Activity Based Costing (ABC) is a costing technique where inputs are linked to outputs. This allows the identification of the real cost of business processes and activities based on the resources consumed. Activity Based Management (ABM) is the performance management process supported by ABC. ABM facilitates business process improvement, innovation and the realignment of resources with outputs.
FreebodyCogent offers consultants who have the experience and expertise to assist organisations at every stage of development from design and implementation of an ABC model, through their transition to ABM and finally the implementation of an performance management system that integrates performance and cost information. Typically, there are four distinct stages of development associated with a fully integrated performance measurement framework.
Activity based costing (ABC)
Our consultants can design, build and implement an ABC model for any organisation, including purpose built models to support processes such as market testing and output pricing reviews. Freebody Cogent has a proven methodology that delivers effective and reliable costing models that are not overly complicated, are efficient to maintain and integrated with existing corporate and management reporting systems. The transfer of skills to facilitate ownership and on going maintenance of the model within an organisation is also a priority for us.
Where a costing model has become out dated or no longer meets the business requirement, FreebodyCogent can assist by redefining and redeveloping the existing model, converting a purpose built model to an organisation-wide model, integrating an existing model with corporate systems or enhancing data capture and other associated processes and systems.
Our consultants can also assist organisations in the selection of an appropriate ABC tool to meet their business needs.
Activity based management (ABM)
ABC models are typically used for specific purposes such as output pricing reviews or competitive tendering and contracting processes.
FreebodyCogent is able to assist organisations in their transition to ABM and the identification and development of business process improvement and other resource management strategies and opportunities. Our consultants can assist clients in the development and implementation of strategic cost management processes such as the benchmarking of costs and ultimately the establishment of defensible target cost levels.
Maintain ABC & performance measurement systems
FreebodyCogent recognises that many organisations are faced with constraints such as a lack of in-house management accounting and costing skills and systems and inadequate integration of existing models with other corporate systems.
FreebodyCogent can provide on going assistance and expertise through a management service that manages and maintains the ABC model and/or performance measurement system for the organisation. Such assistance may include, but is not limited to, maintenance of the data base structure, data capture and entry of cost data and performance information, generation and review and analysis of monthly management reports and maintenance of integration with other corporate systems.
Why use ABC?
The current management environment demands that managers focus on the delivery of outputs. This requires managers to:
- Focus on the full costs of output delivery
- Plan and resource work programmes to deliver results
- Continuously improve business processes, systems and existing work practices to reduce costs and improve service delivery performance.
Hence, organisations must have a robust framework in place to manage cost structures and justify the price of their outputs. This means that all costs and overheads need to be allocated in a meaningful way to outputs.
ABC is fast being recognised as the most appropriate way to effectively allocate costs to activities and outputs. ABC costs activities and outputs on the basis of resources consumed as opposed to traditional cost allocation techniques that can result in cross subsidisation or non identification of non value adding activities.
The real and immediate benefits of ABC include:
- Identification of the full and true cost of activities and outputs based on resources consumed
- Establishment of a cost structure that is justified and that provides the transparency necessary to effectively manage business processes
- Identification and management of non value adding processes, wastage and unused capacity
- Establishment of a robust platform for output pricing and negotiation
- Identification and support of business process re-engineering and market testing opportunities.