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TRANSCRIPT
Activity Based Management &
Corporate Performance Management
Nick GrenfellManaging Director
Business Performance Solutions
Agenda
• Introduction• Activity Based Costing • Activity Based Management• The SAS ABM solution• Corporate Performance Management• ABM as a Foundation for CPM
Business Performance Solutions
• Established in South Africa in 1995• Exclusively focused on:
– Activity Based Costing & Management– Support of CPM initiatives
• Use the SAS ABM solution with clients– Financial Services– Manufacturing– Service– Government
ABC – The Theory
Adapted from The CAM-I Glossary of Activity-Based Management, Edited by Norm Raffish and Peter B.B. Turney, (Arlington: CAM-I, 1991.)
Process View
ResourceDrivers
Cost Assignment View
ActivityDrivers
Cost Drivers PerformanceMeasures
CostObjects
ActivityCost
Assignment
Activities
ResourceCost
Assignment
Resources
Example - Airports
CostObjects
ActivityCost
Assignment
Activities
ResourceCost
Assignment
Resources Staff CostsRentElectricityDepreciation
Hold Baggage ScreeningProvide trolley servicesProvide refueling servicesAdminister payroll
LandingsPassengersCustomers
ABC’s Operational Relevance
Traditional Accounting
SALARIES
FRINGES
SUPPLIES
FIXED COSTS
Process sales order
Source parts
Expedite supplier orders
Expedite internal process
Resolve supplier quality
Reissue purchase orders
Expedite customer orders
Schedule intra-company sales
Request engineering change
Resolve problems
Schedule partsTOTAL R590,345TOTAL R590,345
TOTAL R590,345TOTAL R590,345
OLD WAYOLD WAY
NEWNEWWAYWAY
371,917
118,069
76,745
23,614
Activity ViewActivity View
144,846
136,320
72,143
49,945
47,599
45,235
27,747
17,768
16,704
16,648
15,390
ABM
• Identifying business opportunities• Providing management information to inform better
management decisions– Strategic decisions– Operational decisions
• Providing unit cost data is not the sole objective of an ABM exercise
Decision Support
• Strategic Pricing• Range / Product Management• Channel Management• Sales & Marketing
– Customer profitability– Customer Lifetime Value Analysis
• EVA / Cost of Capital Analysis• Scenario Planning• Resource Planning & Budgeting
Decision Support
• Business Process Re-engineering• Activity Analysis
– Value / Non-Value Adding– Level of Importance– Level of Competence
• Unused Capacity– Cost & Ownership– Planning
• Benchmarking
Decision Support
• Shared Service Environments– Allocation of costs to business units based on
consumption– Logical basis for transfer costing / pricing– Promotes ownership of transfer costs
• Out-sourcing– Evaluate costs in-house vs. out-source
• Regulator Reporting• Performance Management
– KPI’s & Scorecards
Some ABM Myths
• ABM is all smoke and mirrors• ABM efforts outweigh the benefits• ABM maintenance is very time consuming• ABM is a finance conspiracy• ABM is only for manufacturing companies• ABM can be done in Excel or my ERP system
How does SAS ABM Help?
• Resources• Activities• Cost Objects• Drivers & Assignments• Attributes• Reporting
Resources
Cost Centres and General Ledger Accounts
Activities
Organisation’shierarchy with processes and activities
Cost Objects
ChannelsCustomersProductsServicesProjectsCountriesRegions…
Drivers
The basis on which cost is assigned throughout the model
Assignments
Resource Costs Activities Cost Objects
Activity Contribution
Resource Contribution
Attributes
CategoriseCostsActivities & ProcessesProductsServicesChannels…
Cube Exploration
Corporate Performance Management
Gartner Research 2001
CPM is an umbrella term that describes all of the processes, methodologies, metrics and systems needed to measure and manage the performance of an organization."
Corporate Performance Management
Strategy
Scorecards
ROI
Shareholders
Customers
ERPCRM
Organisation
AssetsPeople
Gary Cokins, 2005
Relative Importance of Intangibles
Components of S&P 500® Market Value
16.832.4
68.479.7
83.267.6
31.620.3
0102030405060708090
100
1975 1985 1995 2005
%
Intangible Assets Tangible Assets
Board
Managers
Supervisors & Employees
Hierarchy of measurement
Departmental Measures
StakeholderNeeds PBIT
ROCERevenue
Cost Centre Budgetary
Performance
Financial Budget
Supervisors & Employees
Often not quantifiedRarely connected to departmental goals
Top Down
Traditional Mindset
Traditional Budgets…
• are time consuming and expensive• provide poor value to users • fail to focus on shareholder value• are too rigid and prevent fast response • protect rather than reduce costs• stifle product and strategy innovation• focus on sales targets rather than customer satisfaction• are divorced from strategy• reinforce a dependency culture• lead to unethical behaviour
From Beyond Budgeting Round Table,(BBRT) 2004
Board
Managers
Supervisors & Employees
View Encouraged by Traditional Budget
Hierarchy of measurement
Personal Measures
Process Measures
StakeholderNeeds
Value Based Operational Planning
Measures based on analysis of above drivers & cause & effect relationships
Process, Activity& Value Drivers by
Volume & Unit Cost
Value
Bottom Up
Evolving Mindset
Linking ABM and CPM
Personal Measures
Process Measures
StakeholderNeeds
Measures based on analysis of above drivers & cause & effect
relationships
Process, Activity& Value Drivers by
Volume & Unit Cost
Value
Resources Activities
ProductsServices
CustomersChannels
DriversOutput Quantities
Rates
Revenues
Contribution
ProcessValue Add
Through the focus on Activities and Processes, ABM provides the connecting logic through which causal effects can be understood and performance improved.
Profitability
Driver Quantities
Cost
Conclusion
• ABM combines financial and operational data in the organisation to provides meaningful financial intelligence for decision-making
• The ABM model becomes a business model describing the connecting logic and metrics which drive value
• CPM aims to align people with strategy• Traditional budgets do not encourage alignment• ABM’s focus on activities, processes and the
value drivers in the organisation provides foundational support for the CPM process