Lasse Arildslund

Activity-based Anita Horgosi

Jørgen Solland
costing and activity- Julia Tsirulnikov
based management
 What is Activity-based costing?

Activity-based costing: is a costing approach that

assigns resource costs to a cost object based on
activities performed for the cost object

 This method enables traditionally fixed costs to be

distributed among product groups, converting them into
variable costs
 Also gives non-financial information in opposition with
conventional costing system

Management Accounting,
1. October 2007 Professor I. Baranov
What is the objective of Activity-based
management?

Activity-based management: is a method of business

analysis that utilizes ABC information
 improving competitiveness, cost reduction, increasing
productivity and augmenting flexibility in meeting
customers needs
 Focuses on changing the way the work is carried out or
on the reasons why the work is performed

 Operational ABM: doing things right and performing

activities more efficiently
 Strategic ABM: Choosing appropriate activities for the
operation Management Accounting,
1. October 2007 Professor I. Baranov
 How would you describe strategic ABM?

 Strategic ABM: Choosing appropriate activities for the

operation, „doing the right things”
 Encompasses actions that shift the mix of activities away
from unprofitable applications

Management Accounting,
1. October 2007 Professor I. Baranov
Under which circumstances would you recommend
to consider introducing strategic ABM?

 Highly recommended for service sector organisations, and

companies with complex production processes and a wide portfolio
 ABC is not a quick fix: requires patience and participation to see the
results cultures that reward only short-term results are not fertile
grounds for ABC
 Most common characteristics of successful systems:
 High level of top management support and commitment

 Technical competence of the implementation team

 Effective change management

Management Accounting,
1. October 2007 Professor I. Baranov
In which respect is the policy of "doing right
things" under strategic ABM different from the
same policy under such management systems as
TQM, BPR, etc.?

 ‘Management system in the management

system’
 ABM is a more detail focused strategy, whereas
TQM and BPR are strategies on a macro level

Management Accounting,
1. October 2007 Professor I. Baranov
What is a difference, if any, in decision
making between companies adopted and
not adopted strategic ABM?

 Using also non-financial information

 Time-consumption
 Division of accounting activities
 Ethical problems and sub-optimization

Management Accounting,
1. October 2007 Professor I. Baranov
 How is strategic ABM related to
strategy implementation?
 ABC can be used as a basis for strategic
decision making
 E.g. regarding changes in the supply chain
and changes in target customers

Management Accounting,
1. October 2007 Professor I. Baranov
How would you calculate the costs
of introducing ABM in a company
and potential benefits?

 Predictable costs: Consultancy hours, ABC

software, Education
 Unpredictable costs: Use of employees in the
development process, Organizational changes
 Benefits: More efficent processes, Easier to
make rational decisions

Management Accounting,
1. October 2007 Professor I. Baranov
 Thank you for your attention!

Management Accounting,
1. October 2007 Professor I. Baranov
Literature

 Baranov: Management Accounting for Multinational Companies

(reader, 2007, p.28-52)
 Blocher, Chen, Cokins, Lin: Cost Management: A Strategic Emphasis
(2005, p.120-135)
 Coombs, Hobbs, Jenkins: Management Accounting Principles and
Applications (2005, p.67-74)
 Londerback, Holmen: Managerial Accounting (10th edition, 2003,
p.133)
 Maher, Stickney, Weil: Managerial Accounting- an introduction to
concepts, methods&uses (9th edition, 2006, p.89-90)

Management Accounting,
1. October 2007 Professor I. Baranov