Activities-Based Management

On top of all these organizational strategies for the successful implementation of Activity-Based Costing (ABC), it is recommended that they tap the needed expertise of consultants in the accounting and finance industry so as to catch up on the successes that other companies have already attained as offshoots of their adoption of Activity-Based Costing (ABC). Learning of their success stories would lead the employees of the subject company to want the same success for their own company.

While consultants can help as objective authorities regarding Activity-Based Costing (ABC), there also might be the need for the company to take in new employees who are well-versed in the steps to be accomplished by everybody in the company for Activity-Based Costing (ABC) to be successfully implemented. The right addition to the management team should be hired as soon as they are identified and singled out. They will help address the doubts and concerns of the employees regarding the new approach.

Through the relevant and useful data generated by Activity-Based Costing, the company can begin to identify and then divest its capital resources from under-performing products. Similarly, the company can zero in on products and activities that yield the highest returns. These steps will eventually lead to the beefing up of the company’s product portfolio – a basket that should contain only the profitable products of the company. Human resources management is one of the most complex – if not the most complex – aspects of running a company.

Companies can always purchase the most modern technologies and top-of-the-line equipments for the company’s plants, facilities and offices. Companies can always tap sources of additional capital, whether as loans from banks or as equity infusion generated by initial public offerings. It is not the same though in the realm of human resources. The company, therefore, has to see to it that their people are well aware that even the adoption of Activity-Based Costing is something that also will yield benefits for them. It should not be thought of as a means for furthering the interests of top management at the expense of the company’s employees.

The company has to keep its workforce loyal, motivated and at all times adequately trained for the next challenges up ahead. If Activity-Based Costing implementation is the next challenge for them to tackle, then they will have to be sufficiently oriented as to how and why they have to welcome such change with open arms “Insightful top managers recognize that it is impossible for them to have all of the answers. [They] are willing to learn along with others, and to understand that the uncertainty created by [new systems and new procedures] affects people at the top as well as those lower down in the organization.

” (Ireland & Hitt 1999) 4b. Despite the advantages offered by Activity-Based Costing (ABC), it has not yet been adopted by a majority of companies, not even by manufacturing companies. This is due to the shortcomings of the approach which have been identified as being part and parcel of it. For one, implementing Activity-Based Costing (ABC) requires a significant amount of time; it therefore becomes the costly approach to adopt. It also requires the cooperation of people throughout the firm because of the information that will have to be extracted for use in recording costs and expenses.

This full cooperation of people within the company is hard to come by. These people have their individual agenda and interests, and their issues that have to be addressed for Activity-Based Costing (ABC) to be successfully implemented. Among such issues are the fear of the unknown, the shift in status quo, the potential loss of status or functions for some people, and the definite necessity to learn new skills (Raiborn, Kinney & Prather-Kinsey 2006: 175). Activity-Based Costing (ABC) also does not conform to the generally accepted accounting principles (GAAP).

There are peculiarities upheld by Activity-Based Costing (ABC) that go against the GAAP (Raiborn, Kinney & Prather-Kinsey 2006: 175). Thus, the company’s accounting people will have to end up producing two sets of financial reports: one that applies Activity-Based Costing (ABC) and another that applies the GAAP. This can be such an inconvenience to many, especially to people in the accounting department. Lastly, Activity-Based Costing (ABC) is criticized for not promoting Total Quality Management (TQM) and continuous improvement.

It has been argued that being meticulous with accuracy in costing does not go hand-in-hand with encouraging people to prioritize quality improvement. Thus, Activity-Based Costing (ABC) turns out to be not the cure-all approach that many have hoped it will become. It is therefore important to use it for the benefits it can bring without expecting it to provide solutions for all other problems in the company’s operations.

List of References

BusinessDictionary. com (2008) Activity-Based Budgeting (ABB) available from < http://www. businessdictionary. com/definition/activity-based-budgeting-ABB. html> [accessed 25 November 2008]

Cooper, R. & R. Kaplan (1988) Measure Cost Right: Make the Right Decisions. Harvard Business Review (September-October 1988), pp. 96-102 Giammalvo, P. (2007) Activity-Based Costing (ABC) – The Other Side of the Earned Value Coin? PM World Today Vol. IX, Issue V (May 2007), p. 3 Hubbell, W. (1996) A Case Study in Economic Value Added and Activities-Based Management. Journal of Cost Management (Summer), pp. 20-29 Ireland, R. D. & Hitt, M. (1999). Achieving and Maintaining Strategic Competitiveness in the 21st Century: The Role of Strategic Leadership. Academy of Management Executives, Vol. 13 No. 1.