Activity Based Management

Activity-Based Management Activity-based costing establishes relationships between overhead costs and activities so that we can better allocate overhead costs. Activity-based management focuses on managing activities to reduce costs. Activity-based costing establishes relationships between overhead costs and activities so that we can better allocate overhead costs. Activity-based management focuses on managing activities to reduce costs. (LO8)

ABM PROFILE ABM = COST DIMENSIONAL + PROCESS DIMENSION ABC + PVA Accurate Cost + Reduce Cost Assignment Customer Satisfaction + Profit

Two-Dimensions of Activity-Based Management Resource costs Cost Assignment View Driver Analysis Process View Activity Analysis Performance Measures Activity Evaluation Activities The horizontal element of the model is the process view of an ABC system. The emphasis now is on the activities themselves, the various processes by which work is accomplished in the organization. The left-hand side is the activity analysis. This is the identification and description of the activities conducted in the enterprise. Activity analysis also identifies the root causes of activities, the events that trigger activities, and the linkages among activities. The right-hand side is the evaluation of activities through performance measures. It is these processes of activity analysis and evaluation that comprise activity-based management. (LO8) Cost Objects REDUCE COST AND IMPROVE PROFIT

Elimination of Non-Value-Added Costs Activities Nonvalue-added activities An important goal of activity-based management is to identify and eliminate nonvalue-added activities and costs. Non-value-added activities are operations that are either (1) unnecessary and dispensable or (2) necessary, but inefficient and improvable. Non-value-added costs, which result from such activities, are the costs of activities that can be eliminated without deterioration of product quality, performance, or perceived value. (LO8) Unnecessary Necessary Reduce or Eliminate Continually Evaluate and Improve

Implementing ABM 4. (continued on next slide)

Implementing ABM 4. (continued from previous slide)

Systems planning 4. Systems planning provides the justification for implementing ABM and address the following issues: The purpose and objectives of the ABM system. The organization’s current and desired competitive position. The organization’s business processes and product mix. The timeline, assigned responsibilities, and resources required for implementation. The ability of the organization to implement, learn, and use new information.

Identifikasi, definisi, dan klasifikasi aktivitas Digunakan untuk mengetahui pekerjaan apa saja yang membentuk suatu aktivitas untuk meningkatkan efisiensi aktivitas yang bernilai tambah. Klasifikasi Digunakan untuk menghubungkan ABM dengan berbagai usaha perbaikan berkelanjutan. Identifikasi Digunakan manajemen perusahaan untuk memusatkan perhatian pada berbagai aktivitas yang tidak bernilai tambah.

Failure of ABM implementation Kurangnya dukungan manajemen tingkat atas (Lack of support ). Manajer operasional dan penjualan tidak ahli menggunakan informasi aktivitas yang baru (incapability of operational managers). Kurangnya kegiatan pelatihan dan pendidikan tentang penggunaan informasi ABM (lack of training). Para manajer menerima informasi baru dengan sikap skeptis (sceptical attitude) . Para manajer cenderung menggunakan angka akuntansi tradisional bersama dengan data baru tersebut (tend to use traditional system in the lieu of new system).

ABM NEEDS RESPONSIBILITY ACCOUNTING 4 ELEMENTS OF RA: Assigning responsibility Establishing performance criteria Evaluating performance Assigning rewards

Types of RA Financial Based Low competition, standardized product/activities, mass production, low IT adoption Activities Based High competition, unstandardized product/activities, order production / mass customization, high IT adoption Strategy Based (Chapter 16)

1. Assigning responsibility

2. Establishing performance criteria

3. Evaluating performance

4. Assigning Rewards

Process Value Analysis (PVA) Process dimension -> reduction cost Elements of PVA: Driver analysis (what causes activities cost) Act input (resources consumed) Act output (product resulted) Activity analysis (determining VA + NVA activities to reduce cost) elimination, selection, reduction, uniting activities 3. Activity performance measurement

Process Value Analysis constant improvement, including cost reduction through activity management Activity elimination Focus on eliminating nonvalue-added activities Activity selection Choose among sets of competing strategies Activity reduction Decrease time and resources required by an activity Activity sharing / uniting activities Use economies of scale to increase efficiency

Assessing activity performance Financial measures Nonfinancial measures Dimensions of performance assessment Efficiency (Output : Input) Quality (durability, function, etc.) Time (speedier means less resources consumption)

Financial Measures of Activity Efficiency Reveal the current level of efficiency and the potential for increased efficiency Value- and nonvalue-added activity costs Trends in activity costs Kaizen standard setting Benchmarking Activity flexible budgeting Activity capacity management

1. Value- and nonvalue-added activity costs

Contoh Aktivitas di RTP Inc. penggerak aktivitas SQ AQ SP Pengelasan jam pengelasan 10.000 12.000 $40 Pengerjaan ulang Jam pengerjaan ulang 9 Penyetelan Jam penyetelan 6.000 60 Pengawasan Jumlah pengawasan 4.000 15

Biaya tak bernilai tambah (Karena tidak sempurna) Aktivitas Biaya bernilai tambah (SQ * SP) Biaya tak bernilai tambah (Karena tidak sempurna) Biaya aktual (AQ * SP) Pengelasan $400.000 $80.000 $480.000 Pengerjaan ulang 90.000 Penyetelan 360.000 Pengawasan 60.000 Total $590.000 $990.000 Mengetahui perubahan perioe Laporan biaya bernilai tambah dan tak bernilai tambah untuk tahun fiskal yang berakhir pada 31 desember 2008

Pelaporan tren : biaya tak bernilai tambah 2. Trend Activity Aktivitas 2007 2008 perubahan Pengelasan $80.000 $50.000 $30.000 Pengerjaan ulang 90.000 70.000 20.000 Penyetelan 360.000 200.000 160.000 Pengawasan 60.000 35.000 25.000 Total $590.000 $355.000 $235.000 Pelaporan tren : biaya tak bernilai tambah

3. Kaizen Standard Proses penguranga biaya dengan produk dan proses

Internal benchmarking Uses best practices as the standard for evaluating activity performance Internal benchmarking Benchmarking against the best internal performance External benchmarking Comparison with others outside the organization

ACTIVITY BASED CUSTOMER

ACTIVITY BASED SUPPLIER   Murray, Inc Plata Associates Komponen A1 B2 biaya pembelian $20x80.000 $1,600,000 $52x40.000 $2,080,000 $24x10.000 240,000 $56x10.000 560,000 Perbaikan produk $400x1600 640,000 $400x380 152,000 $400x10 4,000 Percepatan pengiriman produk $2000x60 120,000 $2000x40 80,000 Biaya total $2,360,000 $2,312,000 $244,000 $564,000 unit 40,000 10,000 Biaya total unit $29.50 $57.80 $24,40 $56,40

THE END