Profitability and Cost Management Solution for Hospitals

Do you have good Hospital Management system?

Does the system have Cost centre accounting? Do you use the functionality?

Does it have integrated Stores Management system?

Do you get the profitability information at the Speciality unit level? (For Example: Paediatrics, Cardiology, Orthopaedics etc.)

Possible scenario – Most of the major hospitals use one or the Hospital Management System (an ERP for Hospitals). This includes the expense management as well as used for billing the patient as per the services utilized. Though this system has a facility to define various cost centres, the users may not use the facility and cannot collect the expenses as per various cost canters. If this cost centre accounting is not done, then

·         The basic and high level profitability at the Speciality units (For Example: Paediatrics, Cardiology, Orthopaedics etc.) is not available

·         The cost of general shared services like HR, Admin etc. or operational shared service like Laundry, Equipment maintenance are allocated like ‘peanut butter spread’

·         It is highly impossible to get the Procedure level cost or patient level costs

·         The cost of items provided for procedures like valves, stents etc. or consumables to various specialities cannot be allocated

Do you know, how the services like HR, Administration, IT, Laundry, Maintenance etc. are consumed by others?

Possible Scenario – As the Activity Based Costing (ABC) methodology is not adopted by the Hospital it is not possible for them to get information on this. The ABC methodology would provide them the information on

·         What are the different services provided by the shared service departments

·         What is the cost of each service?

·         Can the non-core and high value service be outsourced?

Do you know the cost of Procedures within each speciality area?

Possible Scenario – The hospital may be calculating those costs at a very high level by collecting in the information of the cost that is directly attributable to the procedure like specialist fees, external services hired, consumables etc. This may not the total cost of the procedure as all other indirect cost are not known or cannot be allocated accurately.

The ABC methodology can calculate the cost of each procedure based on the activities performed by the speciality department or any other shared services. This would lead to accurate information of procedures and find the profitability of the procedures. If there are multiple hospitals in a group

then the cost of procedures can be compared across various hospitals and the reasons for the differences can be identified. It can also lead to the understanding of the ‘non-value added’ activities in the procedures and can be eliminated to improve profitability.

Do you know the profitability by patient?

Possible scenarios - The hospital may know the services provided to each patient and at the end, billing done by each service. The hospital may not know the cost of each service and hence, what is the profitability by each patient. The ABC methodology provides the cost of each service loaded with the shared service cost which in turn provides accurate information on patient level profitability. Though for hospitals the patient may not repeat this information of patient level profitability can be used by groping the patients by their demographic information available like age, disease, procedures provided, life-stage, income group etc. This profiling would help the hospital to find which patient segments are profitable across which speciality areas and then try acquire them preferentially.

Do you know the utilization of various speciality areas?

Can you plan your resource requirement for the future?

Possible scenario – The hospital has to invest heavily in the infrastructure to provide various special services to the patients. Not all the service areas are utilized completely. The hospital may know the capacity of the speciality area at a very high level and the utilization also would be known at a gross level. ABC methodology can possibly define the capacity of the infrastructure at a detail level. The same can help the hospital to predict the resource requirement in future based on the expected demand for various speciality areas.

Do you know the cost of acquiring a patient using multiple channels?

 Possible scenario – The hospital may be using various channels to acquire the patients. Those could be

a) Hospital OPD (Outpatient department)

b) Referrals

c) Direct (Generally called ‘walk-in’, but may not be the same case hereJ)

·         Accident

·         Criminal

The cost of acquisition for those patients may not be known to hospital, except for the direct services charged paid.

The ABC methodology can provide the cost of running those channels as well as total cost for acquiring a patient using this channel. Like cost of acquisition, there may be a possibility the cost of closure (payment and discharge activities) different for the patients acquired. The same can be identified and used for providing the direct or indirect benefits to the channel partners.

Integrated thinking for Enterprise Performance Management (EPM)

The simplest definition of ‘Performance Management’ I have learnt from Gary Cokins (An internationally recognized expert, speaker, and author in performance improvement systems and advanced cost management) is ‘how am I doing, on what is important?” This has got two components: 1) What is important 2) how am I doing. Both are important, but the one has to track the progress on the important issues.

The next point is ‘Enterprise’. The term enterprise here means, it is enterprise wide. It is not only for few departments or set of people, but for each department. It also means that it is the performance of the enterprise, so the overall effect should be better for the enterprise. In this some of the departments may have compromise their targets/performance.

