CostManagementOverview/BenefitsABC&ABMActivity-basedmanagementisausefulbutsometimesoverlookedcostmanagementtoolthatallowscompaniestodeterminenotonlyaccuratecostsbutalsothecostsofalternativeactions.Whilemoretraditionalcostmanagementutilizesactivity-basedcosting,whichanswersthequestion“Whatdothingscost?,”activity-basedmanagement(ABM)answersthequestion“Whatcausescosttooccur?”Utilizingthistechniqueallowsacompanytodeterminethecostsofalternativeactionssuchasrearrangingequipmenttoproducethingsmorequickly(time-basedcompetition),purchasingmoreexpensivebuthigherqualitymaterialstoreducelostsalestodisappointedcustomers(totalqualitymanagement)orcomparingdifferentwaysofreengineeringabusinessprocess.U.S.organizationshavebeenpioneersindevelopingABM,inpartbecausethediversityinproducts,services,andpeopleismuchgreaterinthiscountry.DirectServicesProvidedArthurAndersen’sdirectcostmanagementservicesincludethefollowing:oProfitabilityanalysis-Products,Customers,ChannelsoBenchmarkingofcostmanagementpracticesoEconomicvalueanalysisoValuechainanalysisoCostreductionusingactivity-basedmanagementoProcesscostanalysisoTargetcosting/ProfitplanningoTransferpricinganalysisoImplementingstandardcostsystemsoActivity-basedbudgetingIndirectServicesProvidedCostmanagementoftenworksintandemwithothermanagementinitiatives,integratingwiththeotherservicesofferedbyBusinessConsulting.Indirectly,costmanagementsupportsthefollowing:oreengineeringofthefinancefunctionodevelopmentofperformancemeasurementsystemsoreengineeringusingactivity-basedanalysisoimplementationofimprovementprograms(TQM,JIT)ovalueengineering-1-0749b0e8-1747-4d4b-bcc5-881cdedfc402.docEntryPoint/TargetBuyeroCFO;ControlleroManufacturingoTelecomoUtilitiesoServicesoHealthcareoInsuranceoGrocery(ECR)EngagementSizeWhilesomepilotjobsareperformedforless,thetypicalengagementsizeforanentrylevelcostmanagementengagementifbetween$100,000-$300,000.However,afull-scaleimplementationgenerallystartsat$400,000.KeystoIdentifyingOpportunitiesforCostReductionoHighinventories:·Largecentralstockroom·InteractiveWIPordersonfloor·Turnoverlowerthanindustryaverage·WIPturnoverexceedsprocesstime·Piecerateincentivepay·Productivitymeasuredonpermachine/perworkerbasisoLongproductionleadtimes:·Functionalplantlayout,noproductfocus·Longdistancebetweenworkstations·Largemanufacturinglotsizes·Highscraprate·Planningleadtimeexceedsprocesstime·Bottlenecksatinspectiondepartment·MissedcustomerdeliverydatesoHighoverheadrates:·Severalforklifts·Employeeswalkingaround,searchingforequipment·Significanthandling,storageandinspectioncosts-2-0749b0e8-1747-4d4b-bcc5-881cdedfc402.docActivity-BasedCostManagementOverview&BenefitsActivity-basedcostmanagement(ABCM)istheoverallpracticeofactivity-basedmanagement(ABM),activity-basedcosting(ABC),andactivity-basedbudgeting(ABB).TheusesofABCMinformationarenumerous.CompaniesareusingABCMtoreengineeroperations,improvebenchmarking,increaserevenues,simplifythebudgetprocess,andestablishperformancemeasures.Whetherimplementedaloneoraspartofalargerperformancemanagementsystem,ABCMprovidescompanieswithbetterinformationtomanagetheirbusiness.ServiceLineQuestions1.Whatisthebusinessobjective(orproblem)beingaddressed?2.Arecurrentproduct/servicecostsaccurate?3.Whatfactorscontributemosttocosts?4.Whatprocessesshouldbeimproved?Why?How?5.Whichproducts/servicesaremostprofi...
