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.