The third important part is ‘Integrated’. This means the various components of EPM are working with each other to improve the performance of the enterprise. Those components could be many, but for our discussion, we will talk about Strategy Management, Integrated Budgeting and Planning, Profitability and Cost Management, Risk Management and Compliance. All those components/concepts should give and take the information from each other.

For all this integrated thinking about value creation in companies is the starting point. Let us see how each component add value and how they are integrated with each other as a concept.

Strategy definition (BSC way)

Once we have laid down the definition, the next step is start walking on the path. The first step is define ‘What is important?” This in other words defining the strategy for the enterprise. This could be based on the methodology of Balanced Scorecard (BSC). In BSC the enterprise defines its Strategic Objectives, Strategic themes, KPIs and Improvement initiatives. As the EPM can be defined as ‘Doing right things and doing things right’. The BSC defines the ‘Doing right things’. The Strategic objectives and KPIs gives the enterprise targets for their department’s performance and alignments also. The initiatives also help the enterprise to decide its investments. This becomes the guideline for other components.

Budgeting and Planning

Once the KPIs and their targets are finalized, the can be flown down to manage customer on one side through the Sales function and the demand side. On the other side suppliers are managed through the operations to manage the supply side. Third angle of the expenses and the fourth one for the Product/service development. The balance has to be managed to get the integrated planning and budgeting based on that. The initiatives flowing from the BSC, will provide the investment budgets. The process will provide the manpower requirements. This information will create the Sales, Expenses, Investments and manpower budgets for the current period. The same has to hand-in-hand with the forecast. This forecast integrates the external environment with the internal strategic initiatives. Based on the current budgets and the vision of the enterprise, the long term planning for 3 years and for 10 years can be extrapolated.  The comparison between the Actual and the Budgeted figures will keep the enterprise on its tows to achieve their performance. The accuracy of the forecast plays a major role here.

Profitability and Cost Management

This is important for every enterprise, whether ‘for profit’ or ‘not for profit’. The BSC gives the targets for the revenue and profits to be achieved. The Sales plan and initiatives gives the information about the what to sale, whom to sale, where to sale, how to sale, how much to sale, at what price to sale. The same has to be plotted into the processes of the enterprise. The shared service departments providing services to the Product, Customer and Channel facing departments. Ultimately the demand is fulfilled passing across the value chain. This entire process creates not only the value add but the addition of costs also. This has to be traced with a ‘Cause-and-effect’ methodology.  This method helps to find the drivers for the cost and the action on improving the cost drivers improves the financial performance of the enterprise.

The budgeted expenses, planned methods provides the information on the expected profitability of the enterprise. This information feedback to the BSC is useful to get information on the profitability targets before the enterprise puts the strategy into action. This feedback is also helpful to change the initiatives that are not working as planned. 

Risk Management

One of the simple definitions of ‘Risk Appetite’ is how much one is ready to spend to achieve the planned benefit. Here the spending is real but the benefit could still be planned, which may or may not be realised. More the information available for various types of risks, more realistic would be the mitigation plan. This helps in deciding the strategic objectives of the BSC. It also helps to define initiatives and in turn the budgets.

Compliance

This is important for any enterprise and the compliance could be internal or external (Statutory). Internal compliance could be for various initiatives with their actions to be performed, the investments to be made, products/services to be launched, reports to be prepared etc. External/statutory compliance could be of the form of financial data to be published, taxes to be paid, quota to be fulfilled etc.

 Reporting

In all those components, the information has to be shared with the right person in right time with right quality and right format. This information can be in various formats for various stakeholders in the enterprise. It also has various forms of visualization and modes of delivery. The reports keep the people aware of their performance, the causes, the trends and of the future of the enterprise. The right design of the reports, their granularity helps the enterprise ‘why’ it is going wrong and ‘where’ it is going wrong. This information provides an action ‘on the platter’ to the enterprise.

Finally….

The technology vendor started with the individual solutions which got acquired by the big players and they formed an ‘EPM suit’ of the products. This EPM suit had some integration of data among themselves. But there are few smaller players providing not a suite but a ‘financial platform’ which is fully integrated set of solutions under the EPM arena. As the product vendors are thinking the users also have to think of those areas in an ‘integrated’ fashion. When the users will understand the business linkage among those areas and use it for their advantage to improve the performance of the organization, it will be a definite value creation in the organization.

