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  • Activity Based Costing (ABC) is a procedure used to assign overhead cost to products or services that are produced. (I actually just answered this elsewhere, if you want more detail see: How_does_Activity-Based_Costing_work).
  • Activity Based Management (ABM) is the use of ABC to improve business operations. That is with an ABC system, management uses the information and data obtained from the system to make decisions or changes that will help the business to be profitable. Such a way is to eliminate any non value added costs which could be done by conducting activity analysis (root causes of problems, cost triggering activities, etc) and activity evaluations (reviewing performance measurements). Another illustration of ABM is creation of customer profitability analysis, which uses ABC to determine the activities, cost and profits that come with serving a particular customer. Following this, managers will have a better idea of which customers they should continue to work with and which they may want to consider dropping or have to find a way to reduce the cost of serving.

Thus, in summary, ABC and ABM are not synonyms, but are two interrelated processes.

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Q: Activity-based costing and activity-based management are synonymous?
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