Activity-based cost: more than number

Activity-based cost or ABC has been widely accepted as a state-of-the-art method that includes the cause and effect and the visibility of costs. ABC provides relevant information for leadership decision making. However, some have criticized ABC for focusing uniquely on costs and profits. This criticism is wrong. Although activity-based costs have a strong cost base, more than simple numbers.

First, the cost does not exist in the vacuum; the cost reflects reflection operations and operational realities. If you look at this light, the cost symptom. If the costs are higher than the added value, a problem should be considered and resolved. Costs can not be changed on their own. Only by solving the causes of compensation can be changed. Sometimes we have to allow cost increases in one area to save costs in other areas.

As a physician who responds to a painful patient, a doctor must cuddle and discard the area of ​​pain, and often carry out further examinations to isolate the real cause and eliminate other options. Sometimes the doctor should cause short-term surgical pain to achieve long-term relief.

Second, ABC's methodology includes quality links. Qualitative relationships can not be quantified. These are soft or fuzzy things. For example, cost drivers are the reason why an activity takes place; factors causing poor quality; factors that cause long cycle times; and things that cause extra costs.

I was invited to a project to assist in a production control function to analyze their activity. In addition to identifying the costs of their activities and activities, each team spent even more time in identifying cost factors. Each team did not have the problem of identifying low quality, overspending, long cycle times, and even why they did no value-enhancing activities. None of these cost factors had any direct costs. However, each of them was associated with an activity whose price was known. The leader was shocked to see the amount and value available in practice.

Thirdly, when ABC is combined with other management initiatives, it provides a reliable methodology for measuring the cost and impact impacts of the proposed changes. As ABC is able to measure costs, process development teams can focus on areas that have the greatest impact on profits.

When I was a manager and we introduced ABC to our operations, we teamed up with our quality initiative and self-directed teamwork. All of these separate methods benefit from combined efforts.

Those who criticize ABC for only costing, are incomplete or uninformed. We need to use money weigh to pay in order to win money on the profits. The company must have a profit for growth and growth. Activity-based cost is an effective methodology for measuring costs and identifying operational relationships. If we look at this, ABC also empowers other offenders who do not have any cost or profit margins anyway.

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