Public sector organizations at all levels and of all types are facing intense pressure to do more with less. Federal, national, state, county, municipal, and local governments in almost all the countries in the world are feeling some sort of fiscal squeeze. The solution for governments under pressure cannot be to simply uncover new sources of revenue or to raise tax rates again. Public sector managers will have to change their way of thinking about the true costs-and value-of the services they provide.
When a new mayor takes office in a city, he or she may be told by the city managers that the finances are reasonably healthy. Expenditures and resources are in balance; there is no fiscal deficit. But can those same managers tell the new mayor how much it costs to fill a pothole, to process a construction permit, to pick up a ton of rubbish, or to plow a highway mile of snow?
In recent years, government organizations have begun to look to private industry for ideas on how to improve their business practices and their efficiency in resource use.
Therefore, governments have started to require the use of managerial cost accounting, but not many know how to use it. If they do, they are not sufficiently skilled to use it effectively. As a result, progress has been slow in implementing activity based cost management (ABC/M), a widely accepted cost accounting method in the commercial sector. However, now, during the 21st century’s first decade, things are picking up. New initiatives, such as performance-based budgeting have increased demand for ABC/M.
ABC/M serves as a calculation engine that converts employee salaries, contactor 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. It is a critical aspect of ABC/M.
Meeting efficiency and effectiveness challenges of governments often require:
* Determining the true and actual costs services
* Determining the true and actual costs services Implementing process improvements
* Evaluating outsourcing or privatization options (i.e., is it better to deliver internally or purchase outside?)
* Aligning activities to the organization’s mission and its strategic plan