Introduction

Activity-based Costing (ABC) was first presented by Professor Kaplan and Cooper of Harford University. Prof. Wu localized ABC and offer customized design to enterprises for implementation. With over 34 years of theory innovation and more than 30 years of practice of management accounting techniques, Professor Wu concluded that only by integrating cost and profit management with other management systems, ERP, SOP, TQM and MES for example, can one bring the greatest value to enterprises. Therefore, Prof. Wu developed a well-structured integrated system called Activity Value Management (AVM), shown as following.

AVM included four modules; each is innovative and able to solve practical problems. For example, module one can solve the problem of the usage of controllable and uncontrollable resources. Module two: activity center clearly define who the activity executor is, either human beings or machines. The major activity here is to know the normal capacity of the activity executor and to solve standard cost calculation problems. Module three: detail activity is to understand each activity’s actual capacity and to solve the problems of actual cost calculation as well as foresee if any excess or idle capacity. Module four is called value-object module instead of cost-object module. Since AVM is used for value management, the activity drivers of module four also include services in order to solve the issues of activity value management for service industry. Value objects had include three important but often been ignored costs, which are implicit cost, capital cost and the cost of risk. With the assistant of AVM enterprises can not only calculate the accurate cost and profit of value objects such as products, customers, channels and employees, but also combine with other important information like quality, capacity, added-value and customer services for management decision making; therefore enable enterprises to allocate resources effectively on valuable decisions. AVM use “activity” as cell and established solid foundation for enterprises, thus bring great benefits.

Figure: The Four Modules of AVM

AVM had acquired Taiwan’s trademark in 2017 and its application is currently under examination for America and China’s trademarks. AVM can not only accurately calculate cost and profit of value objects (products, customers, channels, and employees, etc), but also combine vital management strategic information such as quality, production capacity, added value, and customer services with each other and provide related information on “cause” and “effect” as the significant accordance for different managements’ decision making. Activity Value Management (AVM) uses activity as the cell to compose a stable infrastructure for enterprises. Thus, it brings certain benefit to the industry.

The six innovations of AVM are illustrated as follow:

Innovation NO.1

Corporate mission, vision, value, strategy and BSC (Balanced Scorecard) should be discussed first to form strategic management thesis before starting to design and implement AVM.

Innovation NO.2

The purpose of AVM resources module is for managers to not only understand the resource usage of activity center, but also can know the P&L of each activity center. Besides, it can help managers further analyze the usage of controllable and uncontrollable resource within the activity center. Chair Prof. Wu classifies controllable resources into activity center self-use resources, value object resource, and cost of internal services. Besides, uncontrollable resources can be categorized into management activity center and support activity center, etc. for cost allocation. These two items are shift allocation cost.

Innovation NO.3

During the research of AVM system, Chair Prof. Wu innovativly developed four major features through “activity” as cell, including attributes (quality, production capacity, added value, and customer services) and causes, in order to understand the relationship of cause and effect of time, quality, and production capacity between costs of different activity centers. By integrating all the information and performing integrated management enable manager to solve problems with separation or conflict information, such as cost, quality, time and production capacity.

Innovation NO.4

In 2011, we began to develop AVM's IT software with InfoFab Information Co., Ltd. This IT software system consists of four modules: resources, activity center, activities and value objects. The AVM software system is publicly available in 2016, including the education version, the SME version, and the large enterprise version.

Innovation NO.5

Since each field has different definitions of cost, to solve the problem, Chair Prof. Wu distinguish costs into “product cost”, “customer service cost”, and “entire value chain cost.” In addition to the fact that AVM can rapidly calculate “product cost,” Chair Prof. Wu uses service driver to calculate “customer service cost.” And to add up product cost and customer service cost equals to “entire value chain cost.”

Innovation NO.6

Generally speaking, the “cause” information of business management (including time, quality and production capacity) comes from different systems; for example, quality information is from the “quality management system” when the “effect” information such as income, cost, and profit comes from financial statements. The cells (activities) of these two kinds of information are different. The cells of the financial statements are “subjects”, and the cells of the “cause information” are “activities”. These two kinds of information are always separated, thus it’s hard for managers to take both “cause” and “effect” into consideration when making decisions, which leads to difficulties for management decision making.