Public Sector Governance and Accountability Series: Budgeting and ...

204 Gary Cokins
practices and their efficiency in resource use.Activity-based cost management
(ABC/M) is one of the most important tools being introduced in the effort to
achieve these ends.
ABC/M provides fact-based data. In the absence of facts, anybody’s
opinion is a good one. And usually the most important opinion, which may
be the opinion of a supervisor or the supervisor of a supervisor, wins. To the
extent that decision makers are making decisions based on intuition, gut feel,
or misleading data, an organization is at some risk.
Many senior managers have become used to making decisions without
good information, so they think they do not need it. But the pressure to make
better decisions and use resources more intelligently has increased. ABC/M
provides valuable information that can be used to make a broad range of
decisions on issues from outsourcing to operational planning and budgeting.
In its initial stages, ABC/M has often met with a mixed response, despite
widespread discontent with traditional accounting mechanisms and despite its
proven track record. This chapter describes what ABC/M is intended to do—
and not do—in the hope that such enlightenment will help in applying ABC/M
principles to the critical problems now facing much of the public sector.
Activity-based concepts are very powerful techniques for creating
valid economic cost models of organizations. By using the lens of ABC/M,
organizations of all sizes and types can develop the valid economic models
required for executives and managers to be able to make value-creating
decisions and take actions to improve their productivity and resource use—
and ultimately to better serve their constituencies. This chapter describes the
pressures for improved cost accounting in government, misapprehensions
about and other sources of resistance to ABC/M, and successful applications
of the system in the public sector.
Political Pressures to Hold Down Costs
Public sector organizations at all levels and of all types are facing intense pressure
to do more with less. Federal, national, state, county, municipal, and local
governments in almost all countries are feeling some sort of fiscal squeeze.
This pressure affects departments, administrations, branches, foundations,
and agencies of all kinds.
The pressure on spending has many sources. It can come indirectly from
politicians aiming to win taxpayers’ approval or directly from taxpayer specialinterest
groups. There is pressure from competition with other cities to attract
homebuyers or with other counties, states, or nations to attract businesses. In
the United States, not only do cities compete with other cities; each city also