Activity-based Management

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Activity-based Management: 

Activity-based Management A brief introduction

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1 、 summary 2 、 ABC and ABM 3 、 ABM model 4 、 The effection of ABM in the organization 5 、 An ABM information system 6 、 The remained problem

1、Summary : 

1 、 Summary ABM has grown largely out of the work of the Texas-based Consortium for Advanced Manufacturing-International (CAM-I). No longer is ABM’s applicability limited to manufacturing organizations . The principles and philosophies of activity-based thinking apply equally to service companies, government agencies and process industries. The acronym itself has evolved from ABC to ABCM (activity-based cost management) to ABM, and the application of ABC evolved from a manufacturing product costing orientation to a management philosophy of activity management applied in industries and organisations other than manufacturing. Activity-based management is a method of identifying and evaluating activities that a business performs using activity-based costing to carry out a value chain analysis or a re-engineering initiative to improve strategic and operational decisions in an organization.

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ABM supports business excellence by providing information to facilitate long-term strategic decisions about such things as product mix and sourcing. It allows product designers to understand the impact of different designs on cost and flexibility and then to modify their designs accordingly. ABM also supports the quest for continuous improvement by allowing management to gain new insights into activity performance by focusing attention on the sources of demand for activities and by permitting management to create behavioural incentives to improve one or more aspects of the business.

2、ABC and ABM : 

2 、 ABC and ABM ABC and ABM are a continuum of value. ABM is the application of ABC data to manage product portfolios and business processes better. Activity-based management Activity-based costing ABC ABM

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design products and services that meet or exceed customers' expectations and can be produced and delivered at a profit; signal where either continuous or discontinuous (re-engineering) improvements in quality, efficiency and speed are needed; guide product mix and investment decisions; choose among alternative suppliers; negotiate about price, product features, quality, delivery and service with customers; employ efficient and effective distribution and service processes to target market and customer segments; improve the value of an organisation’s products and services.

3、ABM Model: 

3 、 ABM Model

The horizontal view of the organisation: 

The horizontal view of the organisation 4 、 The effection of ABM

5、Outputs of an ABM information system: 

5 、 Outputs of an ABM information system the cost of activities and business processes; the cost of non-value-added activities; activity-based performance measures; accurate product/service cost (cost objects); cost drivers.

6、The remained problem: 

6 、 The remained problem Companies considering or already implementing ABM should realise that although certain product or market factors might make it potentially beneficial, those same factors might not lead to a successful implementation. ABM gives us a much better chance of establishing a useful costing for outputs. But there is a price to pay. It can be difficult to find out what costs apply in a particular activity, and those involved may be suspicious of others charged with finding out. Some areas of activity overlap and are difficult to separate. And,of course, ABM is a costly exercise in its own right.

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Other priorities, top management commitment, IT capabilities, and integration with financial and budgeting systems should be considered before implementation. The process of ABM does consume resources, and themanpower costs can be significant. ABM will not reduce costs, it will only help you understand costs better to know what to correct.

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THANKS ! The end