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How to use activity based management for business turnarounds


Activity based management is a method of gathering and using data to help managers make decisions. A manager may wish to try and identify job functions, products, or even store locations that do not perform well, and are a liability to the company rather than an asset. For example, widget A may sell well, but if a manager uses an activity cost based analysis of all the supporting resources, employee time, overhead, and other hidden costs, he may discover that widget A is not profitable. He may also discover that the employees in location A are producing twice as many widgets as location B. Using this information, he can make decisions and try to make improvements.

There are many different elements and factors in a business to consider. In every business, there are elements that make it successful, and elements that detract from its success. It can be difficult to determine which elements are contributing and which are not. Sometimes a business finds itself in trouble. Sometimes it is evident what is causing the failure of the business. For example, nobody buys widget A anymore. If widget A is the main product of the company, then it is clear that the company needs to focus on a different product as soon as possible, or take steps to go out of business. Other times, it is not clear why the business is failing. The causes are more hidden. This makes a turnaround much more difficult. In this situation, activity based management could help to find the inefficiencies which are causing the business to fail.


The first thing you need to do is to figure out the true cost of all your products and services. In order to do this, you may want to invest in an accounting system which supports activity based costing. It will be yet another expense in a time when you could do without additional expenses. Nevertheless, if you can't identify which elements of your business are causing your problems, then you won't be able to have a successful turnaround. Once you have invested time and software in modeling your business processes and have tied all of this to real data, the reports and information that come from your reports should help you to have a better view of the overall business. Hopefully, these reports will help you to see the true cost of your products, services, locations, divisions, and even departments and employees.

The software vendor of your activity based software may also be able to consult with you in implementing this system or they may be able to recommend a consultant to help you. Hire a consultant that has successfully dealt with a similar company and situation.

Even though you have data to help you with your decisions, you cannot rely strictly on the data. You will still need to use your human intuition to help you eliminate unnecessary expenses, unprofitable products, under-achieving divisions, etc. On the other hand, at times, the data will go against your natural instincts. In this case, trust the data. If you had the ability to use intuition alone, you would not have invested in an activity based management software system.

If, after you have eliminated some of the unprofitable elements of your business, you still have a ways to go in order to make a successful turnaround, then you need to continue to look for inefficiencies, unproductive employees, unnecessary expenses and other things that may be dragging down your business. You also my want to see if there are new products or services that you can offer to replace the ones you eliminated. But whatever you do, do the best you can, and make use of what you have to stage a successful turnaround.

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