Activity-Based Management

This study examines the implementation and challenges of Activity-Based Management (ABM) in business organizations. It explores the impact of ABM on performance evaluation and supply chain management. The study identifies issues related to cost information, functional systems, customer profiles, fixed and variable costs, and cost drivers. It also discusses the impact of ABM on quality management, stakeholder satisfaction, and long-term retention. The study highlights the benefits of ABM in improving customer satisfaction, leveraging cost justification, and identifying areas for improvement and modification.

Running head: ACTIVITY-BASED MANAGEMENT
Activity-Based Management
Name of the Student:
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Author Note:

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According to the viewpoint of Grant (2016), activity-based management is an
ideological method of business organisations that helps in the identification and evaluation of
strategic activities that are performed by a business entity using the effective techniques of
activity-based costing. This carries out the analysis of the value chain management and the
improvement and modification of the operational management and decision of the competent
business firm. In this connection, this particular study is related to the investigation of the
vital issues that are related to the effective management of activity-based management. The
given study examines the same concerning the performance evaluation as well as supply
chain management which ensures the effectiveness of quality management and sustainability
of the environmental factors a business organisation is liable to.
As opined by Laguna and Marklund (2018), activity-based management is that
exercise of a business that helps in the measurement of the cost-effectiveness and the
performance level of a whole business firm. The systems of ABM are considered to be an
effective means of fostering the improvement in the performance of a business firm in several
fronts such as initiation of the operations management, team selection, identification of the
scope of the projects and also the communication process. A business firm can only recognise
the power of ABM when the correct individuals access accurate information regarding the
best use of formats of ABM into improving the performance. In this connection, the study
tends to state the issues that arise in the effective implementation of the ABM in the
evaluation of the company performance level.
Firstly, in the modern era of the competitive business environment, acquiring accurate
and reliable cost information is required, and the same is unlikely to be delivered to the firms
(Dale and Plunkett 2017). This reduces the valuable management of the support system of a
firm. Thus, affecting the performance level of the whole company because of the ineffective
information that helps the company to improve the performance level in terms of cost-

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effectiveness. Secondly, the development of the functional systems of the organisations in the
proposed and desired order is also examined to be a significant issue in the implementation of
ABM. This is because the processing of ABM requires a high amount of research and
potential data sources. The same is not easily accessible and thus deteriorates the
performance level concerning the technological factors and modification in the company.
Thirdly, the assessment and the development of the customer profiles and segment becomes
an issue of the challenge for a business entity while working accordingly with the ABM. This
is because the management of the profile and data of the customers in a confidential manner
is a matter of big concern. There are several ways of hacking the information and data related
to the potential customers of a business firm. Thus, the implementation of ABM in the same
becomes severe as the building of the prototype of the private system turns out to be limited
for every business organisation. Fourthly, the discovering of the fixed costs to that of the
variable costs is an issue for every powerful entity. Thus, the implementation of ABM
becomes tough as it significantly requires detailed information about the mentioned factor
and the limitations to the same results in a lack of effective execution of the activity-based
management. Last but not least, the identification of the cost drivers and cost pools that
validates the proper working of the business system is essential for the effective
implementation of ABM. Studies show that the same is not identified in the most precise
way. Thus, affecting the effectiveness and efficiency of managing the ABM.
The given study also analysed that the supply chain management of the business is
impacted because of the ineffectiveness in the sector of ABM (Christopher 2016). In this
connection, the research tends to state the significant issues that are related to the
implementation of Activity-Based Management concerning supply chain management in a
business organisation. The first issue that was analysed is termed as the determination of the
management role in the accounting system of supply chain management. If a company fails

