Activity-based management
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Activity-based management (ABM) is a method of identifying and evaluating activities that a business performs, using activity-based costing to carry out a value chain analysis or a re-engineering initiative to improve strategic and operational decisions in an organization.
Activity-based costing establishes relationships between overhead costs and activities so that costs can be more precisely allocated to products, services, or customer segments.
Activity-based management focuses on managing activities to reduce costs and improve customer value. Kaplan and Cooper [1] divide ABM into operational and strategic:
- Operational ABM is about doing things right, using ABC information to improve efficiency. Those activities which add value to the product can be identified and improved. Activities that don't add value need to be reduced to cut costs without reducing product value.
- Strategic ABM is about doing the right things, using ABC information to decide which products to develop and which activities to use. This can also be used for customer profitability analysis, identifying which customers are the most profitable and focusing on them more.
One of the key benefits for the use of ABM is how it enables managers to understand product and customer profitability, the cost business processes and how to improve them (Alireza 2017).