"Activity Based Costing" (ABC) and "Activity Based Management" (ABM) are two leading-edge management tools designed to improve cost control and operational effectiveness. First coined by Peter Drucker, a respected management guru, it is revolutionizing how we collect, manage and use information. According to Drucker, ABC will dramatically change how we use computers!
In a nutshell, ABC tracks costs, improves efficiency and provides decision makers with solid information. Whenever someone does something and perhaps uses equipment or inventory, all the costs associated with that activity are captured. Usually, one entry in a common control module captures the elements associated with an activity (such as: fix a truck or fix a pothole). This single entry integrates with various database tables to manage information more effectively. For example, using ABC principles, a manager can evaluate costs and response times for pothole repair on the northside of town in the last six months that were the results of a user or taxpayer complaint.
ABM is an extension of ABC. Where ABC tracks costs, ABM tracks operations. The same entry that tracked job costs for people, equipment and inventory also manages various resources. If we use a truck for two hours, ABC tracks equipment costs and ABM tracks equipment usage, updating maintenance schedules and other management key indicators. ABM promotes "pro-active" management. It improves department responsiveness and customer satisfaction. It warns managers of mission-essential issues and helps managers and decision-makers make important decisions based on sound, valid information.
ABC has been the standard in industry for years, but it just being introduced to government. Typically, government didn't worry about the "bottom-line". If they needed more money, they just raised taxes. But, a few years ago, the taxpayer said NO to new taxes and government was forced to re-examine (or re-engineer?) itself.
Faced with tight budgets, increased workloads and increased costs of operations, government only has two choices: Either improve efficiency and cost-effectiveness... or cut services. Cutting services is not a good idea, especially if politicians want to get re-elected or managers want to keep their job!