Cause and Effect Profitability Management Solution

Yes, I have not written for a while, but one question was disturbing me for quite a long time now. Especially after looking at few software solutions for Activity Based Costing. Some of them are now called Profitability and Cost Management solution. The question is, do we need to have structural compartments (aka Modules) like ‘resource’, ‘activity’ and ‘cost objects’ in those solutions? I understand that all those solutions have been designed quite a few years back and they are mostly based on the CAM-I cross.

 

The CAM-I cross told us that the vertical flow is the cost flow and it flows from resources to activities to cost objects. Cost objects are the final destination points for which we calculate costs for. As such the Activity Based Costing requires three phases as resources, activities and cost objects. All the software solutions based on this concept created in there solutions three modules as the same. Also the diagram also shows that the cost flows from resource to activity and activity to cost objects. Again the solutions had assignments that can have cost flow like resource-activity, activity-cost object or resource-cost object. Some of the solutions have resource-resource, activity-activity or cost object-cost object assignment (intra-module) facility. Almost none (actually I wanted to write ‘none’ here, but I cannot claim that I have seen all the solutions) of the solutions have cost assignment possible (directly) from activity-resource or cost object-activity or cost object-resource. Where ever it is possible, one has to create some work around to handle this.

I certainly do not want to say all this is bad. But it was based on the concepts and methodologies adopted at that time. It is more than 20 years that the concept has been around. We have seen many changes in the Body of knowledge, implementation methods, uses and software solutions in those years. Few things still remain as they were earlier like

1)      The solutions are having resource, activity and cost object as structural divisions.

2)      The follow up of this is, assignment are not possible in the reverse order (as direct functionality)

Scenario

Let us take one example of distributing the cost of ‘shared service functions’. These functions like HR, Admin or IT provide services all other functions in the organization. To distribute their cost based on the ‘cause-and-effect’ relationship, we create following steps

a)      Define the services provided by those function. For example recruit people, manage hotel booking, manage software solutions.

b)      Calculate the cost of each of these services

c)       Assign cost of those services based on the volume of the services consumed by each of the other functions

d)      This cost is as good as the other expenses (like employee cost, travel cost etc.) of the functions

This scenario cannot be created as it is defined here as a direct functionality.

Some of the software solutions where one can create intra module assignments, here is one of the ways

i)                    Enter cost of the shared services in the resource section

ii)                   Define the services of the shares service function in the resource section. Actually they are processes or activities.

iii)                 Calculate the unit cost of services. Resource-resource assignment.

iv)                 Assign those services cost to other functions resource-resource assignment

Some solution that do not have resource-resource assignment facility, but activity-activity assignment facility

i)                    Enter cost of shared service function in resource section

ii)                   Define services of shared service function in Activity section.

iii)                 Calculate the cost of the services

iv)                 Assign those services to the activities of other function that are consuming those services. Activity-activity assignment

Similarly the cost of Procurement department has to be calculated as vendor wise-material wise and then takes as additional cost of the material. This scenario will also require a big juggling in creating the model in the solutions.

The absence of the other functionality that of flowing cost in the reverse way i.e. cost-object-activity, activity-resource (as a direct functionality) is creating a challenge. This is especially when one has to create the ‘bottom-up’ model or Activity Based Budgeting/Planning (ABB/P) model.

Activity based costing is based on the concept of ‘cause-and-effect’ relationship. As such there should not be any restriction on what is a source and destination. Actually I am suggesting that there should not be a rigid concept of ‘resource-activity-cost object’. All these sections should be logical. User should be able to create as many sections as she wants and call them whatever she wants to. Once this restriction goes then we call the solution as ‘Cause and Effect Profitability Management Solution’.

This type solution can be used for single level assignment of costs or multilevel assignment (2, 3 or even more). One need not worry about the concept of whether it is resource or activity or cost object. Just select ‘source’ and ‘destination’, link them, add driver and driver quantities and calculate.

I have called this solution as Profitability Management solution (not only cost) purposely. Profit is a function of Revenue and Cost. Most of the solutions are built upon the concept of cost assignment. What I mean is, those solutions allow us to create a flow of cost. Revenue is directly entered against product-customer-channel combination and profitability is calculated. This was based on the concept that is related to manufacturing industry In the Telecom industry the revenue is bundled for many services that are used by the consumer it is very difficult to create a profitability scenario. A lot of free services (completely or partially) are also included. There is also volume based revenue for certain services. If we try to use the usual functionality of the software solutions, it is very difficult to create this scenario. So the solutions should have the functionality of calculating multiple measures (cost, revenue, discount etc.) based on ‘cause-and-effect’ relationship to calculate profitability at the end.

