embed quality in source activities
7. Minimise process cycle time
8. Attack cost drivers
9. Empower the people who do the activities
10. Improve activities continuously

ABC is all about cause & effect tracing

Not all customers are equal !!