Activity Based Management (ABM)

Also referred to as activity based cost management (ABCM). This is used to describe the cost management application of ABC.

• To implement ABM, system, only the first three of the four stages of ABC system are required.  These are;
• Identifying the major activities that take place in an organization
• Assigning costs to cost pools or cost centers for each activity.
• Establishing the cost driver for each main activity.

ABM visions the business as a set of linked activities which eventually add value to the customer. It concentrates on managing the business on the basis of the activities which make up the organization. It depends on the premise that activities consume costs. Hence by managing activities costs will be managed in the long run.

The goal of ABM is to enable the customer to be satisfied while making fewer demands on the organizations resources. The measurement of activities is a key role of the management accounting function. In particular activity cost information is useful for prioritizing those activities that need to be studied closely so that they can be eliminated or improved. ABM is used in a variety of business applications such as cost reduction, benchmarking, activity based budgeting and performance measurement.