The flow of measures is based on ‘cause-and-effect’ and it contains the functionality to flow the information for all the measures that contribute to Profit. Hence the solution should be ‘Cause and Effect Profitability Management Solution’

The benefits this type of solution is full flexibility of modeling for profitability. It could be single level or multi-level. We can calculate standard costs (multi-level calculation) and then compare with actual. More than the usual variances of quantity, rate, mix etc. can be available. We will be able to use the same solution for Revenue planning and it can become a real Profitability Management solution as it can plan and get actuals to analyze the variances in Revenue, cost and hence, profit.

Please provide your comments or suggestions on this concept of the solution. I have not seen all the software solutions in their current forms, so some of the functionalities may be already available. Is there a solution already in the market which can be called as ‘Cause and Effect Profitability Solution’?

Activity Based Management (ABM) and Enterprise Performance Management (EPM)

Now a day one can hear about the term Enterprise Performance Management (EPM) a lot of times in different ways. It also termed in different ways like CPM, EPM, PM etc. Sometimes it is also used interchangeably with the individual performance and organizational performance. There are various definitions also for EPM. I personally like the definition by Gary Cokins, which mentions that Performance Management is the process of managing the execution of an organization’s strategy. It integrates the business improvement methodologies with technology. So it is neither the methodologies only nor the technology in isolation.

As I have mentioned in my earlier posts, Activity Based Management (ABM) is the way to manage your business by managing the activities to provide improved value to the customer or organizational performance. After these definitions, we will try to see how these two things go together in different ways as concepts, execution and technology.

I personally believe that the EPM starts with the definition of the strategy. This is because if you do not know where you want to go, any way is a good way. Let us have a look at the following figure:

Defining the strategy for your organization, preparing business plan according to the strategy and then measuring the performance and analyzing the variances with reasons to modify the internal processes or strategy is a cyclic process. ABM fits into the ‘Measure and Analyze’ part of the cycle. Here the ABM model based on the business plan can provide the information on the resource requirement in the future as well measure the actual performance. Once you analyze the actual performance against the planned one, the same can be analyzed using various techniques like root cause analysis, continuous improvement etc. The analysis will tell whether one has to manage the processes to improve the customer value or organizational performance.

The performance management is also seen as the operational performance management or strategic performance management, as it is mentioned in the earlier part.

 

Operational performance management is looking at the processes to improve organizational performance and strategic performance management is looking at the processes to improve the value to the customer. The ABM model can be designed to manage the performance at both the levels. It can also be used for some tactical purposes as managing a customer segment or a product group etc.

Looking at all those things the tool vendors have combined their software solutions into one group as Enterprise Performance Management (EPM) suite. This suite generally includes the solutions for Strategy Management, Business Planning and Profitability & Cost Management. They project and try to sell these solutions as a suite. I have got the following figure from some document that I am not able remember, so please acknowledge the efforts of the person who has created it (if somebody knows it pl let me know, so that I can put the name in the acknowledgement).

In a very simple way, we will try to understand this diagram. It shows three differnet parts. Analytical toos as in the technological part that help us to alanyze the results. One may argue as to reporting is not exactly same as analytics. The second part is the analytical appliactions which are actually the software solutions based on the various business improvement methodologies. The third part is supporting tools ahich ehlp us to integrate the data and perform the administrative part for those solutions. All these solutions work on the same data mart or warehouse so as to provide one view of the data and these solutions use and provide data to the othersolutions through this data mart or warehouse.

If we see the Strategy Management methodology creates a strategy map, the Key Performance Indicators (KPIs) and corresponding action plans. Based on the strategic plan the budgeting and planning solution can create the business plan. It can also use the Profitability management solution (ABM) to create a driver based planning. ABM can also provide the actual values for various KPIs defined. The Activity analysis using the cost drivers and performance measures can provide information the performance of the organization vis-à-vis the planned one.

As we saw ABM fits into Enterprise Performance Management (EPM), conceptually as well as technologically and helps the organization to manage the performance at the strategic level as well as operational level (including the tactical one).

