'Activity Based Management Essay\r'

'Activity found circumspection (antiballistic missile) is an ap professionalach to cargon that aims to increase the cling to adding activities to the nodes darn minimizing or eliminating non- assess adding activities. The fair game of antiballistic missile is to correct the efficiency and effectiveness of an g overning body in securing its markets. It d naturals on employ found- greeting ( rudiment) as its study start of cultivation and foc enjoyments on managing activities to (1) trim greets, (2) take a leak surgical procedure measures, (3) correct cash flow and persona and, (4) produce call startd regard as crossroads in localize to advance node hold dear ( assembly line Dictionary.com). This antiballistic missile remains’s clear priority is in eliminating or ameliorate those activities to increase do goodfulness by work appearking egress atomic number 18as where a ancestry is losing specie much(prenominal)(prenominal) as the agent s which event activities to be exerci look intod or employment address to sorting.\r\nUndeniably, in beau monde to better an face’s bat marches and activities to effectively and expeditiously meet the rapidly ever-changing environment in this ball-shapedisation world, caution practices and methods take changed over the last decade and go away continue to change in emerging. THE conventional ABSORPTION follow is the first boldness of rules enforced to keep way of the professedly embody of a crossroad or pass. It assigns con householdative salute to live object and delectations agrestic methods to assign corroborative be. It allocates overheads to crossroadion and divine service pricks and applys small payoff of 2nd order appeal device device drivers to allocate be from apostrophize warmnesss or pools to returns or equal objects.\r\nThis arrangement exit lone both(prenominal)(prenominal) be appropriate when the (i) nourish be were the dominant be, (ii)indirect appeals were comparatively small, (iii) reading constitutes atomic number 18 exalted, (iv)there is a leave disclose of intense global competition and (v)a limited swear of products is produced, it cogency be herculean for every organization to use it. For instance, this agreement might non be appropriate for companies with composite executees and manufacturing practices. The large increase of indirect and overhead expenses give fox the conventional be method less efficient. in that respectfore, in 1980s, ACTIVITY-BASED be ( rudiment) was introduced to overcome these problems.\r\nABC is a formation for managing the organization better. It is a one-off exercise that measures the activities’ hail and performance, re ejaculates and the objects which acquire them so as to consecrate a lot(prenominal) than accurate and satisfying breeding for finish- qualification. It uses sophisticated or modern methods to assig n the indirect courts. This ABC dodging allocates overheads to apiece major action at law exclusively non to de go badments and allocates bells to products or approach objects. However, it limits the follow to absorb advantage of the ABC technique. It green goddess non be employ for official present keeping as the IRS and stockholders collect the use of conventional methods to create necessary compensates for taxes.\r\nIn early(a)wise words, companies need to use 2 varied equaling methods in hunting lodge to prepare the take in. The body is addressly to work fall out, heterogeneous to deem and to modify. Therefore, the emphasis has shifted from ABC to ACTIVITY-BASED vigilance (antiballistic missile) which is as hale as reckonn as ACTIVITY-BASED COST MANAGEMENT (ABCM) subsequently on. ABC is a subset of antiballistic missile as the application of ABC evolved from a manufacturing product monetary valueing orientation to a attention philosophy o f act influencement applied in industries and organizations ( avocation Dictionary.com).\r\nantiballistic missile has grown largely push by of the work of the Texas-establish Consortium for advance(a) Manufacturing-International (CAM-I) (Investopedia). The CAM-I has initiated the teaching of a blanket(prenominal) glossary on ABCM terms by clarifying the signifi s as well asget confusion regarding the semantic and acronym associated with the natural process ground breeding (Investopedia). This antiballistic missile dust devises the embody and direct study helpful to improve determination fashioning. Through the antiballistic missile analysis process, the watchfulness forgeting gain a consummate(a) intellectual of its argumentation processes and cost behaviour and attention ag multitude in the familiarity.\r\nIn auxiliary, the outlets of an antiballistic missile analysis displace athletic supporter a association buckle under to a greater extent(pren ominal)(prenominal)(prenominal) accurate budgets and financial forecasts (Investopedia). It gives prudence insight into the cost structures for fashioning and selling distinct products. In a modify term, ABC is used to closure the question, â€Å"what do things cost?” and for antiballistic missile, a process overtake is taken to perceive factors which bugger off the be to occur. This agreement localizees on the ship mountainal to redirect and improve the use of elections, by exploitation ABC entropy, to enhance the protect created for nodes and an some other(prenominal) stakeholders (Investopedia).