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BASICS OF ABCBASICS OF ABC
Dennis Geyer
Geyer Management AssociatesTel: 925 246 9887
Email: [email protected]© Copyright 2007
2007 Geyer Management Associates2
The ABC Model
Resources
Activities
Cost Objects
Activity Drivers
Resource Drivers
What?
How?
For whom?
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Resources
Resources
Activities
Cost Objects
Resources are assetsapplied or consumed in theperformance of activities
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Examples of Resources
LaborMaterialsFacilitiesEnergyTechnology
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Activities
Resources
Activities
Cost Objects
Activities are units of workrequired to create valuefor the customer.
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Examples of Activities
Unit-level Activities are performed each time a unit is produced or sold.
Batch-level Activities are performed when a group or batch is produced.
Product-level Activities are required to maintain a particular product or service.
Customer-level Activities are required to service a particular customer or channel of distribution.
Facilities-level Activities are required to support a specific plant or business site.
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Cost Objects
Resources
Activities
Cost ObjectsCost Objects are units of output for which a separate cost measurement is desired.
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Examples of Cost Objects
End ProductsComponent PartsServicesProjectsCustomersDepartments
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The ABM Model
Resources
ActivitiesCost
DriversPerformance
Measures
Products & Customers
Cost Dimension
Process Dimension
Why? How well?
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Two-Dimensional Model
Cost Dimension provides information about resources, activities, products, and customers with a view to cost measurement.
Process Dimension provides information about which activities are performed, why they are performed, and how well they are performed with a view to cost management.
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Cost Driver Analysis
ActivitiesCost
DriversPerformance
Measures
Cost Driver Analysis identifies those factors that are the root causes of activity costs.
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Examples of Cost Drivers
Incompatible or redundant systemsUnreliable operating capacityUnwieldy physical layoutLack of workforce trainingPoor equipment maintenanceOverly complex proceduresRemoteness from customer
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Process Value Analysis
ActivitiesCost
DriversPerformance
Measures
Process Value Analysis distinguishes value-added from nonvalue-added activities with the objective of cost reduction.
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Examples of NVA Activities
Scheduling to determine when and how many batches to produce.
Moving required to transport materials from one place to another.
Waiting caused by the delay from one process to the next.
Inspecting to ensure that the product meets required specifications.
Storing caused by the need to hold material in inventory.
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Performance Measurement
ActivitiesCost
DriversPerformance
Measures
Performance Measurement is the process of evaluatingimprovements in activities that result from attempts toincrease customer value.
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Examples of Performance Measures
Activity Cost focuses on the resources consumed when an activity is performed.
Activity Efficiency focuses on the relationship of activity inputs to activity outputs.
Activity Quality focuses on performing an activity according to specifications without defects.
Activity Time focuses on the time required to complete an activity.
