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Activity-based management plus financial accountability equals success

Briefings on Infection Control, April 1, 2009

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What is ABM?

ABM (also called activity-based costing) is not a new concept. In fact, several companies have been using it since the 1980s, says Tom Pryor, president of Integrated Cost Management Systems, Inc. (ICMS) in Arlington, TX. For years, ABM was used in the manufacturing sector, and more recently, financial institutions such as Charles Schwab have used it to concentrate on the most efficient activities for their products. By figuring out the top five or 10 areas on which to focus, and then determining which ones add value, you are already practicing a simplified form of ABM, which isolates areas that need the most resources and concentration. Very simply, ABM calculates how much time and money you are spending on particular activities and allows you to focus funding on activities with the most value. “It helps not only the management team, but the workers in that area, to make better decisions, especially with a limited amount of resources that most healthcare organizations are battling with today,” says Pryor. For the most part, the healthcare industry has regarded ABM as a module strictly for the manufacturing and financial sector and deemed it inapplicable, Pryor says. “While activity-based costing in the manufacturing form most certainly does not [apply], the basic principle of ‘activities consume resources and services consume activities’ is rock solid in any industry, including healthcare,” Pryor says.

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