Should an organization use Activity Based Costing (ABC) when it is already making profits?

It is a common notion that an organization should seriously look at the costs when it is in a serious trouble. This trouble could be that they are making losses or a competitor has come with a similar product with lower price or a possibility of losing an order because of pricing. Cost is also seen as something that has to be reduced in any case. Generally because of this an organization is serious about understanding costs only when it seems to be making losses.

I have also mentioned in my earlier postings that when somebody talks about costing it is about the Product Costing. The management accountants have been trained professionally to take each and every unit of expense to the product. This is not true with any kind of business. There are some costs that caused by the products/services, some are caused by customers, some are caused by running the business and not related to any product or customer are some caused by the installed capacity. One should be able to segregate costs in the according these causes and relate them to the profit/loss the organization is making.

Activity Based Costing (ABC) has a word ‘Costing’ in it, so the same question arises for its use in the organization. ABC is based on the concept of ‘cause-and-effect’; hence it separates the costs that related product, customer, business and unutilized capacity. Even within the product and customer related costs, they are apportioned based on the consumption. With this calculation the organization can understand the costs related to the products, customers, channels etc. and take proper decisions based on the information.

To explain this, let us see the following diagram. This diagram shows the relationship between cost of products with traditional costing and ABC.

The horizontal dotted line in the diagram represents the cost of products according to the traditional way of costing and the ‘S’ curves represents the cost of products using ABC. It is generally seen that few products are grossly ‘overcosted’ and more than that products are grossly ‘undercosted’. The products that are overcosted have more cost up to 50% and the products that are undercosted have costs less up to 500%. The primary reason for this incorrect cost calculation is that generally the overheads are taken based on the volume produced. The complexity of product is not considered. It is seen that the change in the overheads of the organization is related to the additional complexity of the business. This complexity could be added due to more products, more customers, more channels etc. It can also be introduced due to the complexity of the product features. This is complexity is generalized in the traditional costing and the same is converted into a logic for apportioning the overheads in ABC. It is generally seen after the ABC modeling that the organization is almost shocked after looking at the results. This is due to the fact that the products those were ‘dear ones’ earlier start looking loss making and vice-a-versa.

We will see another diagram, which is called with different names like profit cliff, whale diagram, profit umbrella etc. This diagram depicts the products or customers on the horizontal axis and the cumulative profit percentage on the vertical axis. This diagram can be plotted for products as well as customers. The following diagram is taken from one of the book written by Gary Cokins, who is an internationally known expert on Performance Management.

In this diagram the horizontal axis represents the products and the vertical axis represents the cumulative profit in USD millions. The current profit shown in the financial records is $ 2 mn. If we start analyzing the diagram, we can see that the same $ 2 mn is achieved by first 13% of the products. So from the products that are making most of the profits top 13% give you the current profit of $ 2mn. The story does not end there. The top 65% of the product by profitability provide the organization a profit of $ 8 mn (400% of current 4 2mn). Then there are some products are neither profit making nor loss making. And almost 15% of the products which are actually making loss, bring the profits from $ 8 mn back $ 2 mn.

So on the face of it the organization is making a profit of $ 2 mn. It may be also happy with that profit, but then it is not realizing that the potential of the organization is $ 8 mn and not mere $ 2 mn. With the use of ABC and then plotting this graph the organization can realize its potential. It can also understand the loss in profit it is making. More important that this, it will also understand which products are bringing the profit and which are taking away. A similar diagram for customer profitability shows which customers are profitable and which are taking away the profits.

This is where the ABC that is the costing part ends and Activity Based Management (ABM) starts. In ABM the organization looks at the costs analyzes them and takes proper action on the same. For the organization uses various techniques like root cause analysis, benchmarking, cost driver analysis etc. to understand the reason behind the profits or losses. So we not only understand ‘who/which’ are making profit and loss but also ‘why’ they are. Based on this information the organization can take series of actions so that it can optimize the profits by selling its best products to the best customers. It can also take actions to promote the loss making products/customers to profit making.

With these actions the organization can reach as near to its potential profit as it can. But the first and foremost understanding the organization must have is its profit potential. This potential is brought forward by using the ABC methodology. So even if know you are making profits and you are happy with the number, think again is that the real profit potential of your organization?

