The main purpose of this handbook is to show how all individuals in an organization can use activity-based management (ABM) information combined with a traditional five step continuous process improvement (CPI) process to move their companies closer to cost, time and quality excellence. Readers need no specialized business or accounting background to benefit from the concepts presented in this book; anyone with general business knowledge can understand the principles and implementation guidelines that are presented. The handbook should be especially useful to cost managers because it describes a new way of thinking about cost and the design of management information systems.
The authors provide clear definitions and many detailed examples to illustrate their points. The handbook provides a combination of text, graphics, group exercises, team meeting agendas, and tips to explain the principles of ABM and CPI. Each chapter concludes with team exercises, which organizational members can complete together as a way of better understanding the topics described in the chapter. Three extensive appendices are provided, which further explain the ideas presented earlier about CPI literatures because it demonstrates the link between the ABM and CPI and shows concretely how these initiatives can be implemented.
There is clearly a need for a handbook like this. The authors quote an Institute of Management Accountants survey indicating that for each of the last three years, less than 20 percent of organizations that have implemented ABM or activity-based costing (ABC) have been able to identify any dollar savings. Other authors have suggested that there are many reasons for these failures, such as limited training for managers, staff, and workers and no link to other initiatives such as total quality management (TQM). This handbook addresses the causes of these failures by providing basic instruction in ABM and CPI concepts and linking ABM and CPI to other improvement programs such as TQM.
Activity-Based Management. The authors define ABM as the planning, improving, and controlling of an organization's activities to meet customer and external requirements. An ABM hierarchy of information provides a framework for an ABM management information system. The ABM hierarchy is described as a pyramid consisting of tasks at the base of the pyramid, and proceeding upward, activities, business processes, departments/cost centers, and functions at the apex of the pyramid. Tasks are the steps necessary to perform an activity. Activities are what an organization does, and examples include "take order", "do setup", and "issue report." A business process is a collection of related activities operating under a set of procedures to accomplish a set of objectives such as process a customer order, procure raw materials, or design a new product.
Five Steps to Continuous Improvement The core of the handbook is the five steps to continuous improvement. In this section, the authors show how ABM information can be combined with a continuous improvement program to move to firm toward excellence. The five steps are as follows: 1. Identify Improvement Opportunities; 2. Identify Root Causes; 3. Identify Possible Solutions; 4. Implement Best Solution; and 5. Monitor the Improvement.
A continuous improvement (CI) team is responsible for carrying out improvement initiatives. Before investing time and money in an improvement project, the CI team must have a clear direction for its efforts. The ABM information system facilitates the continuous improvement process by providing ideas for improvement opportunities. For example, improving an activity could mean improving the primary/secondary activity ratio described above, so that fewer resources are spent on secondary activities, or it could mean eliminating certain non-value adding activities. Alternately, the CI team could focus on process improvement rather than improving activities. This might involve performing a process in a radically new way (process innovation) or slightly increasing the efficiency or effectiveness of a process (process improvement). Pryor and Sahm provide a step-by-step description of how to perform a five step business process analysis that may uncover ideas for improvement. They also describe how benchmarking can generate improvement opportunities.
Identifying root causes refers to the root causes of an activity, business process, or problem. The authors provide clear instructions for drawing a fishbone diagram or performing a Pareto analysis, which are tools for determining root causes. They also explain the usefulness of a "Five Whys" analysis, which may provide a short cut to getting to the root cause.
Storyboarding is a visualization tool used to assist the CI team in generating a large number of ideas. It is similar to brainstorming except that it allows for anonymous contributions of ideas and it produces organized groupings of ideas. Storyboarding is especially useful when the CI team is addressing sensitive issues or problems.
Once the best solutions have been identified, management can implement the best solution with a continuous improvement plan. Pryor and Sahm describe a process for developing a continuous improvement plan. This involves identifying key criteria, such as ease of implementation, effectiveness of solution, and probability of success. That is, how important is ease of implementation compared with the effectiveness of the solution? Having identified the key criteria, the CI team then selects the best solution and develops a detailed implementation plan. The final step is implementation, which may involve a pilot test of the solution in a subsection of the company.
The last step in the continuous improvement process is to monitor the improvement that results from the implementation of the best solution. Monitoring improvement means developing a set of simple, relevant performance measures that focus on activity output. The authors provide three guiding principles of ABM performance measurement. First, the measures must be simple and easy for everyone to understand. Second, the measures must be relevant to achieving the company's strategy. Third, the measures must be measures of activity output or process output. Of course, the last step of a continuous improvement process leads into a new cycle of improvement, which begins with identifying new improvement opportunities.
Individuals interested in moving their companies closer to cost, time, and quality excellence can benefit greatly from the practical ideas presented in this handbook. -- Jack M. Ruhl, Journal Of Cost Management Insider's Report August, 95
A 1994 survey by the Institute of Management Accountants sites only 19% of those organizations implementing Activity Based Management (ABM) can point to cost savings or productivity improvement. In an endeavor to improve this percentage, ICMS, Inc. has developed
Using ABM for Continuous Improvement.
The primary intent of Using ABM for Continuous Improvement is to show each and every person in an organization how to use ABM information combined with the traditional Five (5) Step Continuous Improvement problem-solving process. This combination, augmented with the existing experience of your organization's employees, will result in action programs that move your company closer to cost, time, and quality Excellence.
Using ABM for Continuous Improvement shows every employee how to create, analyze, improve, and measure their department's Activity information. A combination of text, graphics, group exercises, team meeting agendas, tips, and detailed examples are provided throughout the sections and Appendicies. It is our intent and hope that you will utilitize this book as a weekly reference tool to guide your unending journey of continuous improvement.
