Activity Based Management

Essay by flyaway889University, Bachelor'sB-, October 2014

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Activity based management (ABM), is starting to be used by many businesses around the world, they have introduced this method to distinguish and evaluate activities in their businesses performance by using activity-based costing to present a value chain analysis, which leads to strategic change and better decision making. With an understanding of ABM, business then can use it to analysis their products and business in a number of ways from an operational perspective to a strategic perspective. While ABM will provide business with the later advantageous advice, they must appreciate at the same time ABM is not a one-stop shop for product and business analysis, as it will not take all factors into account.

There are a number of variants of ABM, although some are more important and practical than others. A good place to start is with strategic ABM (SABM). SABM can show away of how to shift companies' costly and unprofitable applications into profitable ones.

Variables business would look at in order to implement SABM are:

product mix and pricing

customer relationships

supplier selection and relationships

product design and development (Blocher, E, Chen, K,Lin,T, 2001)

With these variables in mind a business could make a better strategic decision, for example adding or retiring products, acquisition or retentions of customers. The decisions would be made by using the variables to calculate activity based costing (ABC). ABC is "… method of costing products through costing the activities" (Kaplan, R. S.,Cooper, R.1998). It a common principle of business that the best way to perform is to sell the best of their products to the best customers, however this can only happen if the business and manager know what is their best product and who their best customers are. ABC and SABM can...