Performing an Activity Analysis
To perform an activity analysis:
1. Define cost objects and product lines.
Identify the cost objects (products or services) for which to compute costs and divide them into groups that use similar processes (e.g. families of products or services).
Identify the activities performed for each process. For example, the process for delivering a particular product line to customers might include Sales and Marketing, Engineering, Production, and Finance and Administration activities. For each activity, specify a performance unit of measure that used to quantify usage of that activity. For example, the performance measure of the Purchasing activity may be "Number of Purchase Order Lines". For each product you can specify the number of purchase order lines expected in a given period.
3. Identify cost drivers.
For each activity, identify the factors that influence the total cost of that activity. For example, the cost of the Purchasing activity depends on the complexity of the product being purchased, supplier delivery, quality performance, and other factors.
4. Identify resources that activities consume.
For each activity, identify the resources consumed to perform it. For example, the Purchasing activity might consume labor, computer system resources, and office space. This permits you to allocate resources to activities based on the true consumption for the activity, rather than on the traditional volume basis.
You now have a model that allocates resource costs to activities and associates specific quantities of activities to each product or cost object.
5. Record the results of your activity analysis manually, using a spreadsheet or another tool of your choice.
