Activity Based Management vs. Total Quality Management

Target Costing , Strategic Planning and Cost Management

Art Madsen, M.Ed.


Question 1/

Quinnipiac College's Web Quest accounting site contains an all-inclusive overview of several significant accounting methods and costing principles discussed in class and also partially in the Ansari module. Departmental faculty members have each contributed a major section to this page.

Karen Purslow, for example, has designed an attractive presentation of the fundamentals of Traditional Costing Methods vs. Activity Based Costing, and describes the accountant's role within this system. In keeping with established Internet tutorial practice, she includes a quiz upon completion of her explanations. Donald Donofrio, on the other hand, has posted an amusing and informal site on Activity-Based Management (only partly related to costing) which is conceived to attract the viewer's attention and enhance retention of facts presented.

Several other faculty presentations such as "economic value added", contribute a sense of variety to this page; however, because comparison of the Ansari module is to be made, mentioning Janice Ammons' section on Target Costing is essential. She places her Bernadis, Casper and Davis target costing section in a low-priority position; however its contents are both impressive and fairly simple. There are a number of subsidiary explanatory links that assist the learner in discovering new facts about the role of target costing.

Question 2/

Dr. Janice Ammons' site, as mentioned, seems to de-emphasize somewhat the importance of target costing. Nonetheless, she does include an extensive link-supported segment prepared by her colleagues Bernadis, Casper and Davis. After clicking several basically blank, but artistic pages, we are led to a learning objectives site which comprises the heart of the Bernadis segment on Target Costing. Here, quiz questions to follow are defined and partially answered. Further in the list of links, a basic formula is provided for the student (Target Cost = Target Price - Target Profit) and the viewer is led to assume that this is important information. The clickable options continue and provide expert opinions, comparisons, and even names of companies, such as Boeing and G.E., using Target Costing. The Quiz questions, in the form of a brief test, follow.

A. The Ansari module seems, at first glace, far more academic and more highly detailed than the Bernadis segment but it does contain similar conceptual headings. Sub-divided definitions and key ideas characterize both the Ansari module and the Bernadis web-site. Ansari's thinking and explanatory process are clearly far more university-oriented than the Ammons Internet equivalent, but the coverage is basically 'on focus' in both versions . The 3 page class hand-out summarizing Ansari is useful for comparing his thinking to the ideas highlighted on the Quinnipiac College site.

Ansari and Bernadis both highlight the entire range of systemic concepts, (e.g. cost reduction, product planning) associated with Target Costing and do so with a certain degree of impact and effectiveness.

B. By way of contrast, the web-site seems not to provide an in-depth historical overview of target costing, but its does feature important concepts and specific information [Quinnipiac College Accounting Page] and gives key points video-like impact which the Ansari written text cannot duplicate.

The Ansari module is a more serious approach to the Target Cost paradigm and, furthermore, it excludes by its very nature the graphic images, jokes and some of the subtleties featured visually by Ammons and Bernadis. In their test-result interpretation section, for example, there is a perhaps overly light-hearted tone which is certainly not present in the Ansari materials.

There were, in spite of its basic approach compared to Ansari's in-depth analysis, several points related specifically to the Production Transfer Planning process (steps 13 and 14) which I assimilated from the Bernadis Internet Sub-Site:

Question 3/

As implied above, the web-based lesson is simplified, visually appealing and graphically impactful. Learning can take place on an intensive basis and somewhat more rapidly than through a more traditional text like Ansari's. However, the module approach is far more instructive when studied closely. Ansari's historical perspectives, deeper treatment of sub-categories, and textual charts are quite attractive and powerful as learning tools. Both learning modes are effective, but different.

Question 4/

This analysis concentrated almost exclusively on the Bernadis sub-site because of its particular applicability to the Ansari module. However, the other sections were also worthy of viewing on-screen, as I did. Overall, I thought the Quinnepiac site was well-designed, but the styles of the various faculty contributors often clashed with the academic nature of the topic. In my estimation, Dr. Ammons should have standardized the graphics somewhat and insisted on uniformity of format.


1. Defining strategic objectives for a firm is a crucial process which can determine the success or failure of the entire enterprise. The guiding philosophy which underpins the corporate strategic planning process is an integral part, therefore, of determining company growth and expansion patterns. Activity-Based Management (ABM) is internalized; it focuses on how components of the firm's organizational structure interact. The goal of ABM is, of course, smooth operation and cost-efficient worker productivity. Total Quality Management (TQM), on the other hand, is geared to customer satisfaction and high quality levels of performance at all stages of the production process, including administrative efficiency and post-sales servicing. Both of these major theoretical models can be used in conjunction to ensure optimal quality and cost-efficiency, with high customer approval ratings. While they concentrate on ensuring maximal technical excellence, they can also be adjusted to allow for behavioral and cultural variations. Similarly, costs can be managed in accordance with both models, although ABM would seem to be better adapted to most management considerations. TQM emphasizes, on the contrary, high customer satisfaction, almost (it would seem) at any cost. The strategic triangle (cost, quality, time) is positively influenced by properly applying the key concepts of ABM and TQM to the internal and operational phases of production. Adaptation of behavioral priorities -- which are interwoven with the strategic plan -- is a natural outgrowth of both philosophies as conceived by their theorists such as Davenport (ABM) and Deming (TQM).

ABM may be more heavily influenced by cultural factors than TQM where high standards must be emphasized; however, both models are workable, I believe, within a wide range of companies, many of which are now involved in global expansion and relocation.

2. ABM and TQM are not mutually exclusive, in my opinion. They can interact as viable options within a corporation's strategic plan and can be consistent with the cultural and behavioral environment of the firm and its client-base. Some aspects of ABM (e.g. process-related steps or activity analysis) can be used to improve quality and performance, two goals which are compatible with Deming's TQM model. Conversely, TQM's priorities can "feed into" ABM's overall needs and requirements for good internal organization. Surely, emphasis varies within each system, but the company's all-important strategic plan can be served by an eclectic mix of both AMB and TQM. General Electric, as a case in point, used one model (ABM) and moved gradually toward TQM, but without eliminating the best and most useful concepts inherent in ABM.