Activity Based Management Governs Government Cost Savings | Article

Rolling up the sleevesAll levels of American government are feeling the twin –† and conflicting — pressures of reducing costs while improving performance.

Legislative budget cuts are forcing agencies to turn to government consultants like Mevatec, a Huntsville, Alabama firm, to help them satisfy these twin dragons. In the past government agencies routinely increased their annual budgets. If the budget this year was $2 million, they automatically assumed they would receive $2.1 million next year, according to Glenn Goodnight, a senior vice president of Mevatec.

Today, however, the reality is they are expected to do better with just $1.8 million. “Some agencies we have seen can’t do their job with their new budgets,” adds Goodnight. “Agencies don’t know what to do. And they don’t know what not to do,” the executive says.

So they are turning to Activity Based Management (ABM) for help. Goodnight says it’s Total Quality Management (TQM) with numbers. The original research sought to develop a process that would help organizations manage their resources.

Defining ABM

ABM analyzes every activity in a task and then assigns a cost to each. ABM focuses on results by:

  • Identifying outputs: What does the agency produce?
  • Identifying activities: What things does the department do to produce them?
  • Tracing resources to activities: What does it take to do the activities?
  • Tracing activities to services: How do the activities relate to services provided?
  • Developing process maps: These trace relationships in the process.
  • Identifying process improvements: This step taps into best practices.
  • Developing performance measurements: This makes everything relate to a desired goal.

In the government arena, ABM allows government agencies to improve their processes and compare them to industry benchmarks.

ABM also helps agencies during the legislative budget battles because it allows them to calculate the impact of budget cuts on specific programs. Directors show up “armed” with management information that helps generate visibility with the taxpayers. For example, one taxing authority realized it had to cut its call center if the legislature slashed its budget. The director said to the legislature, “What will taxpayers do if they have a question? Do you not want to fund this?”

Goodnight says most government agencies do a fine job of performing their core processes. But they are “usually pretty bad” at the duties that support these core processes. For example, Mevatec worked with one state agency that processed loans. Goodnight reports the agency had good loan officers who were adept at evaluating and awarding the state’s money.

Technology Solutions

But the paperwork† processing was poor. For example, all the files were stuffed with paper, which made research and archiving tasks a nightmare. Mevatec recommended storing all the information on a computer disk. This simple change eliminated 75 percent of the paperwork and made retrieval tasks easy.

Another state agency collected various state taxes. Originally, taxpayers filled out a paper form and sent a check to the agency, which created a data file when it deposited the funds. Although this system worked reasonable well, the agency realized it had to automate. So it hired programmers to write a software program for taxpayers.

Problem one arose when taxpayers installed the program on their hard drives. It was very finicky and wouldn’t boot when certain other programs were open. The agency’s staffers spent an inordinate amount of time working with frustrated taxpayers who couldn’t make the *%#@$ program work.

Web-based Solutions

Second, the state was trying to convince taxpayers one at a time to use the new software program. Once they got a taker, the agency would mail the software to the new user.

Finally, Mevatec discovered most of the cost drivers in the process were taxpayer errors. Many were filling out the forms incorrectly and then sending in a payment. The state would cash the check and then spend hours trying to correct the form. Mevatec found many of the taxpayers were making the same mistake over and over again. No one at the state level told them they were filling out the forms wrong or had taken the time to teach them how to complete them correctly.

To solve all these problems, Mevatec suggested using the original program as the backbone of a Web-based solution. He says this is not reinventing the wheel since taxpayers in Alabama, Massachusetts and Pennsylvania can use the Web for these tasks. Now, taxpayers in this state will be able to go to the Web and fill out the requisite forms on-line. Some of the fields autopopulate, so the taxpayer doesn’t even have to type in anything. And the form can’t be sent until it is completed correctly.

Mevatec also suggested a state-wide public relations campaign to let taxpayers know about the ease of Web tax paying. “This is certainly more efficient than calling each taxpayer one at a time,” says Goodnight.

Finding The Money

He says the state will enjoy a return on its investment in six months. There are no hard figures since the state has yet to approve the program, but Goodnight estimates the savings will be in the millions. “And that’s if the state can convince just half the taxpayers to use the Web,” adds Goodnight.

The state now has to figure out where it can squeeze the dollars needed to make the investment in the technology. But that’s another story.

Lessons from the Outsourcing Journal:

  • Analyzing processes can help government agencies to see where they can improve.
  • ABM helps government agencies in the legislative budgeting process because they can demonstrate to the penny what a cut will do to a specific program.
  • Technology can help government agencies save money and improve performance.
  • Government agencies are using consultants to help them with their ABM analyses.


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