Activity-based management

In this lesson

1. 0:00 Activity-Based Management introduction
2. 1:41 ABC recap and overhead allocation
3. 3:09 Implementing ABM in organisations
4. 4:33 ABM with business improvement strategies
5. 7:37 ABM benefits and limitations
6. 9:08 Key takeaways for exam success

About this lesson

You'll discover the two levels at which ABM operates: operational improvements (eliminating non-value-adding activities and improving efficiency) and strategic choices (deciding which products to sell and which customers to target). The lesson walks you through how ABM works in practice. You'll see how organisations identify their key activities, calculate the cost of each activity including overheads, and identify the cost drivers that cause those costs to vary. Unlike traditional absorption costing with a single blanket overhead rate, ABM uses multiple rates based on different cost drivers, giving you far more accurate product and customer profitability information. This precision is especially valuable for service organisations with high overheads and diverse product ranges. You'll also explore how ABM supports other performance improvement strategies like business process re-engineering and Six Sigma by pinpointing which processes customers value most and where the biggest cost savings can be made. The lesson covers real benefits—more informed pricing decisions, better capital investment choices, and improved efficiency—alongside important limitations to consider, such as implementation costs and the risk of oversimplifying complex activities. This content is relevant to Performance Management (PM) and Advanced Performance Management (APM) papers. By the end, you'll be able to explain what ABM is, discuss at least two benefits and two limitations, and apply the concept to exam questions asking you to evaluate ABM implementation.

Duration: 10m