Activity-based costing/management (ABC/ABM) is an effective way to find the most profitable assets in your company, including customers, investments and products. You can extract whatever data you need using an activity based costing software system, such as an ABM accounting program. In the long term, it will enable you to be more cost effective and run your business more efficiently.

Small companies can also benefit from activity based management. In fact, using activity based management software and activity based costing software you can:

1. Maintain and access activity based costing and management information easily.

2. Maximize profits by using project management costing and an activity based costing system.

3. Reduce expenditures using activity based budgeting.

Action Steps
The best contacts and resources to help you get it done

Use activity based costing and management information

ABM accounting practices are vast and sometimes complex. However, there are reputable places to get the help you need to understand this method and how it can help your business.

I recommend: There are numerous providers of activity-based costing systems. Acorn Systems is an industry leader in taking existing ABC ABM systems and replacing them with costing systems that provide accurate information quickly. Business Objects offers a web-based costing system solution that is reliable and profitability driven. AccountingCoach.com provides an excellent primer on activity based costing systems.

Maximize profits using activity based costing and management for cost control

Even if you have a small company, you can still profit from the benefits of an activity based costing software system. By installing such a costing system, your company's costs would already be manageable as your company grows.

I recommend: Lead Software is one of the leaders in the area of costing systems and can provide a more personal approach to helping you implement an online-based activity based cost system that lets you control costs while growing your firm. Prismata is another organization that provides detailed assistance in establishing a costing system that grows with your firm. Robert Luttman & Associates provides a comprehensive introduction to ABC costing systems and how they can maximize profits through cost control.

Reduce costs by making the most of activity-based costing/management (ABC/ABM) information

Activity-based costing/management information has been around for roughly 20 years. However, like many areas in accounting, the information can easily become outdated depending on its source and the changes in business.

I recommend: Activity Based Management Team constantly maintains updated information about ABC costing systems. The ACA Group specializes in providing specific cost information about your business operations and helps you to control it using web-based activity based cost systems.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Activity based cost accounting is especially useful if you produce multiple products with varying costs of development and production. Without spreading overhead costs evenly among products, you can get a clear picture of your return on investment for each.

Activity-based costing (ABC) is a subset of activity-based management (ABM). ABC identifies all costs related to the creation of a revenue item. Companies use activity-based costing (ABC) to accurately measure all the costs of creating a specific product.

Using activity-based costing as a methodology to guide a company is one of the tenants of activity-based costing management. Activity based budgeting requires a company wide focus on the costs of creating each product from the design stage to the final implementation. The list below provides guidance on the three steps necessary to add activity based costing accounting to your firm.

1. Implement activity based costing in your firm.

2. Train the organization on activity-based costing/management methodology.

3. Select the activity-based costing software suitable for your company, product or service.

Action Steps
The best contacts and resources to help you get it done

Incorporate activity based costing into your firm

Activity based costing requires a very structured format to track and analyze all production related costs. Implementing these changes into your operation is not an easy undertaking, and one that requires expert assistance. The potential benefits are significant, so the risks and upheaval must be managed carefully to ensure success.

I recommend: Hire expert consultants to provide advise and direction on the implementation of activity based costing in your firm. PCS Consulting is an international firm with expertise in activity based costing management and the implementation of computer systems to support it. Corporate Renaissance Group specialize in accounting and business process advise and are a valuable resource.

Educate the organization about activity-based costing (ABC)

Train your organization on activity-based costing (ABC). By educating the organization, everyone speaks the same language and there is a clear understanding of the goal and how to get there. Activity based costing articles are widespread and can be found in any intermediate accounting textbook.

I recommend: Focused Management (FMI) provides a detailed course on activity-based costing (ABC) and provides supplementary support to increase the return on investment. ICMS offers activity-based costing/management training in a intensive course format for various levels of management.

Use activity-based costing software

ABC software is required to implement this method of costing in any firm. The standard software packages used by small to medium firms do not have the functionality required to support activity based costing. ERP based solutions like Oracle or SAP both have the required functions, but are too costly for most organizations.

I recommend: Acorn Systems has experience not only as an ABC software developer but also as consultants and trainers. As a developer, SAS has over 10 years of ABC software experience. Both these systems provide the structure necessary to support activity based costing in a meaningful way.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  ABC implementation changes all steps of the business and production work flow. Be prepared for lower productivity during implementation. Hire additional accounting resources to handle the additional workload.

