Much is written about the connection between activity-based costing (ABC) and process improvement.  Some of it is elusive and hard to incorporate into a practical approach to improving an organization.  As a tool for process improvement, ABC is a fabulous asset that offers a significant approach to finding out what’s wrong in the processes of an organization.  A common application of ABC is for the analysis of overhead.  An alternative, less frequently used, application is to use it to analyze the activities of the process itself. 

In this approach, there are several specific steps:
• Determine what the top 6 – 10 activities of a job function are.
• Estimate the percentage of time spent on each activity. 
• Then, ask additional questions about the extent of rework and the extent to which the worker has everything that is needed to complete the specific activity. 
• Next, develop additional specific questions that can be asked at the level of the activity. 
• Marry this quantifiable information with the cost of the process measured by the combination of salary, benefits, and overhead attributed to the job function. 
• Summarize totals by department, business unit, or any appropriate cluster. 

The immediate result is an assessment of the extent of rework and delays at the level of the activity as a percentage of the total process cost.  This information is a fabulously effective tool for determining where to fix the process, since fixing the areas of highest rework and delays will put labor dollars back into productive endeavors rather than leaving them generating the waste of rework. 

Usually, organizations are unequipped internally to conduct a thorough and rapidly useful process evaluation, process analysis, or process improvement initiative.  They aren’t prepared to implement improvement actions to achieve the results that will actually improve the process and the resulting bottom line.  It takes courage and work and more than a little process improvement subject matter expertise.  That’s why the field of process improvement has evolved, and there are plenty of well qualified consultant experts who make this their life work and can facilitate your initiatives using activity-based costing or other approaches.  Just look for them.

In many ways, the 1970’s work of W. Edwards Deming in the American auto industry is still ahead of our best thinking today.  At one consulting visit that I was fortunate enough to accompany him on, we sat in a meeting with union leaders at the headquarters of General Motors.  Deming and I were seated at a Boardroom table large enough to seat more than twenty.  The chairs against the walls of the room were filled with numbers of UAW leaders.  Deming said to them, “You have a job that no one else can do.  You have to hold management responsible for making improvements.” 

He was saying many things in those words about quality improvement, process improvement, organizational development, and other concepts essential to improving the competitive position of organizations.  He was speaking these things in 1986, and they ring equally as true in 2009.

• Management must lead the way in desire and opportunity for improvement. 
• Management must have the courage to look at rework, delays, and other sources of inefficiency and ineffectiveness. 
• Management must have the boldness to do something to improve what is found lacking. 
• Management must attend to the issues of people and communication, relationships, and leadership behaviors. 
• Management must make the opportunity to facilitate group and individual sessions that uncover the barriers to improvement. 

Deming used words that were a bit different, but his meaning was the same.  

The consulting arena has cultivated vast expertise in helping organizations with all of these challenges.  There is no lack of qualified and superb experts who are extraordinary resources in the ways of process improvement, facilitation, relationship and communication management, and leadership development.  They can significantly save an organization from failure and can help to bring the bright light of process and quality improvement into the organization as a guide.  You need only search to find the right help!