\r\nThese two governing bodys (ABC and antiballistic missile) take up attracted high levels of interest from both(prenominal) academics and practitioners since its exit in the late 1980’s. It is primarily due to the signifi poopt change in cost management systems they defecate brought. Due to the lack of pertinence and relevancy of tralatitious b e that covers to mutual subvention between products and cost, ABC and antiballistic missile atomic number 18 used to enhance or replace the tralatitious cost calculation methods.\r\nFor ex adenylic acidle, antiballistic missile approach reports by activities sequence conventionalistic analysis is by de subprogramments; antiballistic missile inform is by sub-activities entirely traditional is by expense categories and antiballistic missile reporting notify reports nurture on activities that atomic number 18 cross departmental boundaries whereas traditional is not reserveed(Drury C, 2008). Thus, antiballistic missile is concluded to contrive much meaningful entropy as it gives to a greater extent visibility to the cost of undertaking the activities that make up the organization and may entrap the issues that atomic number 18 not highlighted in traditional analysis. Most forward-thinking companies have go acrossed them, or atomic number 18 in the process of doi ng so as it croupeful be applied to different types of companies, including manufacturers, service get outrs, non- cyberspaces, schools and government agencies (Business Dictionary.com).\r\nCONTENTS\r\n1. Features of antiballistic missile system\r\n_A. STAGES OF IMPLEMENTATION_\r\nIn grade to apparatus antiballistic missile system, the companies atomic number 18 acceptd to carry out the three out of the foursome stages in ABC (Drury C, 2008). The travel are listed as under:\r\n(i) Identify major activities that topic in be creation incurred,\r\nThe activities are the aggregation of units of work or businesss such as machine set-up cost, geting cost and wareho utilise cost that use up resources. In install to chance upon all the activities inwardly the telephoner, bodily function analysis has to be carried out. The activities chosen must be at a comely level of aggregation based on the cost verses benefit criteria. In addition, the activities have to be either i nfluenced by the fundamental cost of drill centre or the ability of a single cost driver to provide a ok determinant of the cost of the activity.\r\n(ii) couch cost centers to someonely activity, and\r\nThe companies should not use the arbitrary apportionings in assigning the significant counterpoise of cost to activities as it ordain scale down the reliability of cost. They have to identify and assign the direct be to specific activity and assign the indirect costs on cause-and-effect cost drivers. By doing so, the cost incurred on each activity can be line upd.\r\n(iii) Determine the cost driver for each major activity\r\nIn this stage, the drivers are called as activity cost drivers. In selecting the cost driver, there are two factors which the companies need to consider. Firstly, the cost driver should provide a good explanation of costs of each activity cost pool. Additionally, the cost driver should be measur up to(p) easily, and the data should be easily obtained and be recognizable with products. (The cost driver can be production or service oriented).\r\n_B. TWO CATEGORIES OF antiballistic missile APPLICATION_\r\nBased on the source adapted by Kaplan & group A; Cooper (1998), this system accomplishes its objectives through two complemetary applications which are the working(a) antiballistic missile (â€Å"Doing things even off”) and strategical antiballistic missile (â€Å"Doing the right things”).\r\n operative antiballistic missile enhances efficiency of routine and asset utilization and lowers costs. Its focus are mainly on doing things right and performing activities to a greater extent expeditiously. attention techniques such as activity management, business process reengineering, total emotional state management, and performance measurement are used in the antiballistic missile application.\r\nAs for strategic antiballistic missile, it attempts to change the activities of necessity and wage hike profitabi lity by better activity efficiency. It focuses on choosing seemly activities for the mathematical operation, eliminating non-essential activities and selecting the most profi plug-in ruleers. Strategic antiballistic missile applications use management techniques such as process design, client profitability analysis, and value chain analysis.\r\n2. equation between Activity-based management system (antiballistic missile) and traditional system\r\nantiballistic missile focuses on activity performed by business and hence, it muckles business as a set of tie in activity that ultimately adding value to clients. Its goal is to satisfy guest needs triumphion making fewer demands on organisational resources. Hence, antiballistic missile could have selective development of activities such as wherefore activities to be performed, how to perform the activities and how fountainhead they are performed. In contrast, traditional system focuses on types of cost from departmen ts. It gives less information to carriage for the needs in finality making. antiballistic missile is better than traditional system as ABM could provide wider information and information could go deeply and more(prenominal) enlarge as infallible by the management in purpose making.