ABM uncovers savings in the details

In the endless quest to make available funds meet needs, a number of local governments have made some progress by implementing activity-based methods of financial management.

In upstate New York’s Onondaga County, officials discovered that activity-based management (ABM) not only helped them save money but also helped them clear snow-covered roads more efficiently. Initially used in the county’s transportation department, ABM provided accurate financial information by identifying the specific activities involved in delivering various transportation services. It then identified the costs of each activity, giving officials a true picture of what it cost to deliver a particular service.

“Before our project started, there was only a general understanding of department costs,” says Randy Wolken, management analyst in the county’s division of management and budget. “Now we understand exactly what it costs to gear up the snowplows and send out the road crews. We can now see where small changes result in big savings – from how we arrange the shift schedule to how much salt and sand we use on the roads.”

Like Onondaga County, the borough of East York, Ontario, implemented ABM to successfully cut costs in its water and sewer services department.

According to Janet Ellis, director of culture and recreation at East York, the borough needed to understand the real costs ofeach action inherent in services.

“Our ABM project provided this understanding by modeling 70 different water and sewer activities,” Ellis says. “This process uncovered a number of inefficiencies in how services were being delivered.”

In general, the agencies that have experienced the greatest cost savings and improved efficiency with ABM have focused on these secrets to success:

* Start with an ABM pilot project. Local governments will likely get the most from ABM by focusing on single departments or projects before implementing it on every level. Know the goals from the outset, then apply what is learned in the pilot project to the introduction of ABM to more areas;

* Get managers from outside the finance process to participate and help provide operational information. ABM works best when everyone is involved from the beginning. The more that non-financial managers recognize the value of information yielded by ABM, the more willing they will be to act on it;

* Create a multi-functional ABM project team, since staff members from different departments will be able to provide information from a variety of perspectives. Some ABM teams include staff from operations, engineering, planning, purchasing and information system departments;

* Use an appropriate software tool, because ABM presents an entirely different perspective from traditional costing systems. Most governments take advantage of ABM-specific software packages on the market. Look for a package that is operationally focused, so different scenarios can be studied and strategic personnel and resource decisions can be tested in advance;

* Don’t stop after just one ABM project. The whole point of implementing ABM is to build momentum for further cost and efficiency improvements. Continue to refine and update ABM models and keep applying them to different departments;

* Allow for enough time to see results. If the ABM project is going to be successful, it may take at least 12 weeks for significant, positive results to appear; and

* Maintain enthusiasm. Like most major changes in functioning, implementing ABM will be a challenge, but the results can be dramatic.