Limitations of Activity Based Management

The limitations of activity-based management

Although ABM is one of the most effective management tools, it has some limitations. The limitations of activity-based management are explained below:

ü  The cost of implementing activity-based management is very high. Only a few organizations have been successfully implemented this ABM. Developing product survey, ABC tables, interviews etc require many hours of consulting. In addition, organization structure change, change of job flows etc also creates the necessity of further change that will incur more costs. However, activity-based management does not decrease costs rather it helps an organization to understand costs what to correct. The costs of manpower play very significant role that also affect the implementation cost of ABM. 

ü  Activity-based management process often fails to measure intangible benefits as for example creating goodwill to public by a business program. For instance, organizations have specific budget for specific activities. ABM process can only measure the benefits of these tangible activities but does not measure the intangible activities incur from these activities or others. When organization does not measure the all tangible and intangible benefits, the actual operational and strategic performance of an organization cannot be found out.

ü  It is difficult to determine the non-value adding activities thus taking effective decision often may not be possible. In addition, this shortcoming also affects in improving the efficiency of utilization of resources and fails to acquire desired productivity and profitability.  For example, a good and safe workplace helps to retain expert workers and decrease employee turnover, but it may not be determined as a value added activity by operational activity-based management. However, each activity either value added or non value added needs certain time, costs and other resources. So, the failure in determining and eliminating cost oriented non value added activity may incur costs of the organization.  

ü   Still managers are not used to with this activity-based management system and depend on the traditional systems (Cokins and Capusneanu, 2011). So that implementing the activity-based management system within the organization and getting good output are time oriented.

Reference 

Cokins, G. and Capusneanu, S. (2011) Sustaining an effective ABC/ABM system. Theoretical and Applied Economics. Vol. 18, issue 2, pp. 47-58.