Activity Based Management

Topics: Costs, Cost, Cost accounting Pages: 3 (759 words) Published: October 28, 2008
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 opportunity not only to be ever more effective at what we do, but also to be truly competitive, winning more market share(both nationally and globally). Thus Activity Based Management (ABM) was introduced to enable managers to understand and improve the product profitability, customer profitability & the cost of the business processes. ABM includes cost driver analysis, activity analysis, and performance measurement. Over time, ABM has evolved considerably and is now being applied in manufacturing, service companies, utilities, logistics, telecommunications, government bodies and many more sectors.

It focuses Management on two clear objectives.
1. To ensure that cost effective methods are used to produce current products to current customers at a price that generates the maximum positive ABM Product and Customer Contributions.
2. To ensure that the ABM Contributions are used effectively to generate new products and services to new markets such that the return on the investment in Sustaining costs is greater than that which would be achieved by shareholders investing elsewhere.

How ABM works?
By making previously invisible things visible, ABM throws a light on those aspects of a business where action can...
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