Accounts

According to (Turney, 1991), ABM (Activity Based Management) is to identify the accurate cost and act as a tool of improving the performance of organization. Actually, ABM is derived from ABC (Activity Based Costing). ABM will never reduce a cost but it will help organization to understand the cost very well and fix the wastage cost efficiently. On the other word, ABM also can be say as a new level of input or information that responsibility of financial term and also operational information of organization. Both of these help to improve make decision more effectively in an organization (Gunasekaran, 2001). What are the actual key elements of ABM in order to achieve reduction in cost of organization?

The cost of non-value-added activities

-  In brief, non-value added activity is defined as it never contributes anything to organization need and also to the value of customer. Besides that, usually product or services gets value through by some activities done in organization. Unfortunately, some activities taken in organization never give value to product or either to services. Perhaps, it can be said as wastage in an organization. This is where ABM takes place to analyses and identify the waste that doing in organization. Finding waste in organization helps and improve the organization in very advance in order save up their cost by doing not useful or related activities. This particular information provides a vital point to improve their effort more.

Accurate product/ service cost (cost objects)

- Product is diversifying into many stages through different distribution channels before reaching the market. They are lot of cost are incurred during that movement. Due to this lot of various distribution level and this is where product and services consume different pricing. This cost must be defined accurately because when selling in the market, the price will be reasonable. At the same time, unique services also can be added up if the cost of an object fixed cheaper. Furthermore, organization also is able to budget a product using ABM (Trussel, 1998). To fix an accurate product and service is very challenging and vital because nowadays a firm now competing for a good price for end consumer to satisfied with it. This strategy helps in the combination of ABM and ABC.