Activity-based management: Difference between revisions

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==Activity-based Costing==
==Activity-based Costing==


==Footnotes==
==Footnotes==

Revision as of 13:36, 9 November 2022

Activity-based Management is the process of using activities to improve process efficiency. Activity-based Management therefore provides managers with goals and targets in areas such as eliminating or reducing non-value added activities, increasing throughput and process efficiency. These goals and objectives are important aspects of management performance. Activity-based Management goals and objectives measure the quality of management decisions (embedded in some ABM activities) to achieve desired results. Activity-based Management's goals and targets are not limited to production managers. Nearly every strategic business unit manager in the organization contributes to Activity-based Management's goals. Activity-based Management is seen as an extension of Activity-based Costing[1].

Traditional cost management

Financial accounting information continues to be the primary source of management information in many organizations [2]. However, as Johnson and Kaplan[3] have pointed out, current management accounting information is too slow, too aggregated, and too biased to be relevant to managers' planning and management decisions. This is because Tradtional Cost Management systems focus on cost control through cost-based budgets, standards, and deviations established at the departmental or unit level[4]. In such systems, many volume-sensitive cost factors are added to overheads to ensure proper matching between income and expenses. This approach tends to overestimate or underestimate the cost of products/services due to misleading measurements that lead to erroneous judgments [5]. Modern organizations must focus not only on performance measurements of quality attributes such as customer satisfaction, reliability, cycle time, flexibility and productivity, but also on process and activity costs. A key success factor for any organization is ongoing involvement in the management of all activities to ensure that quality services are delivered in the most efficient and effective manner. This means that it is useless to apply generally accepted accounting principles when planning, managing, controlling and directing activities[6].

Activity-based Costing

Footnotes

  1. Kren, L. (2018), p. 61
  2. Garrison and Noreen (2000)
  3. Johnson, H.T., Kaplan, R.S. (1987), p. 1
  4. Qayoumi, M.H. (2008)
  5. Cooper, R. (1988).
  6. Ismail, N. A. (2010), pp. 41-42

References

Author: Sven Korten