The Love Boat
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16 August 2013 - 23:00, by , in Activity-Based Cost Management, No comments

Too many ABM Pilot Projects are like the old TV series The Love Boat. Everyone is excited with anticipation before the Pilot Project launch. During the 90-day Pilot “cruise”, everyone seems to have a valuable and enjoyable experience. But, after the Pilot Project Final Report, people return to their same old attitudes, practices and pre-ABM procedures. What can you do to sustain the benefits of your ABM Pilot Project? Here are five recommendations to consider:

Relevance

You must train non-financial employees “how to” read, interpret and use ABM reports. Just because you and the Pilot Project Team understand ABM does not mean everyone in your organization has the same grasp or conviction. ICMS recommends that you spend at least 4-8 hours training non-financial managers “how to” relate ABM to their specific needs, goals and interests. As Zig Ziglar often says, “You can get anything you want in life by helping enough other people get what they want.” Spend time teaching your employees “how to” get what they need from their ABM data.

Results

To sustain ABM after the Pilot Project, you must quickly convert “findings” into quantifiable “results” on the P&L. Most ABM Pilot Project reports contain a list of important 90 day findings. Typical pilot findings include 25% non-value added costs, high volume products over costed, and one or more $100,000 cost improvement action plans submitted for approval.

After the pilot: (a) Set cost reduction targets for non-value, (b) Reevaluate your pricing based on the new ABC product costs, and (c) Implement and measure the cost improvement plans. Don’t let the hard work you expended during the Pilot Project simply remain in the final report.  Implement and celebrate the results!

Rewards

Formally recognize the employees who use the ABM Pilot Project findings. Even though ABM is often called “organized common sense”, it still represents change. Many employees will be hesitant to adopt ABM. To counter this resistance, senior management should take time to identify and reward those employees who proactively use the new ABM information to reduce costs, reengineer processes or improve decision making. When one employee sees another being favorably recognized for adopting ABM, others will naturally follow their lead.

Repetition

You must update your ABM reports at least quarterly or they will quickly become outdated or forgotten. Too many people implement an ABM Pilot Project and then leave the data unchanged for months on end. ABM is like riding a bicycle. You’ll never be proficient or learn to enjoy it until you do it repeatedly. Who should update the ABM data? ICMS recommends that you have each department manager update their own reports. By doing it themselves, they learn more and simultaneously spread the updating effort across many people, not just the ABM software model expert.

Re-Producers

ABM will fail unless your president can explain basic ABM principles. I had the fortunate opportunity of working at Motorola in 1985 when Mr. Galvin, chairman of the board, defined Six Sigma TQM (3.2 defects per 1 million) as our goal. Mr. Galvin and every senior manager of Motorola could explain the basic principles of TQM to any employee, customer or supplier.

You should have the same objective with ABM. Reproduce your ABM knowledge throughout your organization. Plant managers, general managers, and CEO’s must be trained to explain the basic principles of ABM and ABC. If they cannot explain ABM, you will eventually fail.

Conclusion

There is no stranger week in the calendar than the one between Christmas and New Year’s. It’s a transition time. From old to new. As we reflect on the gifts just received, we are simultaneously making resolutions for an even brighter new year. Don’t stop after you’ve opened the gifts from your ABM Pilot Project. Quickly transition from pilot to an ongoing practice of activity and process improvement.

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Tom Pryor
TomPryor@ICMS.net
(817) 475-2945

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