Abc In The Public Sector Essay

4188 words - 17 pages

Activity Based Costing in the Public Sector

By: Brandy Medina

Public sector organizations at all levels and of all types are facing intense pressure to do more with less. Governments at all levels in almost all the countries in the world are feeling some kind of pressure. The pressure on spending comes from many sources, i.e. from politicians aiming to win taxpayers’ approval. There is pressure from the competition with other cities to attract homebuyers or with other counties, states or nations to attract businesses. In the United States, the cities don’t just compete against other cities – each city competes against its own suburbs, and the suburbs often have an advantage in ...view middle of the document...

Some have succumbed to these quickly only to meet with a downward spiral as more businesses and families move to more economically attractive locations. Governments must get a handle on their problems. Holding the line on raising taxes will need to be more than a hollow campaign slogan; it may become an absolute requirement to retain the tax base. This restriction creates more reasons to understand costs. ABC/M and its integration with strategy mapping and balanced scorecards (i .e., performance measures) offer potential solutions to the problem . Providing meaningful, fact-based information to government office managers and employee teams can be a cost-effective means of bringing about benefits change and improved performance in government and not-for-profit environments. Intuition and political persuasion are becoming less effective as means for decision making.

The reference to the cost of outputs will repeatedly resonate throughout this paper. It is inescapable. The need to consider outputs – not simply the level of manpower, equipment and supplies – is what is forcing the awareness and acceptance of ABC/M. At a very basic level, ABC/M is simply a converter and translator of expenditures restated as outputs, and more specific the costs of outputs. ABC/M answers fundamental questions such as “What do things cost?” and “Why?” It answers “Why?” by displaying the drivers of activity costs. It also answers the questions “Who receives the costs?” and “How much of the costs did they each receive?” Examples of output costs are the cost per each type of processed tax statement or the cost per each type of rubbish disposal pickup. ABC/M serves as a calculation engine that converts employee salaries, contractor fees and supplies into outputs. The work activities are simply the mechanism that produces and delivers the outputs. The work is foundational; all organizations do work or purchase it. All work has an output. The topic of outputs is a critical aspect of ABC/M. The dilemma for many not-for-profit and government agencies, branches, administrations and departments is their fit with determining budget levels for spending without many facts to go from. From the budget requester’s perspective, an annual budget negotiation is usually an argument to retain or increase the level of resources relative to the existing level. Regardless of whether this behavior is due to an ego display by ambitious or fearful managers or a lack of any better means to determine resource requirements, it is the rare manager who accepts a reduction in anything – except maybe a reduction in headaches caused by his daily problems. An advanced application of ABC/M data is to use its calibrated consumption rates from past periods to apply against the future volume and mix of expected outputs and services to determine the future level of resources required. In this way, ABC/M enables better budgeting.
A fixation on inputs
The actual or planned spending levels...

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