Since its appearance in the 1980s, Activity Based Costing (ABC) has received a lot of attention. Organizations of all kinds have used it in response to many problems. ABC has also generated other tools such as Activity Based Management (ABM) and Activity Based Budgeting (ABB) used by companies to control and plan their costs. Despite the virtues of this program have been exposed in numerous articles, many companies have started to implement it but have discontinued it before achieving any benefit.
What should be considered to avoid this situation? We have spoken with staff from different companies who have successfully implemented the programs and asked them to point out the decisive factors that contributed to the success of their programs. Next, we will refer to the ABC, ABM and ABB programs as AMP (Activity Management Programs).
Start up
Before an AMP is designed and implemented, the idea must be sold to end users. According to various successful users, “the winning AMP efforts are those that achieve a good acceptance not only in the financial areas but also in the operational ones; This way, the AMP system avoids being seen only on the number side ”.
To gain the support of the operating groups, you have to teach them how valuable the MPA will be: advice? Clearly present the information that will be provided and demonstrate how that information will help operational managers achieve their goals. For example, highlight how the information will help achieve cost and productivity improvements, aspects that will surely be related to your annual bonus. “Teaching is crucial because executives have to want information.
One must be clear about what they can learn and make sure that they will dedicate their own efforts to this end. If this does not happen, nobody will use the program and all the effort will have been in vain ”. You also have to make sure that managers are committed to using the information. It is one thing for a manager to stand up and say "Yes, this is great, it is the right thing to do, I fully support him" which is fine but not enough.
You have to show them how they will be able to use the new information for decision making. When you have conversations with a division president about different projects, how are you going to use the information during these conversations? How are they going to ask why those people want to use that information? We live through habit, we must give them reasons why they want to change.
Identification, selection and scope of the project
When Coca Cola was creating an innovative shared services center, they started implementing an ABC system before the center was inaugurated. In order to obtain AMP ideas, each business sector defined the objectives it wanted to achieve (such as cost reduction, process improvement, etc.) and thus arrived at 110 project proposals. Of those 110 projects, only 28 were left to which Six Sigma training was applied.
During training, seven projects were emphasized. As MPAs become part of the operational culture, the system must be dynamic enough to identify new opportunities for continuous improvement. Suggestions are reviewed by a special team. Managers do not need to worry about improvement now; They can identify opportunities and have the team implement the solutions. Once the projects have been selected, the specific business topics they must contain must be defined. Without a clear outline, the project can be forgotten and dismissed.
Critical factors for program success
AMPM Stay focused on the initial program and do not try to cover yourself too much at first. Remember that it is an evolutionary model. In order to limit the scope of the project, some companies with successful MPAs start developing a pilot project to solve a specific need within a business area. In addition to providing information to meet the need, this pilot program provides a training ground for the implementation team and demonstrates the value of the program to the rest of the company. You have to think "small". If you think you are already doing it, still divide it in half. In successful AMP companies a typical pilot project takes 8 to 10 weeks. If it took longer, the information used would become obsolete.
In some companies the first implementation of the program is not successful because it tries to do everything at once (cut, measure, mold). Those who recognize the mistake and try to get back to the issues that really mattered overcome the problem. Since then, the project has made real progress. After a successful small-scale AMP implementation, enthusiasm quickly spreads across the company. The members of the AMP team become more confident and that is when they begin to deal with larger problems.
Team Selection
For the implementation of an AMP to be successful the team must be fully dedicated. Employees who are in charge of 20% do not serve. It takes people working 100%. A part-time team will delay project implementation and reduce the cost / benefit ratio. But we are not referring to any full-time team; it takes a full time team seriously. Companies that went from good to great first chose the right people to drive the team and then thought about where they should handle it.
Generally, companies recruit members of their staff who are free at any given time. Although management programs are not complicated, they require people who understand the business and who have analytical skills. If one has an idea that requires a class A team, don't expect it to work with class B players.
The commitment of the end users of the program is a key factor for the successful implementation of the system. To ensure that the AMP is designed to achieve the desired objectives, choose at least one member of the operational areas staff. In this way the interests of the operational staff will be brought to the implementation team and can be taken into account from the beginning of the process design. In addition, operational staff will develop new managerial skills and knowledge with which they can assist their manager once the AMP is installed.
