Activity-Based Management
Activity-based management is a discipline that focuses on managing activities to improve customer value and product profit. Once you have identified your activities, cost drivers, performance measures, and activity costs, you can begin process improvement and re-engineering. The primary benefits of activity-based management are:
- Identification of Hidden Profits or Losses
- Reduction of Waste and Unnecessary Costs
Performance Measurement with Oracle General Ledger
One of the ways you can implement performance measurement is to define a budget in General Ledger for your activity-based cost budget. Initially, you created a budget to derive your actual activity-based costs, called FY95ABC. Now, you can create another budget to compare actual activity-based costs with your budget (expected) activity-based costs. You could call this budget FY95ABC - budget. This new budget could provide important information for continuing operations and strategic decisions, such as plant expansion or new product lines. With this additional budget, you could compare resource costs, activity costs, and activity unit costs.
To create this budget, and budgeted activity unit costs, you would repeat the same steps used for the FY95ABC budget.
Performance Measurement with Oracle Cost Management
After you have created the general ledger budget for your activity-based costs, you can define another cost type for your items, such as the "Budget ABC" cost type. You would follow the same steps as you used for the "Actual ABC" cost type.
Using these budgeted activity unit costs, you can compare your actual activity performance against your budgeted activity performance for your products. You can use the Cost Comparison reports to compare actual activity-based item costs against budgeted activity-based item costs. You could also report your profit margins and inventory valuation with the "Budget ABC" cost type, and compare these results against reports, using the "Actual ABC" cost type.
You can also charge and report work in process transactions by activity. If you manually charge your resources, you can specify the activity performed in the operation. If you backflush or earn resources at standard, you can use the activities from the work in process routing. Using the WIP Accounting Distribution report, you can specify an activity, such as setup, and get all the charges for the activity.
