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Activity-Based Budgeting

Activity-Based Budgeting. T-FLEx Spring Conference Las Vegas April 5, 2006. DART’s Current Operating Budget Alignment. Horizontal: Line Items Object Classes Vertical: Cost Centers Divisions Departments. What is the Value of the Current Operating Budget?. To a cost center manager?

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Activity-Based Budgeting

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  1. Activity-Based Budgeting T-FLEx Spring Conference Las Vegas April 5, 2006

  2. DART’s Current Operating Budget Alignment • Horizontal: • Line Items • Object Classes • Vertical: • Cost Centers • Divisions • Departments

  3. What is the Value of the Current Operating Budget? • To a cost center manager? • To an executive decision maker? • To the Board?

  4. DART’s Current Operating Budget Alignment – Advantages • Traditional, consistent • Easy to understand, high level of detail • Year-to-year trending data • Departmental line-of-sight

  5. DART’s Current Operating Budget Alignment – Disadvantages • Limited context information • Lack of visibility • Budget cuts can be arbitrary • Insufficient data to evaluate cost effectiveness or prioritize expenditures • Weakened inter-departmental communication

  6. First Step:‘Context’ Information • Direct Service Costs (66%) – Costs directly related to providing transportation service to the customer • Indirect Service Costs (25%) – Costs that are one step removed from direct costs; generally impact service quality • General and Administrative (9%) – Costs not directly related to service but that provide essential business functions

  7. Next Step:Activity-Based Management • Activity-Based Budgeting (ABB) • Build the Budget • Activity-Based Costing (ABC) • Track Expenditures • Activity-Based Management (ABM) • Prioritize Projects and Processes • Drive Efficiency • Identify Opportunities for Continuous Improvement

  8. What does Activity Based Budget look like?

  9. Name Type (process or project) Description Work Triggers Suppliers Resources Work Partners Work outputs, measures, and metrics Cost Drivers Customers/Clients of Activity Activity Elements

  10. Why Activity Based Budgeting? • Communication with the Board • Context information • Agency activities >> Board Goals • Internal Communication • Program changes not made in isolation • Break down the silos • Prioritize Activities • Eliminate across-the-board cuts, cut lowest value activities • Identify of areas to target for process reengineering • The “A-Ha Factor” • Understanding the Cost of Quality

  11. Rapid Prototype Implementation • Quick, highly summarized initial effort • Top-Down Approach • Promoting Buy-in • Involves every department • Provides an immediate work product • Avoids “Death by Details” • First model is not an exercise in precise costing • Iterative Process

  12. ABM Implementation Phasing • FY06 – Phase I • Define Agency activity dictionary (Model Zero), create draft activity-based budget (information only), begin to evaluate tracking systems requirements • FY07 – Phase II • Reinforce ABM culture, enhance activity list detail, develop tracking systems, create usable ABB for FY08 • FY08 – Phase III • Full implementation, tracking time and expenditures, system maintenance, identify opportunities for efficiencies and process re-engineering

  13. Phase I Timeline • Jan-Mar – Develop Model Zero • 6-10 half-day ABM sessions • Agency-wide Team • Create Activity List • Trace Agency Costs to Activities • Apr-Jun – Review with Management • Departmental Management • ELT / EMT • Jun-Sep – Create and present an Activity- Based Budget

  14. What Activity-Based Budgeting Isn’t • It is not a control budget • It does not replace the department / line item budget, it is supplemental information • Activities are owned at the agency level, not the departmental level • It is not a Panacea, it is a tool

  15. Lessons Learned So Far • Communicate “Why” • Agency-wide inclusiveness vs. isolated department work sessions • Team Members • Top-down vs. Bottom-up approach • Rapid-prototype • # of Activities / Activity Count envy

  16. Lessons Learned So Far (Cont’d) • Don’t sweat the small stuff • Activity intersections – Project vs. Process? • How much detail do you need? • Cost vs. Benefit

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