The joint implementation of ABC to the BSC helps to stay focused on results. If people are responsible for achieving good cost and profit performance indicators, then they will be more actively interested in costs and profits ”says Peter BB Turney, Ph D in his now classic book Common Cents (Second Edition)
The ABC / M activity cost model and the BSC (Dashboard or Balanced Scorecard) are managerial management tools. They are methods that help to gain productivity in managerial performance
With ABC / M, area managers obtain detailed and accurate information on costs and other data on key business elements, including resources, activities, products, services and customers. They allow managers to make decisions that improve cost and profit. For its part, the BSC translates strategic objectives in terms of balanced performance measures according to the important magnitude of performance. It helps to communicate and execute the strategic plan, defining success in quantitative terms at each level of the organization.
ABC and BSC are generally considered independent methods, each with its own objectives. Either way, they are complementary, and they are very valuable to join. The benefits of this union include additional performance measures; measures for which ABC is the only reliable source and most support in decision making.
BSC benefits from ABC performance measures. These include cost and results of activities, which are used in the internal business process dimension of BSC of public and private organizations. For private organizations, customer ABC profit measures, market segment, market area and distribution channel are used in the BSC customer dimension.
ABC can provide as much as 20-30% of the performance measures in the BSC. For example, the ABC model from the South Dakota Department of Transportation provided 22% of the measurements in the BSC.
BSC users benefit from the analytical capabilities available at ABC. For example, the manager of a transportation department may consider that the maintenance cost of a mile of highway exceeds the target in the BSC. ABC allows this manager to have access to detailed information on activities and resources related to highway maintenance. A detailed drill-down and analysis of this information in ABC can reveal the origin of the problem and allow a corrective action to be taken. Decision support is particularly effective if ABC information can be accessed from within the BSC.
The successful union of ABC and BSC requires a different type of ABC model. The BSC relies on a database updated monthly or quarterly and that this information is supplied to the BSC scorecard.
The ABC information system is different from the typical models previously applied.
ABC's unique data sources are automated to reduce costs and improve up-to-date information capture. This database that is made from inheritance systems or resource planning systems of a company is automated using extraction, transformation and loading tools.
The role of ABC as an analytical decision support tool changes the design of the ABC model and the information system. The goal of the ABC model should be not only to support planning efforts but also to be an accurate source of historical performance information. A good information system - a modern web page for example - allows easy access, management and display of ABC information. This availability should allow the manager to track everything from the target performance measure in the scorecard to the underlying details in the ABC model.
In summary, the union of ABC and BSC increases the value of two management methods put into practice. The BSC benefits from access to performance measures for the business process and customer dimensions. You also benefit from ABC's analytical capabilities to support performance analysis. ABC oscillates between cost tool and analytical method, providing up-to-date business intelligence to support initiatives that aim to improve performance.
Why join ABC and BSC?
ABC and BSC are proven methods. They work well on their own, but they do it even better together. Here are the reasons:
- The BSC derives benefits from the performance measures for ABC's business processes and customer dimensions. Managers use ABC as a diagnostic tool to detect the causes of failures in scorecard performance. ABC becomes a company analytical system for managerial performance.
