Why activity-based management (ABM) matters to a first-time founder
Activity-based management (ABM) uses the cost of specific tasks to improve how a business works and what it sells. It can show a founder that a product which looks profitable creates costly support, repeated work or delivery tasks hidden inside a broad total for overhead, meaning shared business costs.
Examples of activity-based management (ABM)
A furniture maker finds that custom orders need three times as many design changes and inspections as standard orders. The company raises the customisation fee, simplifies approvals and tracks repeated work. ABM is the work of making those decisions and improvements from the cost data.
Common misunderstanding
ABM is not another name for activity-based costing. Costing works out what tasks and outputs cost. Management uses those findings to change processes, prices, the mix of products sold or customer relationships. ABM can also mean account-based marketing, so write out activity-based management when either meaning could fit.
When to use it
Use ABM when shared business costs are large, products or customers use shared resources differently, and you can act on what you learn. It is less useful when operations are simple or measuring the work would cost more than the likely benefit. Start with one expensive process instead of mapping the whole company.