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

Activity-Based Cost Management in the Public Sector 219
The city applied ABC/M in several areas. Some of the earliest results were
remarkable—and in some ways amusing:
When managers in the Department of Public Works analyzed their costs
of picking up trash, they discovered that, over four years, they had spent
US$252,000 on repairs to a garbage truck that could be purchased new
for US$90,000. The city garage where the repairs were made had no reason
to care how much it spent to fix the same truck. When the managers
accumulated all the costs associated with that truck, they discovered
that it was costing the taxpayers US$39 per mile to operate, obviously
an enormous amount when compared with other vehicle-use costs.
An employee of the Department of Parks and Recreation bought stacks
of chalk to line softball fields. He made the purchase at year’s end out of
fear of having his annual budget reduced if he had any money left over.
(The requisitioner had exhibited classic use-it-or-lose-it spending behavior
at the end of the fiscal year.) As a result, the city owned enough chalk
to line all the city’s softball fields for five years. Ironically, another department
had independently determined that it was more economical to
spray paint the lines rather than chalk them. But it was too late to change.
The chalk had already been purchased.
The Department of Public Works was spending US$2.9 million annually
to collect sewer water bills that amounted to US$40 million. This equated
to 7.25 cents on the dollar just to get paid. The city opened the process to
competitive bidding. The local, privately owned water company that
won the bid produced a 30 percent annual savings in expenses and recognized
that it could identify previously unbilled or underbilled sewer
users. The company proposed, if given the chance, to give the city the first
US$500,000 in collections and then evenly split the collections beyond that.
In the first two years, the city and the company split US$11 million.
Before the ABC/M analysis, the city was spending US$1.4 million annually
to operate three printing and copying centers that had more than 200
copiers. Each print center operated independently, without any coordination.
The operation was let out for competitive bid, and annual expenses
were reduced by about 35 percent, to US$900,000. The private company
generated additional unexpected savings when it offered its expertise in
helping the city conduct a “red tape” initiative to reduce the number of
forms used by city departments.
As the printing and copying center example reveals, governments may
operate businesses when commercial companies perform comparable work.