Activity-Based Cost Management FY 2001 Results November 07, 2002.

Activity-Based Cost Management

FY 2001 Results

November 07, 2002

Slide 2November 07, 2002

Agenda

• Introduction & History of PSG ABC Project

• Overview of FY2001 ABC Process

• The Outputs: The Book and the CD

• Using ABC to Make Decisions

Slide 3November 07, 2002

ABC in Mn/DOT PSG

• Why are you using ABC?

• How are you coming up with the information?

• What is the output from the PSG ABC process?

• How can you apply the information?

Slide 4November 07, 2002

PSG Purpose

• Identify Cost, Quality, Timeliness (CQT)

• Manage CQT– Improve Competitiveness– Focus on Continuous Improvement– Deploy Resources Effectively

• Measure CQT

Slide 5November 07, 2002

Process Model Summary

Input OutputActivity

Resource $

DistrictsProducts & Services

CoreActivities

End Cost Objectives

Slide 6November 07, 2002

Activity Based SolutionsQuestion Solution

How much does it really cost?

Activity Based Costing

ActivitiesActivities

Activities Outputs

Resources

Activity Analysis

Inputs

Activity Based ManagementActivity Based Management

How well are we meeting our objectives?

Activity Based Performance

Measures

How can we institutionalize improvements?

Activity Based Budgeting

How do we know what to improve?

Activity Based Continuous

Improvement

How much should we charge?

Activity Based Service

Agreements

Slide 7November 07, 2002

Not Convinced Yet?• ABC Provides PSG decision-

makers with relevant information:– How much are we spending (or

how much do we need next year?) on the various ABB products and services?

– How much are we supporting Duluth vs. Willmar? (or how much will we need to support them next year, based on current assumptions?)

– Are we improving year-to year?– How do we compare to

competitors?– How much should we charge

counties and cities for our services?

Slide 8November 07, 2002

OutputOutput

OutputOutput

HOW is the Information Developed?

ActivityActivity

ActivityActivity

InputInput

InputInput

Slide 9November 07, 2002

What Are the Questions?

Resource $

• First Question: What are “Resources”?• Second Question? What time period?• Third Question: How many resources for

period in question?• Fourth Question: Which activities are the

resources associated with?

Slide 10November 07, 2002

Find the Information

Resource $ • How many resources?

Dollars from Budget Status Reports

People Resources

Non-Payroll Resources

Slide 11November 07, 2002

Trace Resource to Activities

Resource $ • How are resources associatedwith activities?

ABC Activities

Name, hours, bargaining from BSR Detail

Slide 12November 07, 2002

Counting Outputs

Input OutputActivity

Resource $

• How do you know how many units of output you’ve got?

• YOU COUNT THE NUMBER OF COMPLETIONS FOR THE PERIOD OF TIME (eg., FY 2001) (or partial completions if partial completion criteria are defined).

Slide 13November 07, 2002

Counting Normalized Outputs

• How do you know how many units of NORMALIZED output you’ve got?

First, Count them accordingto the defined variation.

Second, calculate the normalized counts.

Slide 14November 07, 2002

Calculating CPO

Activity

Resource $

• Formula to Compute Cost Per Output (CPO):

Activity $$ ÷ # of Outputs = CPO

Activity $ ÷ Number of Outputs = CPO

Slide 15November 07, 2002

Now that you know CPO…

Input OutputActivity

Resource $

Muni’sProducts & Services

CoreActivities

End Cost Objectives

• What do you do with it?• Answer questions, such as “How much should I charge the

muni’s (partnership agreements)?

Say Pete, Can we take a

break?

