Steps involved in Activity Based Management (ABM)

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The steps necessary for process view of Activity Based Management (ABM) are as follows.

• First step is to develop a clear mission statement.
• Second one is to determine the core processes and the major cost objects.
• Next step is to identify the supporting processes and then form the process teams.
• In the fourth step, the teams should be formed in such a way that the employees should have required skill set to perform the task given to them.

Now, the strategic objectives of each process should be defined. After that long term goals such as operating objectives should be set. The main activities in each process have to be identified. Each process or activity center should be measured with the help of performance indicators which may financial or non-financial measures. After measuring, the cost drivers for each process should be identified and the necessary measures should be taken. When a new system like Activity Based Management (ABM) is introduced, care should be taken that employees understand the system and are well oriented which result in desirable output.

ABM principles can also be used for budgeting, resource allocation, performance evaluation, pricing etc. It gives accurate measurement which is relevant for taking managerial decisions. 

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Activity Based Management (ABM) and its Strategic Implications.

In the process of designing and implementing new strategic management initiatives, many organizations have virtually ignored the cost management system.  Activity-based management is the modern accounting system which is consistent with the new initiatives like reengineering. It is an accurate management accounting system whose main focus is on business process. It results in a valuable output. There are few steps to be followed to design and implement Activity- based management (ABM).

Activity-Based Accounting System is also called Activity-Based Costing. This accounting system is similar to Business Process Reengineering (BPR) in nature. Business process reengineering is a management tool which is used to obtain improvement in performance measures such as cost and quality. In this process the whole aspects of process are redesigned and its main focus is on processes rather than functional tasks where as activity-based costing along with that have an additional feature that is analysis of the cost management system. It is a system where we can accurately find the cost of full services and products, cost of core activities, and other cost objects.

Activity-based management consists of two view points.

One is Cost View that is it is an accurate accounting system and second one is Process View which is a performance evaluation tool. The advantage with this is same information can be used for accomplishing both the goals that is both the views. It is more concerned with planning and controlling. It consists of two stage process. 

1. In the first stage, costs of the resources are assigned to activities and after the tasks are performed the outputs are grouped into activity centers.
2. In the second stage, the costs of activity centers are traced to cost objects. In both the stages, the bases of assigning the costs are cost drivers.

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