W6_Ashwaq_Applying Activity Based Management

Problem Statement

In my paper, I am going to use the activity based management to improve the operation in our department. In this blog post, I will follow the 3 steps for applying the activity based management to the invoicing process that is done in the department.

These steps are:

Step1: Identify activities required to complete a process

Step 2: Determine whether activities are value-added or non-value-added

Step3: Continuously improve the value-added activities and minimize or eliminate the non-value-added activities

Since the process has many activities. Then I will do step 2 in two blogs. In this blog post, I will use the multi attribute decision making for determining the most valuable main activity. For next week blog post, I will use again the multi attribute decision making for the sub activities of the most important main activity to determine whether the activities are value added or not.

Identify the Feasible Alternative.

In the process procedure of the invoicing, here are the main four activities that are done to complete a single invoice.

1-       Receipt the monthly invoice / Deliver to department

2-       Review of the invoice

3-       Verification of the invoice

4-       Release/Payment of the invoice

Development of the Outcome for Alternative

The alternatives will be evaluated based on the listed attributes in Table 1.

Table 1 Activities and Attributes of the Activities

Activity/ Attribute	Receive/ Deliver	Review	Verify	Release/ Pay
Period	1 – 3 days	1 – 17 Days	1 – 3 days	2 – 5 days
Need for quality check	No	Yes	Yes	No
Financial/ Technical/ Legal Knowledge	N/A	Financial/ Technical/ Legal	Financial/ Technical/ Legal	Financial/ Technical/ Legal
Internal/ external involvement	Internal	Internal/ External	Internal	Internal
Dependent / Independent	Independent	Dependent	Dependent	Dependent
Time constraint	No	Yes	Yes	Yes
Risk Appetite (Financial/ Reputational/ Contractual)	Low/ Low/ Low	Medium/ Medium/ High	Medium high/ Medium high / High	Very high/ Very High/ High

Selection of Criteria.

Multi attribute decision making will be used to decide which of the main activities has the highest potential of improving by applying the activity based management. The attributes of the activities are as shown in table 1.

Analysis and Comparison of the Alternative.

In table 2 below, the values of each attribute are quantified for easy comparison.

Table 2 Analysis of the Activities

Activity/ Attribute	Receive	Review	Verify	Release
Period (=days/3 days)	1/3 = 0.333	1/3 – 17/3 = 0.333 – 5.667	1/3 – 3/3 = 0.333 – 1	2/3 – 5/3 = 0.667 – 1.667
Need for quality check (yes=1, no=0)	0	1	1	1
Financial/ Technical/ Legal Knowledge (1,1,1)	0	3	3	3
(Internal = 1), (external = 1.5) involvement	1	2.5	1	1
Dependent=1 / Independent=0	0	1	1	1
Time constraint (yes=1, no=0)	0	1	1	1
Risk Appetite (Financial/ Reputational/ Contractual) (Low=0, Medium low=0.25, Medium=0.5, Medium high=0.75, High=1, Very high=1.25)	0	0.5/ 0.5/ 1 = 2	0.75/ 0.75/ 1 = 2.5	1.25/ 1.25/ 1 = 3
Total	1.333	12.167	10.5	12.167

As clear from Table 2, the review and release end up having the same weight of value. Table 3 below will add a ranking for the attributes of the activities where number 1 means the most important attribute and so on.

Table 3 Analysis of Activities Attributes with Ranking

Activity/	Rank	Receive		Review		Verify		Release
Attribute
	A	B	B/A	B	B/A	B	B/A	B	B/A
Period (=days/3 days)	1	0.333	0.333	5.667	5.667	1	1	1.667	1.667
Need for quality check (yes=1, no=0)	5	0	0	1	0.2	1	0.2	1	0.2
Financial/ Technical/ Legal Knowledge (1,1,1)	6	0	0	3	0.5	3	0.5	3	0.5
(Internal = 1), (external = 1.5) involvement	7	1	0.142	2.5	0.357	1	0.143	1	0.143
Dependent=1 / Independent=0	3	0	0	1	0.333	1	0.333	1	0.333
Time constraint (yes=1, no=0)	2	0	0	1	0.5	1	0.5	1	0.5
Risk Appetite (Financial/ Reputational/ Contractual)	4	0	0	2	0.5	2.5	0.625	3.5	0.875
(Low=0, Medium low=0.25, Medium=0.5, Medium high=0.75, High=1, Very high=1.25)
Total		1.333	0.476	16.167	8.057	10.5	3.301	12.167	4.218

Selection of the Preferred Alternative

As it is shown in Table 3 below. The activity of reviewing has the highest potential of improving. Then comes the release of invoice.

Performance Monitoring and the Post Evaluation of Result

In the next blog post, I will evaluate the sub activities of reviewing the invoice to complete the three steps of applying the activity based management.

References:

1-       Using activity-based management to improve operations. (n.d.). Retrieved from https://saylordotorg.github.io/text_managerial-accounting/s07-04-using-activity-based-managemen.html

2-       Jurek, P., Bras, B., Guldberg, T., D'Arcy, J., Seog-Chan Oh, & Biller, S. (2012). Activity-based costing applied to automotive manufacturing. 2012 IEEE Power and Energy Society General Meeting. doi:10.1109/pesgm.2012.6345348

3-       Activity-based management. (n.d.). Retrieved from https://www.accountingtools.com/articles/activity-based-management.html