Introduction plan: Impact of activity-based costs on the project Activity-Based Management in Practice

INTRODUCTION

PLAN:

1. Impact of activity-based costs on the project

2.Activity-Based Management in Practice

3.Operational Activity-Based Management

CONCLUSION

REFERENCE

INTRODUCTION

Activity-Based management or ABM is the modern business management approach that challenges traditional top-down management styles. The traditional approach is business management has been to allocate resources to divisions and appraised on a top-down basis. ABM as the name suggests focuses on all business activities from inputs to the outputs and even beyond that.

In simple terms, ABM is the practical application of Activity-Based costing method. The traditional costing approach focuses on overhead costs associating each cost with the production only. ABC in contrast defines that not all product costs or broadly business costs can be associated with product manufacturing.

The business needs to define the cost drivers and define the costs associated with direct production and management of business separately. The emphasis on cost drivers and activities provides insights into the product direct and indirect costs. Activities can be defined from the product design step through the raw material acquisition, manufacturing process, operational efficiency, and final product output.

The flexible approach of ABM provides useful information on changes in activities at source and costs associated with the changes. As the application of cost drivers or activities can be broadened to any business function, the ABM provides greater information on total business management.

The focus of Activity-Based management is on identifying and managing the cost drivers and activities. Unlike the traditional costing approach of cost reductions, the ABM focuses on cost identification and managing the costs and then reduction. For example, a key emphasis of ABM is on production waste minimization and reduction of labor idle hours. This leads the organization to identify the accurate cost identification with product manufacturing without comprising the product quality.