What is Activity-Based Management - ABM

Activity-based management (ABM) is a procedure that originated in the 1980s for analyzing the processes of a business to identify strengths and weaknesses. Specifically, activity-based management seeks out areas where a business is losing money so that those activities can be eliminated or improved to increase profitability. ABM analyzes the costs of employees, equipment, facilities, distribution, overhead and other factors in business to determine and allocate activity costs.

BREAKING DOWN Activity-Based Management - ABM

Activity-based management can be applied to different types of companies, including manufacturers, service providers, non-profits, schools and government agencies, and ABM can provide cost information about any area of operations in a business. In addition to improving profitability, the results of an ABM analysis can help a company produce more accurate budgets and financial forecasts.

Activity-based costing (ABC) is a loosely related factor. Whereas activity-based management focuses on business processes and managerial activities driving organizational business goals, activity-based costing seeks to identify and reduce cost drivers by optimizing resources.

Both ABC and ABM are management tools that help in managing operational activities to improve the performance of a business entity or an entire organization.

Activity-based costing can be considered an offshoot of activity-based management. By mapping business costs like supplies, salaries, and leasing activity to business processes, products, customers, and distribution activity, activity-based costing helps improve overall managerial effectiveness and transparency.