Managerial Accounting
“Activity-Based Management”
Brad Lemler
September 23, 2013
Table of Contents History of Activity-Based Management…............................................................... 2
Present Status of Activity-Based Management..................................................... 4-6
Activity-based Costing.......................................................................................... 6-8
Process Value Analysis......................................................................................... 8-9
Value Chain........................................................................................................ 9-12
Total Quality Management……........................................................................ 13-15
Just-in-Time Inventory Management................................................................ 15-17
Total Customer Satisfaction.............................................................................. 17-19
Computer-integrated manufactured…….......................................................... 19-21
Conclusion......................................................................................................... 21-22
References......................................................................................................... 23-25
History of Activity-Based Management
It is known that in the 1980-1990s, traditional accounting including conventional costing, budgeting and management accounts could not show high results in supporting all the business decisions. There was also a problem with “technical development in management accounting”. However, great changes in manufacturing technology increased not only productivity but also quality of products.
Activity-based management developed from the improved costing methodology – activity based costing. In other words, activity based management uses appropriate cost information which is got by activity based costing. In 1960, General Electrics managers tried to improve the usefulness of accounting information which was related to control of indirect costs. The managers of that organization found that indirect costs were the results of so called upstream solutions. The work of the managers of General Electrics was one of the first examples of activity based management.
Present Status of Activity-Based Management
Today, activity-based management is applied in manufacturing and different service companies, utilities and logistics, telecommunications and different government sectors. Activity-based management helps to make improvements in businesses by means of measuring product and process costs as well as customer profitability. According to the statistical data, about 80% of the companies which have already implemented activity-based management techniques in their businesses prove the fact that these techniques are rather successful.
It is known that today, this method is “generally recognized as a more accurate and efficient method of determining profitability of different business activities”.
One of the numerous examples of implementing of Activity-based management is found the sphere of banking industry. For example, Midwest Banking, Inc. successfully implemented Activity-based management in 1996. It proved the fact that ABM was “a revolutionary technique” in the banking industry. It provided the bank with all the necessary information to succeed in the 21-st century. Of course, a lot of work has been done in order to achieve positive results. It was a so-called step by step process.
Thus, application of activity-based costing in the above mentioned organization included the following steps: to gain appropriate support and direction of senior management; to develop a direct link to other important goals and objectives of the organization which included “quality initiatives”.
To organize a team of managers from different departments who