Activity-based costing and activity-based management

1
Activity-based costing and activity-based
management

• Lasse Arildslund
• Anita Horgosi
• Jørgen Solland
• Julia Tsirulnikov

2
What is Activity-based costing?

• Activity-based costing is a costing approach
  that assigns resource costs to a cost object
  based on activities performed for the cost object
• This method enables traditionally fixed costs to
  be distributed among product groups, converting
  them into variable costs
• Also gives non-financial information in
  opposition with conventional costing system

3
What is the objective of Activity-based
management?

• Activity-based management is a method of
  business analysis that utilizes ABC information
• improving competitiveness, cost reduction,
  increasing productivity and augmenting
  flexibility in meeting customers needs
• Focuses on changing the way the work is carried
  out or on the reasons why the work is performed
• Operational ABM doing things right and
  performing activities more efficiently
• Strategic ABM Choosing appropriate activities
  for the operation

4
How would you describe strategic ABM?

• Strategic ABM Choosing appropriate activities
  for the operation, doing the right things
• Encompasses actions that shift the mix of
  activities away from unprofitable applications

5
Under which circumstances would you recommend to
consider introducing strategic ABM?

• Highly recommended for service sector
  organisations, and companies with complex
  production processes and a wide portfolio
• ABC is not a quick fix requires patience and
  participation to see the results? cultures that
  reward only short-term results are not fertile
  grounds for ABC
• Most common characteristics of successful
  systems
• High level of top management support and
  commitment
• Technical competence of the implementation team
• Effective change management

6
In which respect is the policy of "doing right
things" under strategic ABM different from the
same policy under such management systems as TQM,
BPR, etc.?

• Management system in the management system
• ABM is a more detail focused strategy, whereas
  TQM and BPR are strategies on a macro level

7
What is a difference, if any, in decision
making between companies adopted and not adopted
strategic ABM?

• Using also non-financial information
• Time-consumption
• Division of accounting activities
• Ethical problems and sub-optimization

8
How is strategic ABM related to strategy
implementation?

• ABC can be used as a basis for strategic decision
  making
• E.g. regarding changes in the supply chain and
  changes in target customers

9
How would you calculate the costs of
introducing ABM in a company and potential
benefits?

• Predictable costs Consultancy hours, ABC
  software, Education
• Unpredictable costs Use of employees in the
  development process, Organizational changes
• Benefits More efficent processes, Easier to make
  rational decisions

10
Thank you for your attention!
11
Literature

• Baranov Management Accounting for Multinational
  Companies (reader, 2007, p.28-52)
• Blocher, Chen, Cokins, Lin Cost Management A
  Strategic Emphasis (2005, p.120-135)
• Coombs, Hobbs, Jenkins Management Accounting
  Principles and Applications (2005, p.67-74)
• Londerback, Holmen Managerial Accounting (10th
  edition, 2003, p.133)
• Maher, Stickney, Weil Managerial Accounting- an
  introduction to concepts, methodsuses (9th
  edition, 2006, p.89-90)