Five Steps to Jump-Start Your ABC Pilot Project

by Tom Pryor

Napoleon once said "When custom and reason are at odds, custom always wins out." Apparently Napoleon had a lot in common with today’s ABC champions.

Over 90% of ABC Pilot Projects successfully demonstrate the principles and benefits of Activity Based Costing. Yet employees simply go back to business as usual right after the final project report is presented to senior management. What happened? During the 90 day pilot project everyone agreed that ABC is simply common sense e.g. activities consume resources and products consume activities. But on the 91st day the company returned to the customary management of direct versus indirect headcount, fixed versus variable cost accounts, and end-of-the month mentality.

Has your ABC/ABM implementation stalled out? Do you need to regain momentum and direction? Here are Five Steps to Jump-start your ABC Project:

Step 1 - Use a little bit of both ABM & ABC.
If your project has been totally ABC product cost focused, immediately add some ABM cost management steps. ABC product costing does not evoke employee emotion. You’re simply reallocating their cost. But ABM cost improvement does evoke employee emotion. Now you’re talking about changing their job or cutting their budget. Adding ABM to your ABC Pilot Project will get employees more interested and involved. Adding ABM to your ABC project will reduce costs!!

Step 2 - Eliminate bottlenecks.
A lot of ABC Pilot Projects stall out because of an information bottleneck. To eliminate your ABC Pilot Project constraints: (a) Don’t limit ABC training to the project leader and the cost accounting staff. Train a broad cross section of your employees "How to Read, Interpret and Use ABC reports". (b) If only one person understands and uses your ABC software, you’ve got a bottleneck. Upgrade to a network or client server ABC system and train non-financial managers "How to Use" the system.

Step 3 - Want to be an ABC player? Get an ABC/ABM coach!
Hire an expert to motivate, provide positive examples, lead training and watch your application of ABC/ABM techniques. Pick a coach that matches your organization’s personality and industry type, with a plan that matches your goals.

Step 4 - Start a Productivity Patrol.
Post activity performance measures throughout the company. Remember the old saying "You get what you measure." If your management wants ABC results on the company P&L statement, then you must develop highly visible performance measures that senior management can monitor as they walk around the company. To get results, activity and business process performance measures must be defined with positive and negative consequences linked to the achieving the targets. For example, Levi Strauss management during their 1995 ABM project launch defined a 28% product cost reduction target for 1998. The consequences were as follows: (a) miss the target and your plant will be closed; or, (b) hit the target and every employee receives one year’s salary as a bonus. Would these consequences "jump-start" your employees?

Step 5 - Listen to your customers.
Bring in a supplier or customer that has successfully implemented ABC. People like to hear success stories. Especially if they are examples from someone they know and respect. Have your supplier or customer share their ABC excitement with your employees. Discuss how you and they could mutually benefit by using ABC to synchronize processes, benchmark common activities, eliminate waste, and grow both businesses.

The only thing worse than having a failed ABC Pilot Project is completing a successful ABC Pilot Project and watching it stall out.

Don’t be an ABC dropout and let your hard work go to waste. Try these Five Steps to jump-start your project. If you need any help or additional ideas, simply give us a call at 817-475-2945. We are here to help you.

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.

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