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

212 Gary Cokins
while the other averages eight hours, the cost per house for disposal is equal for
each municipality, but the material-handling content (the actual work) is not.
One has more unused capacity than the other. One has a higher disposal cost
per home for the productive work.
By adding the financial view of the outputs to the financial view of
the resources, managers and employee teams can much better understand
the behavior of the cost structure. The visibility that comes from knowing
the costs of outputs becomes the stimulant for understanding the cost
structure. Outputs are the links to the external recipients, such as citizens,
as well as to the internal work activities. The distribution of the workload
adapts to changes in demand levels for outputs. Output costing can also
benefit cross-functional processes. An ABC/M information system gives
visibility into all these relationships (and even more with the additional
capability to score or tag costs with ABC/M’s attributes, such as value
added versus non–value added costs, described later).
ABC/M Is a Cost Assignment Network
Why do some public sector managers shake their heads in disbelief when
they think about their organization’s cost-accounting system? A public official
once complained,“You know what we think of our cost-accounting system?
It is a bunch of fictitious lies—but we all agree to them.” Of course, he
was referring to misallocated costs based on the broad averages that result in
flawed and misleading information. What a sad state it is when the users of
accounting data simply resign themselves to a lack of hope. Unfortunately,
many accountants are comfortable if the numbers all foot and tie (reconcile)
in total; they care less if the parts making up the total are correct. The total
is all that matters, and any arbitrary cost allocation can tie out to the total.
How can traditional accounting, which has been around for so many
years, suddenly have become considered so bad? The answer is that the data
are not bad so much as somewhat distorted, woefully incomplete, and partly
unprocessed. Figure 7.3 provides the first hint of a problem. The left side
shows the classic monthly report that responsibility center managers receive
under the general-ledger system. Note that the example used is a back-office
department of a license bureau, such as for driver or hunting licenses. It is a
factory, too, only its outputs are not tangible products but documents. This
example demonstrates that, despite misconceptions, indirect white-collar
workers produce outputs just as factory workers do. Substitute any department,
government or commercial, for the license bureau department in the
example and the lessons will hold.