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

208 Gary Cokins
The ABC/M view is a radical departure from the norm for governments
and defense organizations. Consider how politicians campaign for votes. They
communicate in terms of inputs. Politicians who want to be viewed as tough
on crime will propose spending more money on police forces and prisons.
Those who want to be perceived as kind and generous will offer more money
for social programs. This fixation with inputs, the supply side of resources, does
not conclude with the election. Following the politician’s campaign rhetoric,
press releases applaud the funding of programs as if the act of putting money
in automatically ensures that desired results will come out.
In the military services, newly assigned field commanders regularly
arrive at their bases sharing a single interest: a bigger budget. They may be
granted the money. But holding them accountable for the results or how
they use the government’s money is a separate matter.
Government employees and managers often view the annual fiscal budgeting
process with cynicism. ABC/M practitioners have learned that it is better if
buyers and consumers, including government buyers and procurement agents,
purchase outputs instead of inputs. Fortunately, the focus within the public
sector has begun to shift from budget management to performance-based
results measurement.
Removing the Blindfold: Outputs, Not Just Resources
and Expenditures
The traditional financial accounting system has evolved in such a way that
all public sector managers reasonably know what expenditures they have
made in past time periods. But none of them know what the costs were
either in the aggregate or for the individual outputs. So what are the costs of
outputs? What is the cost of each output? How does one accurately calculate
these costs?
Expenses and costs are not synonymous. In simple terms, resources are
used and expenses or expenditures are incurred when money is exchanged
with third-party suppliers and with employees. In contrast, costs are always
calculated costs that restate expenses as work activities or as outputs. Expenses
and costs equate in total but are not the same things.
Figure 7.2 illustrates how management’s limited view can be fruitfully
extended beyond the resource and expenditure level. Traditional financial
management systems focus on the expenses of labor, supplies, and the like,
rather than on what work within processes is performed and what outputs
result from using these resources.ABC/M makes visible what has been missing
in financial reporting.