Activity Based Management
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How ABM can be applied in other service settings such as banks and hospitals.
- ABM was part of a six-step process toward increased profitability.
- Following ABM, which was the third step, the bank initiated an internal benchmarking study followed by an external benchmarking study and a process reengineering project.
ABC: MANUFACTURING VS. BANKING
- As a time-based industry, banking is significantely different from manufacturing, which was one of the first groups to apply activity-based costing concepts.
- Once products or services are sold, they stay in production for years.
- Processing is difficult to schedule because the customer determines the usage of various servies.
MODIFYING ABC FOR BANKING
- Activities are classified first as customer order-driven activities and ongoing-concern activities.
- Major effort is made to minimize the cost fo these activities using the value-added, nonvalue-added activities analysis.
- The first product to which activity-based costing was applied was certificates of deposit(CDs).
- After the initial success with CD project, interest among operating management began to build.
This procedure begins by applying the basic concepts of activity-based costing to a process or operation similar to one reviewed previously.
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