Good Decisions Require Good Models
Good Decisions Required Good Models
Activity Based Concepts and Decision Making
By: Doug Hicks
In order to understand the real world phenomena around us we create models that make complex realities understandable. To make good decisions, our models must be valid; they must be an accurate representation of the world around us. One model that has proven to be invalid at most twenty-first century organizations is its cost model. By using this invalid model, decision makers are led to make inappropriate decisions and take ineffective actions. Activity-based concepts have been developed to correct the deficiencies in invalid cost models. Activity Based Modeling is a “lens” an organization can use to develop a valid economic cost model that accurately reflects the relationships between the company’s costs, activities, products and customers.
Armed with a valid cost model that provides accurate product, service, process, and incremental cost information, decision makers can improve the quality of their decisions and lead their organizations into a more successful future making.