PeopleSoft Activity-Based Management Overview
Building Activity-Based Management models is an investment that you make to better understand costs and profitability. Strategic analysis, incisive cost and profitability analysis, and reliable decision support are the foundation of critical business decisions that keep you ahead of the competition. Accurate, well-managed costing information can affect pricing of goods and services, budget outlays, profitability analysis, and other business processes.
Activity-Based Management enables managers to analyze the real costs of business processes for better cost and profitability management. Without it, managers are forced into a guessing game to determine where they make money and how much things really cost.
Activity-Based Management was developed in tandem with leading academics and goes beyond traditional accounting methods to deliver tools to support strategic and operational decision making. It provides the business intelligence that you need to answer pressing business questions about your organization's activities, such as:
What are the costs of serving my customers?
Which customers, products, or channels are the most profitable?
Where are the best opportunities to reduce costs?
In what products or services should we divest or invest?
Activity-Based Management does not arbitrarily allocate costs. It traces overhead based on the cause and effect of business activities. An Activity-Based Management model maintains the relationship of activities to costs. This model is a complete set of rules used to define individual activity-based costing model objects and their relationship to your organization's financial management systems. Activity-Based Management enables you to define models, process them, and then analyze the results to assess your organization's profitability.
The system assigns ledger amounts (from your general ledger, for example) to resources. Resources are the economic elements used in the performance of activities. They can be people, facilities, or any other expenses such as supplies or travel.
Ledger mappers provide a process by which you relate expense data from a ledger to resource objects. Activities consume resources and drive costs to cost objects. Activities are the lowest-level definition of what you do as an organization; they serve as the foundation for measuring activity costs.
Cost objects represent cost information grouped by profitability dimensions such as products, customers, and channels. They are the final result of the activities performed by your organization.
Drivers are the means of assigning monetary amounts from one object to another throughout the model. Resource drivers link expenses as captured in the ledger to the activities performed. Activity drivers distribute the activity costs to cost objects.
Activity-Based Management is part of the Performance Management business process.