Slide 17November 07, 2002

The OUTPUT of the ABC Process

• The Reference Information– (Three Ring Binder)

• The CD– Contains the

electronic files

Mn/DOT PSGABC/M FY 2001

1.a File Organization/Map1.b File Summary

Selected Highlights

2.1 Activity Dictionary2.2 Average FTE’s by Activity2.3 Output Summary2.4 Normalization Information

• Criteria• Factors• Raw Output Counts• Normalized Output

Counts• Hours per Normalized

Output (By Variety)• Aggregate Hours per

Normalization Criteria• Dollars per Normalized

Output (By Variety)• Aggregate Dollars per

Normalized Criteria

3.1 Budget Status Report3.2 Equipment, Inventory,

Building Crosswalks (if any)

Selected Highlights

4.1 Primary Activity Summary• Aggregate Primary

Activity Costs• Aggregate Activity

Direct Labor Hours4.2 Cost & Hours per Output

Analysis by Activity

5. Primary Activity Report & Graph• Pareto Analysis

Selected Highlights

7.1 Service Agreement Template• Map ABC Activity

Outputs to Customers7.2 ABB Template

• Map ABC Activity Outputs to ABB Products, Services, and Core Activities

Slide 21November 07, 2002

The Electronic File Summary

• These are the Current Files• They are contained in the CD• They are organized in Folders (Directories) as

shown on the next slide.

Slide 22November 07, 2002

The CD Organization

Slide 23November 07, 2002

FTE’s by Activity

• This report is in Tab 2 of the three-ring binder.

• The electronic file is located in the CD, file name:“OEC PeopleTrace”, on the worksheet called “FTE Analysis”.

Slide 24November 07, 2002

Normalization File

• The Normalization Excel File Contains:

Output Summary for ALLthe Activities.

A specific worksheet for EACHactivity that has been normalized.

Slide 25November 07, 2002

Normalization File: Output Summary

This Report is in Tab 2 of the three-ring binder.

Slide 26November 07, 2002

Normalization Worksheets

• Each worksheet contains the following tables:– Normalization criteria– Calculated factors (in most cases. Some skipped this

step.)– Raw (actual) output counts– Calculation of normalized output counts– Analysis: Hours per Normalized Output– Analysis: Aggregate Hours per Criteria– Analysis: Dollars per Normalized Output– Analysis: Aggregate Dollars per Criteria

• The printed copies of these reports are in Tab 2

Slide 27November 07, 2002

Normalization: Criteria

Slide 28November 07, 2002

Normalization: Factors

Slide 29November 07, 2002

Normalization: Raw Count

Slide 30November 07, 2002

Normalization: Normalized Count

Slide 31November 07, 2002

Normalization: Hours per ONE

Slide 32November 07, 2002

Normalization: Aggregate Hours

Slide 33November 07, 2002

Normalization: Dollars per ONE

Slide 34November 07, 2002

Normalization: Aggregate Dollars

Slide 35November 07, 2002

The ABC Model File

• The ABC Model Excel File Contains:

We’ll look at these three worksheets.

• The printed copies of these worksheets are in Tab 4 and Tab 5.

Slide 36November 07, 2002

Aggregate Primary Activity Cost

Slide 37November 07, 2002

Aggregate Activity Direct Hours

Slide 38November 07, 2002

Cost per Unit Analysis

Slide 39November 07, 2002

Hours per Unit Analysis

Slide 40November 07, 2002

Primary Activity Pareto Report

Slide 41November 07, 2002

The ABC Extras File

Service Agreement/Partnership Agreement TemplateActivity Based Budgeting

(ABB) Template

Make copies of these files, and use them tohelp develop information for service agreements, partnership agreements, and budget planning by ABBproduct/service codes.

• The printed copies of these worksheets are in Tab 7.

Slide 42November 07, 2002

Service Agreement Template

Slide 43November 07, 2002

Service Agreement Template

Slide 44November 07, 2002

ABB Template

Slide 45November 07, 2002

ABB Template

Slide 46November 07, 2002

Agenda

• Introduction & History of PSG ABC Project

• Overview of FY2001 ABC Process

• The Outputs: The Book and the CD

• Using ABC to Make Decisions

Slide 47November 07, 2002

USE the ABC Information

• Templates Provided– Service Agreements/Partnership

Agreements– Activity-based Budgeting

• Other Ideas– Resource Management– Process Improvement

Slide 48November 07, 2002

Discussion Topic 1

• What is ONE way you will use ABC in your Office/Section?

Slide 49November 07, 2002

Discussion Topic 2

• What is ONE barrier to achieving optimum success with ABC in your Office or Section?