Both managers and accounting professionals can benefit from activity-based costing and activity-based management. This method of planning involves determining the exact cost of your product based upon precise knowledge of your direct and indirect costs. This allows you to control your inputs better and operate on a higher profit margin.

The demand for people who have this knowledge is high. In the dog-eat-dog world of business, profit is everything. Your company may be selling a product at the same price as your competitor, but the company with lower costs will end up with more profit. Here are a few things to consider when looking for activity-based costing/management (ABC/ABM) education and training:

1. Obtain some kind of degree in business or accounting. This could be only an Associate's degree or as high as a Master's degree; as long as you take the right classes, you'll gain the knowledge you need.

2. Take activity-based costing and management seminars. Whether you have a degree or not, learning from experts will help you immensely.

3. Develop an activity-based costing system using specialized software. This will help you see where you can cut costs and earn higher profits.

Action Steps
The best contacts and resources to help you get it done

Learn ABM accounting while earning your post-secondary degree

You have a couple of options for post-secondary degrees. You may choose to focus on accounting, which will expose you to ABC accounting methods as well as a variety of other accounting principles. Or, you can major in business administration, since most of these programs require managerial accounting courses, and get more of a broad business education.

I recommend: Find a school in your area that offers accounting degrees using EdRef.com; you can find online schools as well. Golden Gate University, which is based on the West Coast, offers degrees in both accounting and business administration. These degree programs are also available online.

Benefit from seminars that teach activity-based costing management

If you haven't gone through a post-secondary degree program, you can still learn how to use ABC management within your company. There are numerous seminars around the United States that are hosted by experts in the field. Even if you already have a college degree, brushing up on your skills will improve your capacity for implementing this type of program effectively.

I recommend: Find a seminar from Value Creation Group in your area. The American Management Association also offers seminars around the country; the company also does on-site training if you're interested in providing the training for your whole team.

Implement the use of activity-based costing software

ABC/ABM software can be of great help to your organization. It will allow you to tinker around with inputs and outputs to determine the best use of your labor and materials. In this way, these software programs can teach you to recognize where you can make improvements, giving your company the ability to make higher profits.

I recommend: Learn to use the software packages from SAS Institute or Cash Focus for hands-on training without lengthy activity based costing accounting courses..

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Many of the activity-based costing articles found online are great resources for learning this method. Make sure, however, that you glean your information from reputable and knowledgeable sites.

Activity-based costing is a great way for businesses to focus on eliminating the "dead weight." Knowledge of the key terms of activity-based management can help you to identify your business' most productive products and services. It's a good idea to create a cost flow diagram and apply the ABC system model to your own company. You can also take a profitability measurement to learn who are your unprofitable customers. Start by studying the following terms.

Action Steps
The best contacts and resources to help you get it done

Cost flow diagram (CFD)

A cost flow diagram is the way that a company can visually represent the way that they spend their money. In doing this, it will become apparent where most of the company's money is flowing to and which areas may need more spending.

I recommend: Learn more about the cost flow diagram at Focused Management.

Time-driven activity based costing (TDABC)

Time-driven activity based costing is a faster way to do activity based costing. It tracks estimates of the capacity and cost of resources and the times for performing transactional activities. In some cases, using time-driven ABC has decreased the amount of time and number of people needed to do it by over 75 percent.

I recommend: Read a white paper on time-driven activity based costing from the Harvard Business Review.

Profitability measurement

The profitability measurement is used to measure how profitable a particular customer is. The ideal situation is for companies to focus on customers that produce greater amounts of income without requiring large amounts of time.

I recommend: FSN discusses the profitability measurement.

Process costing

Process costing is the act of how much a particular process in your company actually costs, including equipment, labor and other overhead costs. Knowing this helps you to determine how much money you are really making on a particular product.

I recommend: SAP can help with process costing. Learn a bit more from their website.

Unprofitable customers

Unprofitable customers are customers that take a lot of time to manage, but don't purchase enough product to recoup the cost. This results in an overall profit loss despite the fact that your company makes money by selling the product.

I recommend: Fusion Brand discusses what to do about unprofitable customers.

ABC system model

The ABC system model is a way to visualize activity-based costing. You simply need to put your own company activities and expenditures onto the model.

I recommend: See the ABC system model at Robert Luttman and Associates.