Running head: RESEARCH PAPER
In partial fulfillment of MBAC5213
Dr. Fred Carlson
August 26, 2012
Activity-based management is a technique used by companies to identify and evaluate activities using activity-based costing and value analysis. Activity-based management focuses on managing activities to reduce costs and improve customer value. This paper focuses on the techniques and processes a company uses to remain competitive in the twenty-first century.
The History Behind ABC and ABM
In Peter B.B. Turney’s book Activity-Based Costing, the techniques of activity-based costing and activity-based management can be ...view middle of the document...
Eventually ABC and ABM were applied to other areas such as research and development, sales, and marketing (Turney 6).
The benefit of accounting based costing escalated in 2005. Several factors stimulated the increase in companies. One of the main reasons was that companies were seeing the results from ABC. Some companies saw the increase in monetary and others saw increases in performance. Many companies saw the decrease in cost to utilization and effort necessary to making accounting based costing and account based management more effective. Technology was another factor to spark the increase. Technology was the cause for new methods and new software with fewer problems to be introduced.
The past few years have continued to show an interest in accounting based costing and accounting basked management. ABC and ABM have evolved a part in new business management solutions. The solutions are “profitability management, performance measurement, financial management, sustainability, and human capital management” (Turney 8). Profitability management involves better accuracy when dealing with cost information which is very important. Performance measurement involves process metrics not available with the typical methods. Financial management involves more planning and allocation of resources. This accuracy encouraged monetary planning. Sustainability connects information that deals with both cost and finance. Finally, human capital management deals with costs of the activities performed by employees (Turney 11).
Activity-based management, or ABM, is defined as “a total quality management discipline on the management of process improvement activities to lower the cost within an organization” (Narong 12). In Cornerstones of Managerial Accounting, it is defined as “a systematic, integrated approach that focuses on management’s attention on activities with the objective of improving customer value and the profit achieved by providing this value” (Mowen 731). Activity-based management includes a variety of activities from performance measurement, process improvement, and driver analysis. According to Mowen, “activity-based management draws on activity-based costing as a major source of information” (Mowen 731). Activity-based management can be favorable to an entire company. It does not have to only go through high level management. It can affect managers who are not at the very top of the company. This makes information more understandable to team members and can build morale because they feel more involved. Because of the increased morale individual activities can increase and also affect the organization as a whole.
Activity-based costing, or ABC, is defined as “a total quality management tool for cost and performance measurement of activities, resources, and cost object” (Narong 12). Activity-based costing allows business to accumulate information and data about operating...