Management And Accounting Web

Activity Based Management Models

Summary by James R. Martin, Ph.D., CMA
Professor Emeritus, University of Sourth Florida

ABM Main Page | ABC Main Page | CAM-I Main Page
 

The CAM-I conceptual design could be described as the first statement of ABM, although the term "Cost Management Systems" was used to describe the project or discipline when the book was published in 1988. The term Activity-Based Management became popular later after Cooper and Kaplan adopted the term "activity-based costing" used in a Harvard Business School case (187-107) about John Deere Company's cost system. The six items in the CAM-I column below are the concepts that were emphasized in the CAM-I CMS design document. Johnson separated the ABM concept into three main parts pointing out that activity management was process oriented rather than cost oriented. Johnson has explained in a number of articles and the book Relevance Regained that activity management involved managing work, not cost. The processes and related work represent the horse, while the costs represent the cart. Don't put the cart in front of the horse and manage the cost. Instead, manage the work that people do in the organization. Brimson, Turney and Campi provide other descriptions of ABM. Most of the ideas or concepts that these authors discuss can be found in the CAM-I conceptual design, although each author uses somewhat different terminology.

The CAM-I Model Alternative views from Martin and The CAM-I Conceptual Design. - See Figure 8-13 Johnson’s Model based on six elements as interpreted by Martin -
See Figure 8-12
Brimson’s Model from Chapter C-1, Handbook of Cost Management
1996 edition
Turney’s Model from his book Common Cents Campi’s Model from
 
Journal of Cost Management
article 1992
1-6 connected for cost management, i.e., CMS Figure 8-14 or from the CAM-I Conceptual Design document:
1. Activity accounting.
2. Strategic planning.
3. Life cycle management including target costing.
4. Performance measures and
5. Investment management.

The CAM-I conceptual design also includes the concept of continuous improvement and tools such as target costing. See the CAM-I pages for more details.

1. Define Activities.
2. Identify drivers and activity measures.
3. Assign costs to activities.
4. Assign costs from activities to cost objects.
5. Develop performance measurements.
6. Manage processes and work. Activity costing = 1+ 2 + 3 Activity based product costing = 1+ 2 + 3 + 4 Activity management = 1 + 2 + 5 + 6 Emphasis: Disconnect accounting information (3 and 4) from managing processes. Manage processes not costs.
1. Uses ABC as the major source of information.
2. Cost driver analysis.
3. Activity analysis.
4. Key Performance measurement.
5. Includes a continuous improvement perspective (see Exhibit C1.1):

Activity analysis (using organization and process maps), benchmarking, improvement identification, planned improvements, implementation, control of processes, activity based budgeting and earned value reporting.

1. Strategic analysis.
2. Value analysis.
3. Cost analysis.
4. Activity-based budgeting.
5. Life-cycle costing.
6. Target costing.
1. Activity based costing.
2. Total quality management.
3. Just-In-Time.
4. Continuous flow manufacturing.
5. Employee empowerment.
6. Cellular manufacturing.
7. Focused factories.

For an operational model (or compromise model?) see Figure 8-15. Audiences Exhibit 2-4.


ABM Model Components

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Related summaries:

Berliner, C., and J. A. Brimson, eds. 1988. Cost Management for Today's Advanced Manufacturing: The CAM-I Conceptual Design. Boston: Harvard Business School Press. (Short Summary or Concepts.) (Longer Summary.)

Beynon, R. 1992. Change management as a platform for activity-based management. Journal of Cost Management (Summer): 24-30. (Summary).

Campi, J. P. 1992. It’s not as easy as ABC. Journal of Cost Management (Summer): 5-11. (Summary).

Cokins, G. 1999. Using ABC to become ABM. Journal of Cost Management (January/February): 29-35. (Summary.)

Cooper, R. 1996. Activity-based management and the lean enterprise. Journal of Cost Management (Winter): 6-14. (Summary).

Cooper, R., and R. S. Kaplan. 1998. The promise - and peril - of integrated cost systems. Harvard Business Review (July-August): 109-119. (Summary 1, Summary 2).

Hughes, S. B. and K. A. Paulson Gjerde. 2003. Do different cost systems make a difference? Management Accounting Quarterly (Fall): 22-30. (Summary).

Johnson, H. T. 1989. Professors, customers, and value: bringing a global perspective to management accounting education. Proceedings of the Third Annual Management Accounting Symposium. Sarasota: American Accounting Association: 7-20. (Summary).

Johnson, H. T. 1992. Relevance Regained: From Top-Down Control to Bottom-up Empowerment. The Free Press. (Summary).

Keys, D. E. 1994. Tracing costs in the three stages of activity-based management. Journal of Cost Management (Winter): 30-37. (Summary).

Pryor, T. 1997. Making new things familiar and familiar things new. Journal of Cost Management (Winter): 38-42. (Summary).

Reeve, J. M. 1996. Projects, models, and systems -Where is ABM headed? Journal of Cost Management (Summer): 5-16. (Summary).