These team members can also help the AMP be incorporated into the company's operational culture. It is also important to incorporate into the team those employees who will be in charge of maintaining the system. Participation in system development will help these employees have a basic understanding of how information is processed and how it needs to be maintained after initial implementation.
Most companies with successful MPAs employ external consultants to improve the performance of the implementation team. These consultants bring extensive AMP experience and tools and techniques that can greatly reduce implementation time and improve the quality of the initial model. They also support efforts to promote acceptance of MPAs within the corporate culture. Consultants help finish the job: roll up their sleeves and help company members do the "dirty work." As a result, the company completes the job sooner and better than if they had worked alone.
If you have a project that requires a class "A" team, don't expect to be successful in hiring class "B" players.
If you need to hire external staff, do it, it's worth it. If you have staff who have installed ABC, then do it with them. If not, bring experts. It is the best thing to do if your company does not have the know-how. Experts help you go from having nothing to having something, which is the most difficult part. However, you will never achieve a successful AMP if you let external consultants do all the work without involving internal members. If members of your company do not work alongside the consultants, all knowledge will be lost once the consultants leave your company. In any case, once the consultants have left, it is the responsibility of the internal team to continue developing the organization's AMP and instill it in the other employees.
So, if consultants are used, they should be together with a complete internal team available to ensure the transfer of knowledge and the implementation of the techniques. This transfer of knowledge is a decisive factor in achieving the success of a program. This is why it is essential that companies wisely select the AMP implementation team. The chosen team will be ultimately responsible for developing a tool that will change the way the company views its business as a whole.
Maintenance
Many MPAs have been successful during implementation and have subsequently deteriorated because they required excessive maintenance. Activity-based costing systems handle information that is often very heavy. Although some of this information can be found automatically from ERP systems, there is other information, such as the calculation of staff time, which must be entered manually. To ensure AMP success, the system must maintain a balance between the value generated by the system and the level of maintenance effort required. While little initial investment in technology is required in the initial design of an AMP, subsequent maintenance needs to be improved with investment in technology. Simple tools and files designed to save information such as forms, orders and macros, provide precision,consistency and facilitate maintenance. Furthermore, technology provides a flexible platform to improve computing needs within the organization.
Companies generally have problems with how often they need to update the AMP model. This decision depends exclusively on each company and must be determined based on the problems of each business. Some companies will require monthly updates, while others will need quarterly or annual updates. ABC information is a key element that justifies investments and labor costs. In any company, a good starting point is the quarterly update.
Use the same language
The final key component is to implement a strong communication program, mainly during the first year after the implementation of the AMP. The work team must review the periodic results of the AMP with the operational headquarters. This is an important step towards incorporating Activity Management into daily operations. Even with a communications plan, things don't always go smoothly.
Sometimes the words don't mean the same to everyone. So it is recommended to create a common language when using certain terms. Users of successful cases often have various training programs in which they learned the language and how the information should be used and communicated. But sometimes this language is no longer used because it is difficult for managers to speak in those terms. In those cases you have to go after the bosses of the bosses so that the language can be used. Once the communication plan is in place and well understood, the benefits begin to appear.
A company values amp in its entire dimension when certain individuals can access certain information in the determined format to improve performance.
The information produced by an AMP system is quite powerful. Users can view information in different ways and many times those new ways will generate more questions than answers. These new questions, however, will be answers as the acceptance of the AMP within the company grows and the reporting process matures. A company realizes the real power of an AMP when certain individuals can access certain information in the determined format to improve performance.
This effort to disseminate information can be improved through the use of decisions based on Web technologies. Many companies with successful MPAs use Online Analytical Processing (OLAP) to add power to data analysis. OLAP tools are easy to use and allow managers to collate information in real time to get answers to their questions. ABC / ABM / ABB thus become extremely effective tools for improving performance on many fronts.
An AMP promotes cultural changes
The key to success in your company is developing a program that is simple to maintain and that promotes a cultural change in how management uses information to make decisions. With such a program, you may hear marketing staff tell the CFO how much new information is helping them in their jobs.
