Pre Engineered Building Manufacturers Hyderabad.pptx
Performance management activities
1. Performance management activities
Activity-based costing (ABC), activity-based management (ABM) and the balanced
scorecard (BSC) are established management methods. They are building blocks of
performance management systems. ABC and ABM provide cost and other business
intelligence about key business elements including resources, activities, products,
services and customers. They enable managers to make decisions that improve cost and
profit performance. The BSC translates strategic goals into a set of performance measures
balanced according to the important dimensions of performance. It helps communicate
and execute the strategic plan by defining success in quantitative terms at each level of
the organization.
ABC and the BSC are often viewed as independent methods each with its own purpose.
However, they are complementary and offer greater value when linked together. The
benefits of linkage include additional performance measures-measures for which ABC is
the only reliable source-and more comprehensive decision support.
The BSC benefits from the inclusion of ABC performance measures. These include the
cost of activities and activity outputs which are used in the internal business process
dimension of the BSC of public and private organizations. This activity information
covers support services as well as primary business processes. For private organizations,
ABC profit measures by customer, market segment, market area and distribution channel
are used in the customer dimension of the BSC.
ABC can provide as much as 20-30% of the performance measures in the BSC. For
example, the South Dakota Department of Transportation's activity-based costing model
provided 22% of the measures in the BSC.
The users of the BSC benefit from the analytic capabilities available in ABC. For
example, a manager of a transportation department may find that the actual cost of
maintaining a mile of highway exceeds the target in the scorecard. ABC allows the
manager to access detailed information about the activities and resources associated with
maintaining highways. A detailed "drill down" and analysis of this information in ABC
may reveal the root cause of the problem and allow corrective action to be taken.
Decision support is particularly effective if ABC data can be accessed from within the
BSC.
Successfully linking ABC and the BSC requires a different type of ABC model. The BSC
relies on up-to-date ABC data on a monthly or quarterly basis, so the ABC model must
be up-dated monthly or quarterly and data fed to the scorecards in the BSC.
This ABC enterprise reporting system is quite different from the one-off desk-top models
typical of early applications. Data sources unique to ABC-such as employee time
2. reporting--are automated to reduce the cost and enhance the timeliness of data capture.
Data feeds from legacy systems or enterprise resource planning systems are automated
using extract, transform and load (ETL) tools.
ABC's role as an analytic decision support tool changes the design of the ABC model and
reporting system. The ABC model must be forward-looking to support planning efforts as
well as a source of accurate historical performance data. A good reporting system-such as
a modern web-based tool-allows managers to access, analyze and display ABC
information on their desktop. This reporting capability should allow a manager to follow
the trail of investigation from the targeted performance measure in the scorecard to the
underlying details in the ABC model.
In summary, linking ABC and the BSC enhances the value of two proven management
methods. The BSC scorecard benefits from access to performance measures for the
business process and customer dimensions. The BSC also benefits from the analytic
capability of ABC to support performance analyses. ABC transitions from costing tool to
analytic method supplying up-to-date business intelligence to support performance
improvement initiatives.
Why link ABC and the balanced scorecard? ABC and the BSC are proven
management methods. They work well on their own, but they work better together. This
is why: The balanced scorecard benefits from ABC performance measures for the
business process and customer dimensions; Managers use ABC as a diagnostic tool to
uncover the root causes of scorecard performance problems; and ABC becomes an
enterprise analytic system for performance management
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