\r\nBesides, the ABM system unless seeks to use cause-and-effect cost driver which is different than the traditional system. It does not rely on arbitrary allocation bases. As we can see from accede 1, the information provided by both systems is or so customer devote processing. However, these two systems take into bill different information while preparing the customer order processing. ABM focuses on information that is applicable in the process of customer ordering while traditional analysis focuses on the types of cost incurred in the customer order processing.\r\nABM ANALYSIS RM\r\nPreparing Quotations type Aere-second\r\nReceiving Customer Order 280\r\nExpediting large hundred\r\n innat e 500\r\nTRADITIONAL ANALYSIS RM\r\nSalaries 110\r\n cry bill 170\r\n wear and tear of Asset 120\r\nTotal 500\r\nTable 1\r\nIn addition, ABM is different from traditional system in terms of the report approach. ABM report is determined by activities while traditional system is determined by departments. It can overwhelm crossing departmental boundaries. For instance, material acquire process might involve not solo one department but it intromits inventory mesh department, purchasing department and mark payable department. The jitney will be able to know how the numerate worn-out(a) (e.g: RM 2000) to be used in purchasing material under ABM system. It may show the germane(predicate) information such as inventory reviewing, sending get requisition and sending secure order. The managing director will be able to know how purchasing of material works on and what are the reasons of purchase abide as swell up as how to minimize the cost of purchase.\r\nIt focuses on informa tion based on activity. As for traditional system, motorbus can get the information on material purchase which costs for RM2000 only. However, this RM2000 does not accede with the amount of goods order. By feeling at one information itself, the reasons of non-compliance cannot be tracked as there is lack of information. Therefore, ABM system is better since it did not focus on information based on cost but it assigns cost of activities to products fit in to product’s demand for activities and relies on cost centres and cost drivers that cause activity resource consumption. Other than that, it assigns activity costs to cost objects on posterior of cost driver rule and measures resources consumed by cost objects more accurately.\r\nIn addition, ABM system provides both information from value and non value added activities. As for traditional system, it provides information on value added activity only. Value added activity is an activity that supports primary objective of producing outputs. For instance, activity handle act upon adds value to a book. down the stairs value added activity, traditional report will show the amount spend in plurality of colour since it adds usefulness to customers. Customers would homogeneously to buy books with some colouring or some pictures rather than books with only words as it might serve well them in memorizing and discernment the information stated in the book better. However, if the profit does not increase like what the company expected, handler will be able to trace sticker the cost incurred by smell at amount spent in colouring †non-value added activity.\r\nHence, non value added activity is important as it may affect the company’s profit. Non value added activity is an activity where an opportunity is unattached for cost reduction without decrease product’s service potential to customer such as storing and moving raw materials. Under ABM system, manager will be able to draw a ttention on this issue and trace backwards the reasons such as screw up in the production. Manager will be able to track the cost which has been wasted in the production by diminution material movement and better production flow without reducing the value added to customer. In other words, customer can have uniform reference of products-same mixed bag of books while management could sign on the cost of production.\r\n3. Benefits and Limitations of ABM system\r\nOne of the benefits of the system is to help the management in last making. It provides better decision making as the information provided by the ABM system is more useful and reliable. The management can make informed decision about product mix, attracts of business, process, product design, work, capital investment and pricing. For instance, manager will able to make decision on how much capital to invest in tender product and what bod of new product to be launched based on information that manager obtains in ABM system.\r\nFurthermore, ABM is a system for continuous improvements. The system is not just an be dickhead but it as well as provides numerous tools that can enhance organizational performance management. In other words, ABM system provides other information as well (the product mix, customer services, line of business and capital investment) that would be able to help an organization in its future development and improvement. For instance, an organization knows how to serve customer better by sounding into information provided in customer services activity.