W7_Ashwaq_Applying Activity Based Management Part 2

Problem Statement

In week 6 blog post the author evaluated the four main activities of the invoice processing to choose the high potential activity in improvement to be applied for activity based management. It was shown W6 blog post that the activity of reviewing has the highest potential of improving.

In this week blog post, I will use the multi attribute decision making for the sub activities of the most important main activity (reviewing) to determine whether the activities are value added or not.

Identify the Feasible Alternative.

In the reviewing activity of the invoice, here are the sub activities that are done to complete reviewing an invoice.

1-      Prepare and send verifications to LDC/PAEW

2-      Prepare check sheet

3-      Review capacity charges

4-      Review variable charges

5-      Review fuel charges

6-      Prepare invoice certification

7-      Manually correct the original invoice

8-      Hand the invoice to senior engineer to verify

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

Selection of Criteria.

Multi attribute decision making will be used to decide which of the sub activities has the lowest overall score to get an idea whether it is a value-added activity or not.

Analysis and Comparison of the Alternative.

The sub activities are rated based on Table 2 below. The total score is shown in Table 3.

Table 2 Rating of the Attributes

Table 3 Analysis of the Activities

The ranking of the activities will be as follow, Table 4. Where the most value added has the least rank number and the least value added activity has the highest number of ranking.

Table 4 Ranking the Activities

Selection of the Preferred Alternative

Table 4 gives the author a clear picture on the activities with most value added and the ones. For the author, the activities below rank 5 are of a value added and needs to be improved. The activities which are higher than ranking number 5 has to be reduced and/or eliminated.

Performance Monitoring and the Post Evaluation of Result

A study to be done on each activity looking for possible ways of improvement and ways of eliminating the non-value-added activities. Then a follow up on the process will be done. Using PERT analysis, the duration and person hours will be used to show the curve , before and after 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