Activity-based analyses lead to better decision making.

Activity-based costing (ABC) and activity-based management (ABM) are cost-management tools that are relatively new to the healthcare industry. ABC is used for strategic decision making. It assesses the costs associated with specific activities and resources and links those costs to specific internal and external customers of the healthcare enterprise (e.g., patients, service lines, and physician groups) to determine the costs associated with each customer. This cost information then can be adjusted to account for anticipated changes and to predict future costs. ABM, on the other hand, supports operations by focusing on the causes of costs and how costs can be reduced. It assesses cost drivers that directly affect the cost of a product or service, and uses performance measures to evaluate the financial or nonfinancial benefit an activity provides. By identifying each cost driver and assessing the value the element adds to the healthcare enterprise, ABM provides a basis for selecting areas that can be changed to reduce costs.