Mission
Possible
by Tom Pryor
The mission of ICMS, Inc. is to make new things familiar and familiar things new. To make Activity Based Management more familiar, ICMS uses a simple spreadsheet format for our training, books and software. To make familiar things new for you, we use bi-weekly e-mail articles and onsite coaching sessions to challenge the status quo.
Many of you are familiar with the ICMS mission statement. But you may not be as familiar with the person who highly influenced its development: Richard Saul Wurman, author of "Information Anxiety". Wurman defines information anxiety as "the black hole between data and knowledge. It happens when information doesn't tell us what we want or need to know."
Do you have information anxiety? Here are some telltale signs:
- You might have information anxiety if you are unable to explain something that you thought you understood.
- You might have information anxiety if you chronically talk about not being able to keep up with what's going on around you.
- You might have information anxiety if you're feeling depressed because you don't know how to program your VCR.
- You might have information anxiety if when filling out a form you feel compelled to fill in each and every blank.
- You might have information anxiety if you're too afraid or embarrassed to say, "I don't know."
Activity Based Management (ABM) has been used successfully by thousands of organizations worldwide to convert megabytes of accounting data into actionable decision-making information for non-accountants. One of Wurman's favorite questions is "Which one of the following descriptions of the size of an acre is more understandable? An acre is 43,560 square feet or an acre is about the size of a football field without the end zones." Square feet would be the traditional accounting system's response. Football field would be the ABM answer.
Traditional cost systems are precisely useless. ABM is approximately relevant. Both are correct, but the latter is more useful to non-accountants searching for relevant, understandable and timely answers to business questions such as:
- What could our profit margin be if we eliminated non-value added waste from our overhead?
- How much does it cost to process a typical customer order?
- Which products, services and customers provide 80% of our profit?
- What is the difference in purchase price versus procurement cost?
- Have we properly allocated our resources to the activities and business processes necessary to accomplish our strategic plan?
No matter whether you've already implemented ABM or are still contemplating the trip, Richard Wurman offers six proven steps to insure you reach your planned destination:
Step
1: Define your mission.
Be specific. The mission is NOT to implement
ABM. Instead, the mission should be to improve profit or solve a business problem.
Step
2: Define your destination.
Again, be specific. Define measurable
time and performance measures, e.g. reduce overhead cost by $200,000 no later
than December 1st or complete ABC customer profitability analysis on or before
September 1st.
Step
3: Define your path.
Develop an ABM implementation plan similar
to the driving directions you find on Mapquest.com, e.g. turn right and take 2
minutes to drive 0.4 miles. Be specific, both during implementation and as you
transition from a pilot project to ongoing practice of ABM.
Step
4: Define time.
ABM Pilot Projects must be completed in 90-days
or less. Longer than three months leads to loss of interest and failure. After
the pilot, most organizations update their activity accounting system quarterly.
Step
5: Define what to anticipate.
Create an ABM/ABC benchmark list.
You will typically find 20% non-value added costs, no more than 200 activities,
15 business processes and high volume products overcosted. If you don't find what
you anticipate... investigate why.
Step
6: Define failure.
I tell people when coming to my house, "If
you drive into Lake Arlington, you can be assured that you missed the entrance
to our house 100 yards behind you." Define failure for ABM as well. For example,
if you've found 2,000 activities, you've probably failed. Or if ABM is not helping
people in your organization make better daily business decisions with greater
accuracy and greater ease, then ABM has likely failed.
Is your mission to simultaneously simplify and improve your company and your job? Your worst obstacle to accomplishing that mission is day-to-day confusion - the time it takes everyone to figure out what to do and what not to do. Simplicity's evil twin is data. Use ABM to build a bridge over the black hole that separates data and knowledge.
Send comments about this article to Tom Pryor at TomPryor@icms.net.
Or, call ICMS to talk to someone about your ABM needs... (817) 483-6511.
If this article has inspired you and your organization to cut costs this year, call us at 817-475-2945, or e-mail your needs to tompryor@icms.net.
This
free e-mail is a service of ICMS, Inc.
For more information on ICMS products
and services, call 817-475-2945.
ICMS,
Inc.
PO Box 13206 ~ Arlington, Texas 76094
Phone: 817-475-2945 Fax: 817-483-7097
