Question

What type of decisions can be improved with Activity-based management?

Answer 1

Activity Based Management

Activity based management is used to analyse the business processes, to identify its strengths and weeknesses. Activities related to business processes where the business is losing money, are eliminated or improved to increase profitability.

Two types of decisions can be improved with Activity-based mangement

1. Strategic Decision: Activity based management can be used to take strategic decisions like adding or retiring products or acquisition or retention of some customers. This is done by using the profotability information gathered using ABC analysis. Company should sell the product which are more profitable and to the best customers.

2. Operation Decision: Operation decisions are related to various processes within the organization. ABC analysis is done to identify whether an activity is adding a value or not. Non-value added activities must be eliminated to increase the profitability and decrease the cost.