Strategic cost management: an activity-based management approach - Essay Example

The given article is about one of the most talked strategic management tool called “activity based management”This technique is similar to business process re-engineering but it provide more in-depth information about production cost Strategic cost management: an activity-based management approach Summary of the article The given article is about one of the most talked strategic management and re-engineering tool called “activity based management” (ABM). This technique is similar to business process re-engineering (BPR) but it provide more in-depth information about production cost incurred at different point of time in the organisation.

This technique can be segregated into two sections; the first one deals with activity based costing and the other part is associated with strategic management. Activity based costing identify all the costs that are generated in the process of value addition in both service as well as in manufacturing industry. Once the cost is accumulated, it is allocated to different cost centres. These cost centres represents the different activities or processes. Later on the cost of activity centre is traced backed to the cost objective; these cost objectives can be different products, departments, divisions or customers.

In this manner the management get a fair understanding of cost associated with different activities. If the management finds that the value addition by an activity is less as compared to the cost incurred; then management can either use any alternative process or can even omit it completely. In this manner the management can make required changes in the production process similar to business process re-engineering (BPE). However, unlike BPE, activity based management provide an opportunity to control the operating cost.

Thus, the management can improve profitability of the company by reducing the cost incurred. With time, the charm for strategic management is gaining popularity and organisations are paying special attention to implement techniques like activity based management. In the given article different steps have been identified which one has to use to develop and implement activity based management in the company. These are: developing a clear mission statement to find out what exactly the company wants to achieve.

Then identify the core processes and the cost associated with them. The supporting activates should also be identified which assist to conduct the core activities. The process team of employees should be developed that has sound knowledge about the processes. They will take up the job of defining strategic objective for each process. The management should set major operating objective for each activity and identity the main activities associated with each process. The management along with the process team should develop key performance indicators for each and every activities and processes.

Finally, the cost drivers to allocate the accumulated cost should be identified. Management should also plan that the organisation accepts this new system; hence required training should be provided to the employees to adjust with the new system. The article explains the concept of planning and implementing ABM with the help of a case study. Critical evaluation of the article No doubt this is a well written and well presented article. The authors have given an interesting opening where the readers get a chance to acquire a basic understanding regarding the topics with which the article deals.

As for example the comparison given between business process engineering and activity based accounting assists in finding the similarities as well as dissimilarities in both these strategic management techniques. In the later section, an in-depth explanation has been given about activity based management that how is works, what the steps to be followed are and how the management can implement this in the organisation. Diagrammatic representation of the topic makes things easy to understand as one get a proper visual explanation.

Apart from the theoretical explanation, the authors used some real life explanation. This makes the article quite interesting for the readers. The reader gets a change to correlate the theory with the real life application of the