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To satisfy customer needs ABM currently being used for a variety of business applications. Such as:
(i) Cost reduction : ABCM helps the organisation to identify costs against activities and to find opportunities to streamline or reduce the costs or eliminate the entire activity, especially if there is no value added. It is particularly useful in identifying and quantifying process waste and providing vehicle for continuous process improvement through continuous cost reduction.
(i) Cost reduction : ABCM helps the organisation to identify costs against activities and to find opportunities to streamline or reduce the costs or eliminate the entire activity, especially if there is no value added. It is particularly useful in identifying and quantifying process waste and providing vehicle for continuous process improvement through continuous cost reduction.
(ii) Activity Based Budgeting : Activity based budgeting analyse the resource input or cost for each activity. It provides a framework for estimating the amount of resources required in accordance with the budgeted level of activity. Actual results can be compared with budgeted results to highlight both in financial and non-financial terms those activities with major discrepancies from budget for potential reduction in supply of resources. It is a planning and control system which seeks to support the objectives of continuous improvement. It means planning and controlling the expected activities of the organization to derive a cost-effective budget, that meet forecast workload and agreed strategic goals.
The three key elements of activity based budgeting are as follows:-
• Type of work to be done
• Quantity of work to be done
• Cost of work to be done
• Type of work to be done
• Quantity of work to be done
• Cost of work to be done
(iii) Business process re-engineering : Business process re-engineering involves examining business processes and making substantial changes to how organisation currently operates. ABCM is a powerful tool for measuring business performance, determining the cost of business output and is used as a means of identifying opportunities to improve process efficiency and effectiveness. A business process consist of linked set of activities. For example purchasing of materials might be considered as business process consist of activities such as receiving a purchase request, identifying supplies, preparing purchase orders, mailing purchase orders and performing follow up. The process might be reengineered by sending the production schedule direct to the suppliers and to enter into contractual agreement to deliver materials according to the production schedule. The end result might be permanent reduction or elimination of some activities.
(iv) Benchmarking : Setting standards for measurement.
(v) Performance measurement :Many organisations are now focussing on activity performance as a means of facing competitors and managing costs. To monitor efficiency and effectiveness of activities performance measures are required. Activity performance measures consist of measures relating to costs, time, quality and innovation. For instance, now-a days in the globalisation the overall goal which is significant for a company is to produce a quality product at a price that will be competitive in world market. But the quality is not something which one can apply somewhere in the production process or assume will happen automatically. Product quality starts with the correct design. The next stages are high quality raw material inputs, quality processing and work, and proper handling and packaging etc.
(v) Performance measurement :Many organisations are now focussing on activity performance as a means of facing competitors and managing costs. To monitor efficiency and effectiveness of activities performance measures are required. Activity performance measures consist of measures relating to costs, time, quality and innovation. For instance, now-a days in the globalisation the overall goal which is significant for a company is to produce a quality product at a price that will be competitive in world market. But the quality is not something which one can apply somewhere in the production process or assume will happen automatically. Product quality starts with the correct design. The next stages are high quality raw material inputs, quality processing and work, and proper handling and packaging etc.
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