Ideally speaking, operating businesses is all about adding to the revenue pools"
This phrase is the most straight forward way of both revealing and summing up the reasons for which business organizations exist, be it is a "successful" one or its "not-so-successful" counterpart. The most commonly adopted way to achieve this aim is by "somehow swelling the customer base". However, there exists another route to do this. This, "more prudent approach" can be "exercising a control on the costs being incurred". This is because "revenues" are earned to "cover up the costs". So, if allocation of resources (and therefore of costs) is done in a wise manner, the margins in the form of "profits" expand automatically. From here stems the need for stakeholders to venture on a "cost understanding voyage".
ABM (Activity based Management) is the name given to this journey. The fact it rests on is "activities make up business processes, so scrutinizing these steps will uncover the possibilities of improvement in the business processes".
This task, if successfully accomplished will bring the very minute details of processes in the light. Consequently, the "previously blurred picture" as to which activity is worth continuing and which one is "futile", will become clearer. Therefore, one can establish a more scientific and logical profile for the "activities" and "resources" by filtering the "value-contributing activities" from "non-value contributing" ones.
This newly structured framework for allocation of resources will hand over the managerial group a device to "make better and faster decisions".
On the whole, ABM imparts a new perception to the role played by a given activity in taking the group nearer to its objectives. ABM (Activity Based Management) offers increased and improved insight into the organizational cost structures. Be it "product cost" or "process cost", this methodology seeks to study every existing concept related to either of the two and extract profits from it. The benefits can be either monetary (rise in revenues) or non-monetary (hike in customer value).
ABM comprises techniques like ABC (Activity Based Costing that revolves around cost allocation) and ABB (Activity Based Budgeting that enables managers in compiling budgets in terms of expected activities).
Further, the easy and smooth integration of ABM with other management thoughts like BPR (Business Process Re-Engineering) and CRM (Customer Relationship Management) provide an opportunity to gain "synergistic benefits". This is yet another reason for adopting the ABM approach.
However, the implementers of ABM are required to confront certain challenges that crop up in its path. Stating few of these, the job of inculcating the concept of ABM can be very demanding in terms of efforts. As the name goes, "managing of activities" would comprise every feasible attempt from everybody in the organization to add to the understanding of the activities.
BSC enters the arena of ABM, when it comes to measuring and following the process of ABM. The metrics, which can serve the purpose are-"% decrease in consumption of resources", "process cost drop", "% of products meeting the minimum profit level" and "increase in net margins" for evaluating the Financial Position. Customer Profitability Perspective can be obtained through metrics like "successful strategy index", "strategy execution ratio", "% of customer base labelled as profitable" and "customer base rise ratio". Internal Operations is yet another aspect that counts in ABM. It can be assessed using the parameters like "average process efficiency", "process modification index", "number of other management disciplines ABM is associated with" and "number of cost effective product designs". Lastly, Quality and Growth Perspective can be attained with indicators such as "Training: Revenu es", "% rise in successful strategies", "key activities Quality enhancement ratio" and "drop experienced in time taken for de cis
ion making tasks".
By structuring such and similar ways of calculating progress regarding ABM, the job of putting resources to apt use gets not only "simplified" but also "interesting". This is because of the fact that it enables understanding the very basics, which drive costs.