CIMA P2 Syllabus A. Managing The Costs Of Creating Value - Activity Based Management (ABM) - Notes ^{5 / 11}

It is focused on value added by the activities which helps to identify key products, activities and customers in order to gain a competitive advantage.

There are two levels of ABM

1. Operational 

   - actions based on activity driver analysis that increase efficiency, lower costs and improve asset utilisation.

2. Strategic

   - actions based on activity based cost analysis that aim to change the demand for activities so as to improve profitablity.

ABM

is a management system using ABC information to analyse relationships between costs and activities carried out, and to base decisions aimed at

• Reducing costs

• Improve quality

• Reduce idle time and eliminate bottlenecks

• Enhance process flexibility and promote innovation

ABM approach to cost measurement

• Focus on activity costs (whether cross-departmental or not) rather than department
  costs

• Focus on indirect costs (overheads) and overhead generating areas, given their
  significance and the fact that their degree of controllability is higher

• Focus on individual customer profitability

Problems with ABM

1. Significant amount of work in setting-up the system and in data collection

2. Organisational changes and behaviour consequences - may not be in line with the formal organisational structure