ACTIVITY BASED MANAGEMENT Activity Based Management is the management of activities to improve the value received by the customer and to increase the profit achieved by providing the activity.ABM draws on ABC as a major source of information. OBJECTIVE To understand the implications of ABC analysis on management decisions like:

Activity Based Management Re-price products Substitute products Redesign products Improve processes and operation strategy Technology Investment Eliminate products ADVANTAGES OF ABM ABM measures the effectiveness of key business processes and activities,and identifies how they can be improved to reduce cost and increase value to customer. It improves management focus by allocating resources to keep value added activities,key products, and continuous improvement methods,to maintain the firm’s competitive edge..

Relation between Price & ABC Since ABC gives the accurate cost details of products,it helps in the pricing as the costs thus obtained represent the floor cost or reference cost of products. ABC used where a portfolio of products use the same facilities,can give indications as to which products cost higher due to higher activity costs.

ABM and its tools Tools-Cost driver analysis,Activity analysis and Pareto analysis Cost driver analysis examination,quantification,and explanation of the effect of cost drivers.To find out root causes of activity costs. Activity analysis identifies and describes the activities in the organisation. Performance measurement identifies indicators of the work performed and results achieved in the activity,organisational unit and process.

Value added and NON Value added activities A value added activity is an activity that contributes to customer value and satisfaction or satisfies organisational needs. Non value added activities neither adds to customer satisfaction and value nor to organisational needs.e.g.Overproducing, overstocking,moving,processing in too many steps,waiting,reworking,idling space,idling equipment,making features unwanted by customers.

Co. experiences on value Daton Technology uses five questions to classify activities as value added or non value added (1)Is the activity of value to the external customer.?(2)Is the activity required to meet corporate rules?.(3)Is the activity required for sound business practices?.(4)Is the activity a waste?(5)Is the activity of value to the internal customer?

Six Ways to avoid failure in ABM Involve management & employees in the creation of ABM/ABC Maintain parallel system. Use ABM/ABC on a job that will succeed. Keep the initial ABM/ABC design simple. Create desired incentives. Educate management.

ABM supplies decision support (1)Market,customer, Business Product profitability processes re- Assessment and price engineering Analysis analysis. 2)Value analysis and ABM Performance cost reduction database measurement identification & benchmarking 3)Resource planning New investment / & sound decision product evaluation & investment appraisal

Implementation of ABM stage by stage (1)Piloting (2)Integrating(3)Embedding companies. Piloting-- Run ABC as a pilot exercise to meet specific needs To check the accuracy of profitability analysis or see what areas should be improved in a process under review

Pilot Integrated Embedded Hi Developing Exploring Managing by Awareness Buying in Process P E R F O R M A N C E Low small local Step change Continuous improvement improvement improvement.

Impact of major Issues varies during ABM implementation Pilot Integrated Embedded Change Manage- Ment Issues Low Moderate High ABM Technical Issues Low Moderate High Systems Issues Low Moderate High

Change Management Issues ABM gives CFOs a great case to sell.But they must be prepared to handle critical management issues. Close credibility gap. Involve all the stake holders all the time. Demonstrate rather than dictate. Train everyone. Deliver on promises.

Change Management Show how finance function will improve service to the business through ABM Historically operational managers have seen finance function as blocking new initiatives. And generating data useless for decision making. Correct this impression nurture new champions.

Blockers Floaters Champions Hi IT manager COO & CF0 new system already programming champions Impact cost clerks Of new approach change systems Providers of Data-new Approach & System. Reaction to change

Finance is considered to be out of touch With operational realities.They are more interested in running numbers,not helping in making them. The solution is open to up the possibilities of a new type of partnership,working together on ABM.Finance and operations can develop a world class decision support network that lets everyone add value.

Involve All Stakeholders All the Time. Those excluded from the process will thwart to ABM.Nurture champions by conducting stakeholder analyses before you begin to roll out. Look at how change will impact key groups of ppeople and how they are expected to react.Outline how ABM offers each group and in what time frame. Marketing people feel it will cut out products,market wants. One CFO enticed her making team to get on board by showing how activity based analysis can make products marketable while they are still on the drawing board. With design forming 85% of the costs,she told them ABM would help to by giving the design team,the information it needs to manipulate variables,trading off functionality and quality against cost.