SAS Activity Based Management - Integrated Financial Intelligence for Smarter Decision Making

The two critical failings of traditional cost accounting systems are: inability to report individual product, service, customer and process costs to a reasonable level of accuracy; inability to provide useful feedback to management for the purpose of operational control As a result, managers of complex organisations are making important decisions about pricing, product and customer mix, resource allocations and budgeting based on inaccurate and inappropriate cost and profitability information. For example, studies have shown that 20% of all customers virtually provide all the profits of a company. Another 60% break-even and the remaining 20% only reduce the bottom line. Yet many companies continue to treat all customers the same, because they do not know the true costs of servicing individual customers.

What is activity-based management (ABM)?
SAS Activity Based Management is a combination of consultancy and technology services designed to deliver a solution that will enable managers to get an understanding of the actual costs and profits associated with a product, customer, service or process, surfacing cause-and-effect relationships.

SAS ABM enables ongoing profitability analysis, cost management initiatives, shared services management, planning and budgeting, and capacity optimisation - helping the organisation to be more efficient, productive and profitable.

ABM technologies
So what's involved from a technical viewpoint? There are three key components of the ABM reporting engine. Taken together, these capabilities make SAS ABM a complete end-to-end solution.

Data Management:
SAS ABM integrates with existing financial and operational systems. Uniquely, SAS translates direct and indirect costs from transactional applications such as ERP and CRM into activity and process-specific costs. In the ABM arena SAS enables you to:

• Capture and read data from 100-plus sources including Oracle, SAP R/3, SAP BW, DB2, SQL Server, Access, Excel and Delimited files
• Perform data validation based on pre-defined business rules, and flag exceptions and errors in form of exception reporting
• Convert and prepare data into a suitable structure for loading into models
• Automate the capture, validation and loading of data into models

• Activity Based Costing, to analyse true costs:
  • revealing the true costs of producing and selling products
  • analysing the costs involved in providing shared services
• Activity Based Planning, to perform scenario-based planning using the ABC methodology:
  • forecasting resource requirements (like people, space and equipment)
  • understanding the impact of introducing new products or services
  • understanding the impact of price changes on profitability

• Web-based OLAP (online analytical processing) reporting
• Standard templates enabling end-users to create their own reports
• Ad hoc query and reporting for more detailed investigation

How can you implement ABM?
First, it is important to bear in mind that ABM is always a business-led project. Technology alone cannot solve the business issues mentioned above. At a strategic level, an ABM project can only succeed if the organisation's senior business leaders are committed to the project and the aims and objectives are communicated throughout the organisation. Consultancy is then required to manage and drive the project. The organisation and the consultants must work in close partnership to choose relevant and easy cost drivers from which to build the ABM model. These costs then need to be accurately allocated: for example, how do you allocate the costs of a broad organisational function such as telemarketing to individual customers?

Answering such questions is beyond the scope of this article. Suffice it to say that SAS offers unmatched domain expertise in ABM consultancy, with market-leading resources, project-management know-how, implementation experience and training.

ABM in action
Kimberly-Clark Europe is among the world's 500 largest companies. The company's SAS-based ABM solution provides product and customer profitability information across a highly complex pan-European supply chain. "We wanted to look at the costs involved in our delivery and distribution cycle, which can last between two and six months, takes in warehouses in 16 countries, and serves over 18,000 customers," says Issy Aydiner, Finance Director, Supply Chain at Kimberly-Clark. "By taking data from SAP R/3 and making it subject to certain rules, models and analytical processes, we've created a simple and cost-effective solution. We can build a route-to-market and then look at each part and the costs involved. We can model 'what if?' scenarios quickly - removing certain costs to see the effect this would have."

For further information on SAS ABM, please visit www.sas.com/uk/solutions/oi_abm.html

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