Activity Analysis

Article byJyotsna Suthar
Edited byRaisa Ali
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Activity Analysis?

Activity analysis is a detailed process that identifies and quantifies the number of activities within a process, group, or organization. Its primary purpose is to analyze the resources utilized in each step of a process and how they are allocated.

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Activity demands cover the basic requirements of an activity, like physical, cognitive, or social demands. Take for instance, designing a product (cognitive demand) or physically producing it. The performance concept helps match skills with activities, and employee experience acts as a client factor. Environmental factors also influence the process.

Key Takeaways

  • Activity analysis is a concept of occupational theory focusing on multiple activities involved in a process.  
  • Key concepts involved in it include activity demand, performance concepts, client factors, and environment.
  • The process involves defining the purpose, selecting the activity, understanding and analyzing each step, and identifying loopholes with subsequent solutions.
  • In contrast to task analysis, which breaks down a larger activity into smaller parts, activity analysis provides insights into multiple activities within a process. Task analysis focuses on aiding users in completing specific tasks derived from the larger activity.

Activity Analysis In An Organization Explained

Activity analysis acts as a tool to identify all the elements constituting the entire process, considering the varying roles and approaches within a hierarchical structure. It is integral to understanding the diverse activities within a process. Foundational concepts in occupational theory, such as activity demands, performance concepts, client factors, and the environment, play crucial roles.

The concept of activity analysis traces back to the early 1900s in occupational theory and gained popularity in the 1970s. During the First World War, it was also a part of job analysis techniques to treat the soldiers. In short, both occupational and activity analysis turned out to be an effective measure.

The utilization of activity analysis extends to costing, enabling firms to analyze different processes within a single procedure. For instance, in cheese-making, various activities involve different resources, each contributing significantly to the overall process. This analytical approach is particularly useful in activity-based costing (ABC).

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How To Conduct?

Following are the eight steps on how to conduct activity analysis in an organization. Let us look at them:

  1. Define the Purpose: Identify the goal for conducting the analysis, such as process optimization or automation.
  2. Select the Activity: Choose a specific process for analysis, considering areas like car manufacturing, customer service, or distribution.
  3. Identify Core Steps: Break down the selected activity into smaller components by observing tasks, interviewing employees, or referring to procedural documents.
  4. Note Down Details: Record the entire procedure, including activity descriptions, resources used, and time taken for each step.
  5. Analyze Each Activity: Evaluate each activity in detail, looking for inefficiencies, gaps, and areas for improvement.

Other Ways

In addition to the above steps, there are other stages too. Let us look at them:

  1. Provide Scope for Improvement: Create space for improvement and suggest solutions, such as automation or resource rearrangement.
  2. Develop a Plan: Formulate an action plan with detailed instructions based on identified improvements.
  3. Implement and Monitor: Implement the action plan, monitor daily progress, and make necessary adjustments for ongoing effectiveness.

Examples

Let us look at some examples of activity analysis:

Example #1

Suppose Kossil Ltd, a car manufacturing company with 15 years of industry presence, faced a challenge: a significant increase in the time required for car production. While the standard production time ranged from 10 to 30 hours, it had spiked to 50 hours recently. This raised concerns, especially as competitors were more time-efficient. Supervisor George decided to conduct an activity analysis to pinpoint the root causes.

George created an activity analysis form, documenting each step of the production process and the resources involved. Through this analysis, he discovered inefficiencies in the painting and welding activities. The absence of proper oversight in these processes contributed to the prolonged production time. George appointed junior supervisors John and Steve to monitor and improve these specific activities as a solution.

The production time dramatically decreased within a month from 50 to 20 hours. The targeted improvements, guided by the findings of the analysis, not only streamlined the production process but also significantly enhanced the company’s overall performance, reflected in positive annual results. This example underscores how activity analysis can identify specific bottlenecks and lead to effective solutions in business operations.

Example #2

A small business owner decides to analyze their monthly expenses. Using activity analysis, they break down costs into activities like purchasing, marketing, and administrative tasks. Upon analysis, they discover that marketing expenses have increased disproportionately. Digging deeper, they identify specific campaigns consuming more resources than others. Adjusting the marketing strategy, reallocating resources, and focusing on more cost-effective campaigns lead to improved financial efficiency.

Importance

Let’s examine key aspects underscoring the importance of activity analysis:

  1. Better Understanding of the Process: The analysis technique provides crucial insights into the process, allowing firms to delve deeper and gain a comprehensive understanding. It facilitates the analysis of relationships between activities, enhancing overall process comprehension.
  2. Determining Resources and Allocation: This method aids in identifying the resources required for each activity. It offers valuable insights into workforce needs and resource allocation, ensuring efficient utilization.
  3. Cost Allocation for Each Activity: It proves beneficial in estimating costs for individual activities. Each step holds varying significance, leading to different resource allocations and associated costs.
  4. Detecting Loopholes or Gaps: By scrutinizing the process, analysis helps uncover potential bottlenecks or gaps. Identifying such issues is crucial, as they can significantly impact company performance. The analysis facilitates the implementation of effective solutions.
  5. Better Strategic Insights: This analysis method is pivotal in providing business strategic insights. Firms can pinpoint major growth drivers with a comprehensive understanding of conducted activities. This knowledge enables the development of more effective business strategies, focusing on segments that require attention and improvement.

Activity Analysis vs Task Analysis

The main differences between the two are as follows:

Properties Activity AnalysisTask Analysis
MeaningIt refers to the process of identifying the steps involved in a process or organization.Task analysis refers to chunking down a big task into the sub-tasks and understanding them.
PurposeTo understand the list of activities included and find solutions to any loopholes.It aims to help users complete their tasks and achieve their respective goals.
ApplicationIt is used in financial management, organizational management, and activity-based costing.This analysis is useful in the workplace and departments that require task completion at the initial level.
ConceptIt provides a broad and holistic view.It is a selective approach towards individual tasks.

Frequently Asked Questions (FAQs)

1. What are the limitations of activity analysis?

Activity analysis has limitations, such as potential subjectivity in task selection and interpretation. It may not fully capture the individual’s perspective or consider cultural variations. Additionally, it may not adequately address the dynamic and evolving nature of activities and environments.

2. What are the applications of activity analysis in accounting?

Activity analysis in accounting, notably in Activity-Based Costing (ABC), finds applications in cost allocation, resource optimization, and performance measurement. It aids in setting accurate product/service prices, identifying process inefficiencies for improvement, and informing budgeting and planning. The detailed insights into activity-based costs also support profitability analysis and strategic decision-making. Overall, it enhances precision in cost information, enabling organizations to make informed and strategic financial decisions.

3. What is the difference between activity analysis and occupation-based analysis?

Activity analysis breaks down activities into components, emphasizing the tasks involved. Occupation-based analysis considers broader aspects, incorporating an individual’s roles, habits, and routines. While activity analysis is a component, occupation-based analysis provides a more comprehensive understanding of an individual’s engagement in daily life.

This has been a guide to what is Activity Analysis. Here, we explain its examples, comparison with task analysis, importance, and how to conduct it. You can learn more about financing from the following articles –

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