Value and Drawbacks of Activity Based Management - Research Paper Example

This paper seeks to present a concept proposal for value and drawbacks of activity based management. The paper will develop a problem statement, discuss the significance of the problem, the advantages and drawbacks and explore existing literature on the topic. Statement of the problem The scope of activity based management and its relation to activity based costing identifies the management approach as a key line towards improved profitability of an organization. With its objectives of identifying and controlling activities that do not add value to processes, activity based management is essential in controlling production costs towards managing profitability.

It forms the basis on which strategies are developed for effective elimination of ‘non-additive’ processes through activity costing (Maher, Stickney & Weil, 2007). Based on the significance of the management approach, the concept will seek to investigate the significance of value and drawbacks of activity based management. Significance of the research The concept into value and drawback of ‘activity-based’ management is based on the importance of the management approach to an organization. . This understanding will promote successful application of the management approach for improving “organization performance and value” (SAS, 2007, P. 3). Pre Literature review Activity based management has been practiced over a long period in which it has evolved to a wide scope.

This has been because of the capacity of the management approach to bridge other line management for collective management of organizations. Activity based management uses the data and information on all the operational activities in making relevant and result oriented decisions. By providing information on cost of products, services, processes, activities, and distribution channels, among other information; activity based management establishes a central role in managing an organization’s operation costs for relevant managerial decisions.

Activity based management is, therefore, essential for its information for decision-making (CIMA, 2001). Drury also argues that activity based management approaches an organization’s operations from different perspectives and leads to improved customer utility. The management approach, therefore, benefits both the organization in its operation processes and customers through the organization’s products (Drury, 2007). Activity management accounting can, however, be costly to develop and implement, instituting limitations, especially to ‘small-scale’ organization.

The management approach has also failed to eliminate arbitrary costs in operations. As a result, it is perceived as ineffective in achieving its objectives (Weygandt, Kimmel & Kieso, 2009). Complete literature review. Drury (2007) claims that activity based management is a management information tool used by the managerial board in appreciating results of