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

Activity-Based Cost Management in the Public Sector 211
From the Spending View to the Activity and Output View
When managers receive their monthly responsibility center report calculating
the favorable or unfavorable variance between their actual spending and
their budget, what does that information really tell them? When they look at
their variances, they are either happy or sad, but they are rarely any smarter.
ABC/M extends the minimal information in the departmental spending
reports to make managers and employee teams smarter. This extended information
is then used for making decisions—better decisions than are made
without the ABC/M data. ABC/M’s strength is that it gives insights based on
understanding past costs, not just past spending, allowing managers to apply
the same data to make better decisions.
Some more realities can be added to this description of government and
defense organizations as service providers. Consider the key players—public
sector workers, taxpayers, and users of the government services:
The civil service worker or military member might simply prefer the status
quo or whatever may be a little bit better for him or her.
The taxpayer prefers to be taxed less.
The user of government services desires more and higher-quality service.
The functional manager defends the existing level of his or her resources
and fiscal budget.
It is a no-win situation. Something has to give. The combination of
these disparate interests creates tension and conflict. Untangling these
knots is difficult when the primary financial view that is used by management
shows only spending for resources. There must also be an equivalent
financial view of the outputs. Questions and discovery begin when the
costs of outputs can be made visible and compared. A more reasonable
discussion about spending levels occurs when spending and what the
service recipients get for the spending are equated with the costs of outputs
and outcomes.
Even when two outputs, such as the unit cost per rubbish disposal for two
neighboring houses per month, appear to be the same amount, each house may
have consumed different work. One may have had fewer containers but more
cumbersome items, such as wood blocks and metal rods, for the material handlers
to deal with. The other may simply have more containers with standard
contents. Alternatively, compare two municipal rubbish disposal services with
the identical number of residential stops and work crew members at similar
weekly wages. All things being equal, if one crew averages seven hours per day