Activity-based costing methods provide the detailed insight necessary to reduce and control costs, increase productivity, and streamline processes, while improving product quality and service.
Overview
Many industries worldwide have migrated from the traditional approaches to cost management to the Activity-Based Costing (ABC) approach.
Activity-based costing assists managers in answering key questions, such as:
- What does our operation cost?
- What activities are involved and what resources are consumed?
- How can we better manage our costs and resources to improve performance?
Healthcare Activity-Based Costing
The Healthcare industry, in particular, can greatly benefit from the implementation of activity-based cost management systems that monitor and manage what is being done (rather than what is being spent) within key departments such as Radiology, Laboratory and Operating Rooms.
Activity-based methods encompass both Activity-Based Costing (ABC) and Activity-Based Management (ABM). ABC provides the accurate and detailed cost information, and ABM provides the tools to improve performance and achieve strategic objectives.
The ABC/M Cross
The following diagram, called the ABC CAM-I (Consortium for Advanced Management – International) Expanded ABC Model, or the ABC/M Cross, illustrates the basic concept of Activity-Based Costing: that resources are consumed by activities and activities are consumed by cost objects.
The vertical
Cost View, referred to as ABC, explains what specific things cost. The horizontal
Process View, referred to as ABM, explains what causes costs to exist and to fluctuate. The work activities, which are located in the center intersection of the cross, are integral to reporting both the cost of processes and the cost of cost objects.
ExactCost® delivers powerful ABC and ABM applications designed specifically for healthcare providers.
