Understanding Activities
Activities—the foundation for measuring activity-based cost and profitability—consume resources and represent the processes and procedures within an organization that cause work to be performed by that organization and that consume resources in their performance. For reporting purposes, activities are usually the lowest detail level that you define in Activity-Based Management.
Your decisions about how to define these objects are crucial to obtaining the right type of information from your system. Before you set up these objects, consider the following questions:
Which activities are central to your organization?
What resources do these activities consume?
Which cost objects represent your organization's output?
What information do you expect to obtain from reports generated by your Activity-Based Management system?
Using one of the many Activity-Based Management activity dictionary templates, identify and define all of your organization's activities in as much detail as your organization requires. Write your activity definitions clearly, and base each one on accurate evaluations of the work actually performed.
There are two types of activities:
Primary activities represent a final result.
Secondary activities depend on another primary activity or represent tasks that are not directly related to the output of your organization.
Understanding Common Activities
Many PeopleSoft applications use the concept of activities. Even though the applications use different terminology, we provide a common table to capture Activity-Based Management, PeopleSoft Projects, PeopleSoft Time and Labor, and PeopleSoft Manufacturing, as well as other manufacturing systems.
Projects
Projects and Activity-Based Management do have activities in common; however, an activity in Activity-Based Management is a standalone chunk of work whereas an activity in Projects is a chunk of work that is a derivative of a project.
Time and Labor
Activities from Projects are already integrated with Time and Labor. Activity-Based Management uses the interface between Projects and Time and Labor to gather information related to the time spent on these activities.
Manufacturing
Each task in manufacturing can relate to an Activity-Based Management activity on a one-to-one basis.
Understanding Dimensionality
You can define activities as single dimensional or multidimensional.
Single Dimensional Activities
Single dimensional activities exist in one of four possible dimensions:
Channel
Customer
Department
Prod/Serv (product or service)
Within PeopleSoft Activity-Based Management, you can only assign single dimensional activities to cost objects that exist in the same dimension to ensure that every activity is related to a customer, product, or channel cost object dimension, thus enabling an accurate measurement of cost.
Multidimensional Activities
Multidimensional activities are a combination of two or more Activity-Based Management dimensions (such as a transaction). Multidimensional activities are associated with multidimensional cost objects and are used in transaction costing.
Understanding Consumption Patterns
The consumption pattern of an activity defines the way in which the activity consumes resources for model validation and reporting purposes. There are three types of consumption patterns:
Unit
Unit-level activities must be performed for every unit of product or service. The quantity of the unit-level activities performed is proportional to production or sales volumes.
For example, a traditional accounting system relies on unit-level cost drivers when using allocation bases such as labor hours, machine hours, units of product, or gross sales amounts when assigning indirect costs to cost objects.
Batch
Batch-level activities must be performed for each batch or setup of work performed. The resources required for these activities are independent of the number of units in the batch.
Administrative
Administrative-level activities are operations of an organization that support an overall dimension but provide no greater information when broken down into any further dimension.
For example, for an activity that randomly checks the quality of a particular product, it would not make sense to further break down the activity into the cost of each product sold to each customer.
Understanding Sustaining Activities
Sustaining activities support the overall dimension or organization.
Product-sustaining activities enable the production of individual products or services. Customer-sustaining activities let an organization serve the needs of and manage an individual customer, but are independent of the volume or mix of the products and services sold to that customer.
You can trace sustaining activities to the product, customer, or service for which the activities are performed, but the quantity of resources used in the product- and customer-sustaining activities is independent of the production and sales volumes and quantity of production batches and customer orders.