Activity-Based Costing (ABC) is defined as "a cost management approach that links resource consumption to activities that an enterprise performs and then assigns those activities - and their associated costs - to customers, products or product lines."
Activity-Based Costing (ABC) is based on "ground-up" knowledge and insight from the people involved in the production process, combined with actual data collected from the enterprise's existing information systems (e.g., labor/HR data, inventory data, supply costs, overhead expenses, etc.). The result is unmatched detail and accuracy for cost management, customized to the specific needs and processes of each enterprise.
The ABC methodology allocates each resource (salaries, rent, utilities, supplies, equipment, etc.) separately to the related activities, rather than equally allocating the resources to all the products, as done in traditional methods.
ABC then applies activity drivers to allocate the activities to the products or services provided (called "cost objects"). In answering the question, "What do things cost?” cost objects are the "things". Cost objects within healthcare organizations may include patients, service lines, payers for services, physician groups, and geographic facilities.
The costs can be significantly different when you evaluate the entire process of a procedure being performed rather than just the cost of a procedure. This method of costing is designed to be both defensible and understandable for internal (management) and external (regulatory) purposes.
ExactCost® ABC is a powerful Cost and Profitability Analysis tool for healthcare delivery organizations.
