Local Governments Use Activity Based Management to Monitor Costs PDF Print E-mail

By Rebecca Downs, HPG Network

Local governments, like many organizations, are always seeking innovative ways to improve services, cut costs and measure results. Activity Based Management (ABM) is one methodology some have used to reevaluate the cost-effectiveness of activities within their organization and find areas where costs can be reduced. An increasing number of towns and cities have realized cost savings using the ABM methodology.phoca_thumb_l_090811-001

In technical terms, ABM is the development, measurement and control of an organization's activities. It's a costing system that examines the activities as units of work. This means looking at all activities -- such as moving materials, attending meetings, issuing orders or receiving materials -- and determining the cost per activity. At the activities level, improvement is focused on specific aspects of the business process, not on minor tasks like counting boxes or on broad processes like firefighting.

While businesses have used ABM to monitor costs for years, an increasing number of cities and towns are adopting ABM. The High Performance Government Network has helped community leaders learn the principles of ABM as part of the Certified Public Manager (CPM) program offered through the Ball State University Bowen Center for Public Affairs. One session of CPM training is devoted to ABM principles and methodology. During this session, public officials are trained on the basics of ABM and are then asked to apply it to their departments.

The City of Greenfield, Indiana is one example of a community that adopted ABM as a result of exposure through Certified Public Manager training. Joan Fitzwater, the Planning Director for Greenfield is a recent graduate of the Certified Public Manager program. During the training, Fitzwater learned the principles of ABM and how it could make a significant improvement in her department. "At first, everyone thought ABM was going to be a big animal," she said. "Eventually I think everyone saw how it could be useful, especially to cut costs."

Fitzwater plans to use ABM at the City to review the costs of public meetings and certain application fees. Neither of these activities would typically be assigned a cost, but using the ABM methodology Fitzwater can now determine the unit cost of the activities. This information will allow her to budget more effectively. Without that information, her proposal to City Council would not be as complete. "I think it would be beneficial for me to go into that meeting with the data behind me," she saidphoca_thumb_l_090811-003

Taking the time to apply ABM provides benefits to an entire organization from top to bottom. ABM is a tool to identify the amount of time an organization spends on activities. With that knowledge, management can identify potential process improvement projects for the activities to run more effectively and efficiently. Another benefit is that ABM introduces the ideas of outcomes, activities and unit cost to employees. When citing her own experience, Fitzwater appreciated how much ABM taught her about her own department. "I learned more about how my department operates and I gained insight into how much time is spent on activities," she said, which has also helped her and her employees to understand where to cut costs.

Fitzwater also spoke of the operational details that ABM has exposed. In analyzing all of the activities her employees do, she discovered the costs of minor aspects she had never previously thought of. "I discovered there were costs I'd never looked at, like how much it costs to turn on lights in a room," she said. ABM helped her to see the full cost of an activity.

Other cities have seen similar results. After learning about the ABM process during Certified Public Manager training, Tony Foster II, Executive Director of the Department of Metropolitan Development for the city of Richmond, Indiana, brought valuable the lessons back to the workplace. He introduced ABM at the next staff meeting. "After the lesson about activity based management I was able to cut costs at work," he said.

To implement ABM, department heads are asked to identify seven to ten core activities for the department. Department heads then meet with their employees to gather specific feedback, including determining the amount of time spent on the activities. From that information, the department heads can determine the unit cost. This information has proven useful for public leaders throughout the state as an additional tool they can use to refine their budgets.phoca_thumb_l_090811-004

ABM methodology has received a positive response from those officials who have implemented it, and it will continue to be included in future Certified Public Manager programs. "An entire module of CPM training is devoted to ABM," said Kate Love-Jacobson, Vice President of the High Performance Government Network. "It is just as intensive as ABM sessions that organizations may complete themselves." The training has proven useful for communities throughout the state of Indiana. From experience, Fitzwater encourages other communities to take the time to learn and use ABM. "You can't understand how a department operates unless you see the outcomes of the man hours," she concluded.



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