Summary

ABC is a mature methodology that can facilitate the assessment of costs associated with the planning, procurement, and production of individual products or services. ABC is useful for illustrating the linkages between costs and the individual factors that incur those costs. Traditional costing systems on the other hand commonly take the aggregated totals of costs and assign these to products/services on a pro rata basis.

ABM makes use of ABC-derived information to control the cost of activities using the fundamental assumption that activities generate costs. ABM systems are used to organise activities into recognisable categories and to link these to unique cost drivers. The use of ABM can greatly facilitate the ability to control costs. By providing information in a readily understood and useable format ABM can represent a powerful tool for performance improvement.

The introduction of ABM into an organisation will most likely lead to cultural changes that need to be carefully managed. Because ABM systems are by nature very data dependent it is advisable to carefully maintain the balance between the value of the information generated and the level of ongoing maintenance effort required. Excessive maintenance requirements could possibly destroy the effectiveness of an ABM system. A significant challenge in connection with the implementation of ABM systems is the location of the most appropriate activity cost-driver to use when attributing activity costs to a product or other cost object.  However, Enterprise Resource Planning (ERP) systems have improved the availability and reliability of activity cost-driver information.

Although ABC and ABM systems were developed for use in manufacturing settings they are also being successfully employed in the service and retail sectors.

Some basic ideas have been provided within this management brief that outline how ABC and ABM systems may be measured and assessed. The case study and survey data provide recently reported practices and the current issues being experienced by organisations