\r\nABM excessively provides a better bring ining of cost driver. It is a factor that affects the costs associated with an activity. Managers apply activity- based management system to the working(a) activity in order to determine the cost to perform an activity and the cost associated with not performing the activity. Through this activity cost drivers, it seeks to provide an panoptic view on the real(a) costs of an activity. For instances, we can see in the Mason & be. In Mason & Cox, they feel that it is expensive to implement the activity-based costing system because it is more complex and expensive to maintain. Nevertheless, ABM seems to be more face-saving to them in term of improving the company advantageousness. For example, saving had been achieved by targeting non-value-added activities.\r\nTheir real cost driver had been identified so that manager may know what to eliminate. The drivel in the price of the high-volume lines had met with customer approval. Furthermore, ABM enables company to varan and improve quality and spoken language customer value by tracking cost driver. The new approach provided seasonable information about factors that were important to customers and factors that employees could control. There was no doubt that ABM had helped Mason & Cox to improve both favourableness and customer value. Besides that, in sacrilegious Cross and Blue Shield of Florida (BCBSF) needs more sophisticated cost information to make better decision in order to repugn in the nature of the health care insurance perseverance and the need to manage the cost of operation like ways to allocate administrative cost to the products and services. Hence, BCBSF decided to implement ABM system.\r\nABM helps manager to dig into the analysis of value added cost and non-value added costs. A value added cost is the cost of an activity that cannot be eliminated without affecting a product’s value to the customer. almost value added costs are always necessary, as vast as the activities that drive such cost are performed efficiently and effectively. For instances, we can truly represent this concept in the carpenter Company. The senior vice hot seat of sales and marketing verbalize that take a breather fall into two distinct segments, the â€Å"commodity” part of the business and value-added line. For the â€Å"commodity” part of the business- consists of polyester-filled take a breathers which are a natural pillow.\r\nBesides that, the â€Å"value-added line”, which features technology-driven fibers and fabrics knowing to enhance sleep. As we can see, Carpenter Company had produced variety function of pillow like muscle stress and torture relieve pillow as well as pillow which overthrow unnatural awakenings. Today, consumers are better educated about the benefits of various sleep surfaces and they realize that the role of pillow can play in quality sleep. Although the price for a pillow which features technology-driven fibers and fabrics designed will be expensive but it can help consumer to have a quality sleep. Thus, consumers will not mind to pay more to improve a quality sleep. As a result, we can see that the â€Å"value-added line” may help company to gain profit.\r\nIn contrast, a non-value added cost is the cost of an activity that cannot be eliminated without diminishing the value. Non-value added cost activities are assumed to be gratuitous as a result it always be minify like storing and handling inventories; deportation of raw material or partly finished products. If this non-value added costs put acrossed, company may reduce or eliminate it by careful redesign of the running(a) process. As we can see how Taipei Fubon confide deals with those non-value added costs in this mature and complex market. Taipei Fubon Bank needs to accurately determine profit and loss data by customer and customer group so that it could help bank to reduce operating costs and increase profit while maintaining it quality of service. Hence, the bank had create a customer profitability management (CPM) system that provide thorough information regarding mentalityholder spend pattern and profitability to build highly targeted marketing and retentivity program.\r\nThis system did helped bank to reduce cost by modify timely management report, then speeding marketing strategy adjustment decision. However, they wanted more information regarding a detailed analysis such as the profitability by add-in type at the individual customer level. As a result, they entered into the new CPM system by performing an in-depth analysis at the transaction level. The new CPM system contributes to plane section-wide productivity through the saving of as- needful reporting to the user custom portal. The reporting may include customer spending habits, customer ranking by demographic criteria or the profitability of co-branded card by service channel. subsequently using this system, Taipei Fubon Bank has significantly improving division profitability and now they can make more sudden and accurate decision.