Strategic ABM (Activity Based Management) and Operational ABM

We will start with definition of Activity Based Costing (ABC). According to the CAM-I (www.cam-i.org) the definition of ABC is ‘method of costing products through costing the activities’. In ABC we calculate the cost of activities firs and then the cost of products. This does not mean we can calculate cost of products only. It is based on the concept ‘cause-and-effect’. The cost objects (products, customers etc.) consume activities. This means we perform activities for products, customers etc. The activities consume resources i.e. the resources (people, facilities, expenses etc) are utilized to perform the activities. Based on this logic the cost are flown to the products, customer etc. Generally the costs are can be grouped into product related, customer related, unused capacity and the rest are ‘business sustaining costs’.

Activity Based Management (ABM) is a methodology to manage your business. It is like various management techniques that have emerged over a period of time like Management by Objectives (MBO), Management by Exceptions (MBE) etc. Let us see the definition of ABM: it is the method to manage your business with managing your activities to improve operational excellence (internal) or value provided to the customer (external). ABM is calculation of costs with the ABC method then analyze the data and take action on it to improve your business performance.

ABM can be used to understand and improve the performance at all the levels in the organization. It can be used to take decisions about the products, customers etc (Strategic use). It can also be used by a head of the department to manage her portfolio of products or customers (tactical use) or to improve certain processes (operation use). Based on these uses few people have segregated it as ‘Strategic ABM’ and ‘Operational ABM’.

Strategic ABM – ABM can be used for the purpose of taking strategic decisions like adding or retiring products, acquisition or retentions of customers etc. These decisions are based on the profitability information calculated using ABC method. This information is historical information of profitability. This historical information coupled with the future trends, competition etc can help the organization to take the decisions. In other words it is ‘doing the right things’.

The ideal way of performing for an organization is to sell best of their products to best customers. For this the organization has to understand which their best products are and who their best customers are. ABC helps the organization to find their best products and customers as per the profitability. Once the organization has to find out the profitability, it can then group them into deciles (make 10 groups according to their profitability numbers). Each of deciles can be analyzed for products and customers as to what are the reasons for those to fall into that category. Then various action plans can be taken to move them from lowest of the deciles to the highest. As I said this is a historical data of profitability, one has to look for the potential future trends and couple them with current (and historic) data to take the strategic decisions.

ABM models for Strategic ABM are at a comparatively gross level. The activities are defined at almost a process level. Now a day we can calculate the profitability of the products even at SKU (stock keeping unit) level, in the hierarchy LOB-Product Group-Product-SKU. We can also calculate the profitability at account level in banks, subscription level in telecom. This can be grouped at the customer level, household level or other customer segments.

Operational ABM – In this case the use of ABC information is for improving the performance of various operations (processes) in the organization. The process is nothing bust various activities performed in a sequence by one or more functions in the organization. In this case various activities are tagged as ‘value add- non value add’ or ‘core, discretionary or sustaining’ and based on the analysis the activities are eliminated. Here I remember a methodology explained by Gary Cokins as:

a) See if the activity is required by the customer (internal or external). If the activity is not required then eliminate the activity

b) For the rest of the activities see if you reduce the recurrence of the activity. That means see if you can reduce how many times you have to perform the activity

c) Once this is done go one level down i.e. at the task level and repeat the steps mentioned above.

The activity costs can be analyzed by finding their ‘cost drivers’. Cost drivers are the causes of costs for the activity and typically ‘unit cost’ of the activity. For example;

When one wants to improve the cost of an activity, one has to work on those cost drivers. Once we analyze and take action plan to improve on those cost drivers we can measure the performance of the activity. Performance can be measured by at least three ways 1) productivity 2) cycle time 3) quality. This actually forms the horizontal view of the CAM- cross which is also called as ‘Process View’.

Sometimes the cost driver is used interchangeably with the resource driver and activity driver. The resource and activity drivers are nothing but the logic with which the costs are taken from resources to activities and from activities to cost objects.

ABM models for operational purpose are more detailed in the ‘Activity’ section. Here the level is taken to tasks. Most of the times these models can be created for each process separately. If you try to model everything in one then it may create implementation and maintenance issues for the model.

I have seen some of the consultants that do not use any software solution for modeling; it is very difficult for them to calculate the product, customer profitability in detail. They use the information of activity costs to improve the performance of the processes. So the ‘Strategic ABM’ and ‘Operational ABM’ are not altogether new concepts of ABM, but it is just what the concept is used for.