Activity Based Management (ABM) is a strategic approach used by organizations to improve efficiency and profitability by focusing on the activities that drive value within the business. It involves analyzing and managing activities performed in the organization to identify opportunities for cost reduction, resource optimization, and process improvement.
ABM aims to align the organization's resources and activities with its strategic objectives to maximize outcomes. It is a management methodology that emphasizes on understanding the cost, value, and profitability of each activity performed by the organization. By identifying and measuring the costs and benefits associated with each activity, ABM provides insights into the most valuable and critical activities that contribute to the organization's success.
In practice, ABM involves four key steps: activity analysis, activity classification, activity evaluation, and action planning. Activity analysis entails identifying and understanding the activities within the organization's processes and systems. Activity classification involves categorizing the activities based on their importance and value. Activity evaluation helps in determining the resources consumed and costs associated with each activity. Finally, action planning involves making decisions and taking actions to improve the value and efficiency of the activities.
ABM helps organizations identify areas of improvement, eliminate non-value added activities, optimize resource allocation, and enhance overall performance. It provides a comprehensive understanding of the cost drivers and helps management make informed decisions. By focusing on activities that generate the most value, ABM enables organizations to streamline processes, reduce costs, increase productivity, and achieve competitive advantage.
