Good self-knowledge enables us to have a well- reasoned adaptation to our environment. Starting from this precept based on simple common sense, activity and cost analysis, when applied to medical departments in a university hospital setting, represents a necessary phase in their scientific progression and in the continuation of their university vocation. This is all the more true given the present climate of economic and organizational restructuring of medical facilities. This paper relates the experience of a French surgical pathology department which was assessed for cost effectiveness using the Activity-Based Costing (ABC) method in 1999. This method, which originated in the business world and of which the general concepts are presented here, has given us a keener understanding of the diverse processes involved, their costs and how these costs are arrived at. Moreover, this method has identified the proportion of costs imputable to diagnostic work and of those linked to work specific to a university hospital, in particular teaching and research and development. The results can then be used for a clearer analysis of the figures required by prescribers and health care funding agencies, and, within the department, to enhance perception of work carried out by the entire staff in order to initiate a new type of management centered on activity (Activity-Based Management). Adaptable to any medical department, whatever its organizational structure, independent of the significance of any given code letter and regardless of the rating method used to grade activities, the ABC method also allows for comparisons between structures of a similar nature. The thoughts it inspires on economic performance must take into account the rules of good medical practice, the imperatives of quality assurance, the need for "breathing space" which are indispensable to research and a humanist conception of working relations.