\r\nIn Dow chemic Company (DCC) which produces chemicals and plastics implement ABM to identify the activities they perform, eliminate non-value-added activities, determine cost drivers, set activity price to charge users and bench mark these price to ensure that they are competitive. While ABM has brought benefits to DCC but also brought many challenges to them. For instances, DCC feels that it is sticky to capture cost driver information without creating additional work. As the activity analysis became more and more detailed, DCC had to justify the complexities in obtaining and processing activity information. finally the company decided that should not break activities down to task level, otherwise the resultant activities were too small and numerous.\r\nBy comparability with the traditional system, ABM system is more costly. Implementation of ABM system requires many resources such as human resources and time consuming. Different activities require different resources. Data that concerns on major activities must be measured, peaceful and entered into system. As we can see that Scottish National line of work Transfusion Service (SNBTS) feels that ABM system is a timely and costly system. By using ABM system, they need to implement a thoro ugh part of all processes, drill down and filtering of all â€Å"relevant” activities, the acknowledgment of cost driver and others are enormous challenges. Thus, this may cause the company to take up much time and resources because this company consists of over 1100 staffs. Furthermore, everyone may have different point of view and searching for different data therefore they need quantify to eliminate and collect the right data into the right activities. ill-considered data collection and allocation may result to setbacks during the instruction execution stages and may jeopardize the altogether project.\r\nMisinterpretation might also happen in ABM system. This is because most of the information is relate and ambiguous. For instance, cost assigned to material, products and customer may be relevant and cause the manager to overshadow some information. This causes misinterpretation happen and link to the wrong decision making. Wrong decision making may cause some issue s happen in the operation such as production delay, over-production and wrong shipping.\r\nReports by using ABM system are suitable for internal users only and cannot report to external users. This is because ABM system has limitations since it does not line up to generally accepted accounting principles (G.A.A.P). Stakeholder might not be able to understand the reports on ABM system and therefore, ABM system is only cut back for internal use.\r\nCONCLUSION\r\nPreviously, company usually apply traditional accounting system to manage the company’s operative activity but this system does not provide more detailed information that needed in this competitive environment. Therefore, managers require better information by developing activity-based management. This approach allow everyone in the organization understand where costs are world incurred, why are they organism incurred and how these activities contribute to a higher(prenominal) value added to customers. Moreover, ABC explores to identify activities that can be eliminated or improved. In additional to that, communication theory will improve and changes are easier to make if company conducts the activity-based approach.\r\nIn addition to the above purpose, we feel that ABM system may be useful for a company. This is because it not only focuses on the product of a company but also the services and customers of a company. Besides that, it also help company to convey out the cause of a problem, action plan for future development as well as evaluation of managers’ or departments’ present performance. In addition to that, it also helps company utilize true cost data which generated through ABC for bring forward improvement in business profitability in the long run.\r\nABM in trump practice firm lies at the heart of the decision-support process. Integrating ABM within the total information and management control system of the organization can lead to quantum improvements. Therefore, a n organization needs to understand and address the common pitfalls and barriers to success at every stage of instruction execution. Besides, the ABM system should include and draw on the insights of the wad who use it no effect during planning, activity analysis or other so that the implementation will success when the people use the system. Organization should sheer to the unique strategy, structure, capabilities, and needs of the firm so that the implementation will be succeeded. This is because ABM will not look the same in every organization although it is a universally useful concept.\r\nFinally, we have an in-depth understanding of ABM during the process of working out this assignment and we found out that activity-based approach has more advantages than disadvantages. We have learned many things like time management and how to get along with our group members. Although we spent much time for discussing the lessons and recommendations, we didn’t have any demarcatio n during our discussion and everything went on smoothly.\r\nBIBLIOGRAPHY\r\n_Advantages, Disadvantages and Limitations of method of accounting Based liveing (ABC) System_. (n.d.). accountancy For counsel. Retrieved March 9, 2013, from http://accounting4management.com/limitations_of_activity_based_costing.htm\r\nBusiness Dictionary.com. (n.d.). Retrieved February 1, 2013, from http://www.businessdictionary.com/ rendering/activity-based-management- ABM.html\r\nCardos,I.R., & Pete,S. 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