Activity-Based Management (ABM)
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The paper outlines Kren's article "Using Activity-Based Management for Cost Control," that argues for activity-based management (ABM) as a solution to the problem of arbitrary across-the-board cuts where the best as well as the worst parts of the organization may be downsized. The paper asserts that the inclusion of helpful, clear definitions of ABM versus conventional styles of accounting and cost control are illuminating, but there are no examples drawn from real life to show how ABM is better than conventional methods. The paper posits that presenting examples from real life would have made the author's case more convincing.
From the Paper:"The article also suggests that ABM provides a more realistic view of managerial activities. While the traditional accounting approach suggests that managers have direct control over all aspects of spending in their area of responsibility, many of these items are contingent upon the behavior of other organizational actors and external forces. ABM, by using activity rather than traditional ledger-based analysis reflects the reality that managers have control over their activities, not the cost of items. "Thus, managers can control spending only by managing the activities performed in their area of responsibility" (Kren 2008). ABM can thus be used during planning to identify nonvalue-added activities, such as by cutting excess capacity in activity inputs. It also provides guidance about implementing performance improvement targets if different activities are implemented, thus also reducing costs in a productive manner. "These targets provide reasonable, explicit, and easy to understand objectives for operations managers" (Kren 2008). Finally, "end-of-period cost variances based on an ABM framework overcome many of the problems associated with conventional variances by providing clear signals about the actions needed for cost control and capacity management" (Kren 2008).
"The article attempts to demonstrate the implementation of ANM with a fictional case study of a loan processing division at LakeSide Bank, showing how costs can be contained in two cost pools, Underwriting and Technology. The cost driver for Underwriting costs are "'review hours' in the form of labor costs and the cost driver for Technology cost is 'IT hours'" (Kren 2008)."
Sample of Sources Used:
- Kren, L. (2008). Using activity-based management for cost control. Journal of Performance Management, 21(2), 18-28. 2008. July 16, 2009. ABI/INFORM Global. (DocumentID: 1629981791).
Cite this Article Review:
Activity-Based Management (ABM) (2011, December 19) Retrieved April 18, 2021, from https://www.academon.com/article-review/activity-based-management-abm-149489/
"Activity-Based Management (ABM)" 19 December 2011. Web. 18 April. 2021. <https://www.academon.com/article-review/activity-based-management-abm-149489/>