GIGO
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9 August 2013 - 23:27, by , in Activity-Based Cost Management, No comments

Great Input results in Great Output.

While GIGO sounds like a Greek verb or an Italian food, it’s typically used as an abbreviation for Garbage In, Garbage Out. This familiar computer axiom means that if invalid, inaccurate or inappropriate data is entered into a system, the resulting output will be just like the input …. invalid. Originally applied to computer software, GIGO holds true for all systems, including Activity Based Management (ABM) decision-making systems.

Most ABM/ABC implementers pay little or no attention to input. Activity analysis interviews tend to focus on activities, output measures (drivers), classifications (value) and cost. One of the most valuable attributes of the activity is frequently overlooked … its input. For example, a common activity is Issue Purchase Order. Number of P.O.’s or Number of Lines are common output measures for this value-added activity. What is its input?

An activity will typically have more than one input. The inputs for Issue Purchase Order commonly include requisitions, inventory reports, cycle counts, policies, procedures, and bills of material. Because inputs come before output, they often define and direct an activity’s performance.

Input influences activity performance in five distinct ways:

  • Inputs are the root cause of an activity.A requisition “causes” the purchasing department to initiate the activity of Issue Purchase Order. To identify and eliminate the root cause of an activity, you rarely need to look further than its input.
  • Inputs trigger the quantity of an activity.More inputs mean more work. If more and more requisitions are received by Purchasing, the workload of specific activities, such as Issue Purchase Order, will increase proportionally. If you need to reduce workers, reduce input that triggers their workload.
  • Inputs trigger quality.The quality, or lack thereof, will determine the quality of activity output. It is difficult to make a “good” output out of a “bad” input. If Purchasing receives a faulty requisition or inaccurate inventory report, it will be near to impossible to produce an accurate purchase order.
  • Inputs point us to the supplier.Activity analysis commonly points us in one direction only … forward towards the customer of our output. Inputs point us backwards toward the supplier. Gathering both inputs and outputs of activities provide the data needed to identify and improve cross-functional business processes and supply chains.
  • Inputs point us toward policies, plans and procedures.Activities are “what” we do. Inputs influence “how” we perform our activities. If your organization is not Six Sigma or ISO certified, it is very likely that your employees do not have documented procedures that tell them “how to” produce consistent, high quality, low cost output.

“You are what you eat.” “Happy thoughts lead to happy lives.” These sayings are simply two out of thousands that emphasize the importance of selecting good input. If you’re not pleased with your personal or professional results, look at your input. Inputs influence performance. Engineers and programmers, understanding the importance of GIGO-theory, do their dead-level best to keep “garbage” out of software programs. If garbage creeps in, they know garbage will printout. Don’t overlook the importance of gathering and evaluating input. Great input will result in greater output!

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Tom Pryor
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