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

220 Gary Cokins
Despite the similarities, both business leaders and public officials often have
a misconception that the government and commercial services are in some
way different. This is an artificial mental block. The differences are minor,
and this mindset only gets in the way of improving productivity and service
levels for all concerned.
One of the main messages to be gleaned from these examples is the
long-known fact that competition creates innovation. By defining the
problem and its scope, a new approach can lead to large magnitudes of
savings and improvements, not just marginal increments.
A second message involves accountability. When government services
are reviewed and measured, including the costs of the work activities,
processes, and their outputs, accountability is likely to increase. The process
of writing contracts, establishing performance measures, assessing costs, and
measuring results creates a level of accountability to the public well beyond
what existed before.
ABC/M is decision neutral here. ABC/M data do not take sides. They
simply make visible some facts and some cost rates that can be used to
estimate reliably what the cost consequences might be for future scenarios
and options. Although government must ensure the provision of certain
services, there is no reason government must also produce and deliver
those services. ABC/M data are, however, very work-centric. Regardless of
who does the work, ABC/M measures the costs. In the end, governments
still set policy for the delivery of services to the citizenry, so important
issues beyond the cost of providing services can always be addressed.
Operational ABC/M for Productivity
Managers and employee teams are seeking more transparency and visibility
of their costs. Reliably knowing ABC/M’s unit costs of their outputs
of work is useful for benchmarking, in searching for best practices, or in
reporting trends to measure performance improvement. ABC/M removes
the illusion that support overhead (that is, indirect) expenses are necessary
and therefore are free. They are not free. The costs of an output,
product, or service (a final cost object) can be reduced by the following:
Reducing the quantity, frequency, or intensity of the activity driver (for
example, having fewer inspections reduces the cost of the “inspect product”
activity)
Lowering the activity driver cost rate through improvements in productivity
(for example, shortening the time needed for each “inspect
product” activity)