Traditional Cost Accounting looks at what is spent, while Activity-Based Methods look at what is done in terms of activities.  From the point of view of the latter, it is much easier to identify opportunities to reduce costs and improve performance, while maintaining the quality of care provided.

Traditional Cost Systems:

• use cost allocation methods ("guestimations").
• do not focus on where or why costs occur.
• provide little insight into the causes of variances.
• report information that is accounting-oriented, inaccurate, not flexible and not timely.
• are not easily understood by operational managers, since the focus is fiscal.
• do not associate the cost of a product or service with the actual effort expended.

Activity-Based Costing (ABC):

• is based on ACTUAL performance, consumption and expense data extracted from the organization’s existing information systems and combined with the knowledge of those directly involved in the delivery of the product or service.
• assigns costs to activities based on the resources they consume.
• provides insights into the sources of costs and the possible impact of different decisions.
• provides the information required to take action and realize performance breakthroughs.

Activity-Based Management (ABM):

• helps you to identify and focus on the critical changes that need to be made, so you can take management action, such as business process reengineering, to achieve significant savings and improve performance.