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in the focus of managing the accounting system in the SCM, the financial transactions of the
same are affected adversely and, in turn, decreasing the prior execution of the Activity-Based
Management. The second issue that marked the eye of the study was determined to be the
integration of the time driven approach towards the automatic data collection requiring the
Activity Based Costing (ABC). It was stated that the effective management of ABM is highly
dependent on the ABC and timely collection of data necessary to ensure the supply of the
desired goods and services by the peer customers and the market. The lack in the same turns
out be a significant issue in the proper implementation of the ABM.
The third issue investigated is considered as the analysis of the management tools in
the supply chain of the internal organisation in the multiple rounds of negotiation. This means
the managing of the supply chain value as per the rounds of delivery needed to be done to
supply the goods and services (Batselier and Vanhoucke 2015). The conflict in the
management tools of the same results to the conflict in the effective implementation of
Activity-Based Management. The fourth issue examined was the standardization of the data
of cost accounting in terms of supply chains in any business organisation. The success in the
supply chain management is measured by the effective measure used to leverage the ideology
of cost accounting in the firm. The same help in the effective implementation of activity-
based management as the supplying process is termed as the essential activity in terms of any
business entity. This is because there would be no sales of there is no supply of the goods and
services offered by the company. Thus, the lack of the same results in the ineffective
implementation of the ABM. Lastly, the issue which came up into light was sharing costs and
benefits amongst the member of the supply chain management department. In order to
implement an effective Activity-Based Management system, the shares of expenditure, as
well as income from the SCM, should be equally distributed amongst every single member.

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The conflicts raised in the same results to lack in the efficiency of the management of the
activity-based approach.
Based on the above illustrations of the issues related to the strategic implementation
of Activity-Based Management concerning the factors of performance evaluation as well as
the supply chain management, it was analysed that the other crucial elements of a business
entity are also affected. In this connection, the study tends to state that the same creates affect
in the quality management, the satisfaction of the stakeholders connected to the business,
as well as the long-term retention of the firm. Therefore, considering all the above issues,
the study critically states that the effectiveness in the above mentioned issues may result in
the attainment of better competitive advantage and loyalty in the market of the business
environment. This is because the adaptation, as well as the execution of the ABM, is termed
to increases the opportunities and strengths of a business firm to improve itself in regards to
the achievement of its planned goals and objectives. Concerning the need for implementing
ABM in every business entity the study tends to undermine the importance of the same for
the productive firms. The practical implementation of Activity-Based Management results in
the increment in the management sectors of the business. The practical implementation of
ABM sector relates to the effectiveness in the Human Resource Management, Supply Chain
Management, Research, and Development Management and in turn the quality management
(Gazova Papulova and Papula 2016). This is because the ABM enables the business firm to
calculate their quality-related costs of goods and services in an accurate manner. Therefore,
the same lead to the monitoring of the improvements that are needed in the managing of the
quality as well as the costs.
As opined by Kerzner and Kerzner (2017), Activity-Based Management supports the
methodologies of a business that relates to the efficiency of providing better satisfaction to
the customers as well as the stakeholders that are connected to the company. This is

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because the prior implementation of ABM helps the business firm to identify the plans and
processes that are mandatory for a firm in order to improve and establish priorities in their
working procedures. The next crucial and positive influence of ABM is regarded as
leveraging the cost justification that relates to the setting up and proceeding of the project
deals of business. Several business projects require a significant expenditure in the capital
which fosters the need for maintaining a cost-benefit analysis in order to understand that the
project is worthwhile to be invested in or not. Thus, ABM helps in the examination of the
same. Moreover, the activity management approach also helps the business monitor its
benefits that can be received from a project. This is because ABM enables the management of
the business firm to analyse the activities that the business is sending more upon and the same
can be deducted to earn the benefits of financial savings. The events of the business
organisation where massive improvements and modifications that can be done are also
analysed with the effective implementation of the ABM. Researches showed that the activity-
based approach helps in the examination of direct materials and labour costs, scheduled
production jobs, supporting the existing products and services and also the need of
introducing the new products and services in order to satisfy the changing business
environment (Greasley 2017). This thereby helps in gaining better customer loyalty as the
taste and preferences and the way of lifestyle of the end customers is satisfied.
To bring to a conclusion, with the help of the research done in the above mentioned
study, it can tend to state that the effective implementation of the Activity Based
Management leads to doing the things right in business as well as doing the right thing at the
right time. The study analysed that the number of production runs is scheduled in the
production jobs with the help of ABM. Not only this the operational management of the
business is maintained with the support of ABM. The above-stated evidences prove that the
cost of sales, the prices of staffing and recruiting, the fees of staffs, the factory rent, the

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maintenance charges and the methods of depreciation all are analysed before-hand with the
help of ABM and thereby helps the business organisation to plan their strategic processes
accordingly.
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