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Improving Operations

"Activity Based Costing" (ABC) and "Activity Based Management" 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!

ABC/M can improve efficiency, control costs and streamline operations.

Thanks to new computers and new software, leading-edge ABC solutions are available. Unfortunately, "old technology" software won't work. Old technology software was written to do one thing. For example, fleet management software tracks equipment costs and usage. It manages equipment.

But, that's all it does! It doesn't allocate equipment costs to projects or work orders. It only manages one task or function: fleet management.

ABC, on the other hand, "integrates" tasks into activities. This integration allows one entry to capture all essential information and helps managers make informed decisions. For a comparison of old technology and the new integrated standard.

The City of Indianapolis, Indiana is an excellent example how ABC/M techniques work. Faced with tight budgets, they chose improved efficiency over reduced services. Thanks to ABC, Indianapolis cut costs across the board and improved the quality of service it provided. It was able to compete with private industry as a supplier of essential services, such as garbage collection. It evaluated costs and operations, and reduced pothole repair costs by 38%! See how Indianapolis used new technology tools.

The Pricewaterhouse Coopers Endowment for The Business of Government completed a report entitled " Using Activity-Based Costing to Manage More Effectively". (This is a pdf file.)

CitiTech Management Software was developed using ABC/M standards. It is a fully-integrated, single-entry system that improves operations, controls costs and improves productivity.