Activity Based—Solutions The Journey

1. Activity Based—SolutionsThe Journey Program Support Group May 09, 2001

2. Program Support Journey • Initial Activity Analysis and ABC Model Development • What can this be used for? Examples/Illustrations • FY 2000/2001 ABC Update and Calibration • Deploy ABM • Institutionalize—and Get Ready for ABB 2001 Lenhardt & Colton, LLC

3. Reduce Cycle Time Increase Level of Service Reduce Cost Improve Quality Why deploy Activity-based? 2001 Lenhardt & Colton, LLC

4. Activity-based info helps you decide. . . . . . what to do differently. 2001 Lenhardt & Colton, LLC

5. 2001 Lenhardt & Colton, LLC

6. Information is Data Endowed with Relevance and Purpose. Peter Drucker, 1990 You Need Good Information 2001 Lenhardt & Colton, LLC

7. Mn/DOT’s Purpose • Identify Cost, Quality, & Timeliness (CQT) • Manage CQT • Measure CQT 2001 Lenhardt & Colton, LLC

8. Relevant Information • Is Actionable • Is Timely • Is Available to those doing the work • Is expressed in the same language as work • Imparts an understanding of causes of activities/costs 2001 Lenhardt & Colton, LLC

9. Traditional Information… Is not relevant to the purpose of identifying, managing and measuring CQT 2001 Lenhardt & Colton, LLC

10. Do Not Focus Solelyon Resources Focus on Activities And Outputs! Causes!! Variance Project Management Performance Measures Workload Requirements Traditional versus Activity-based 2001 Lenhardt & Colton, LLC

11. Resource $ Input Activity Output An Activity-Based Approach • Exploits the “Process Model” of Work 2001 Lenhardt & Colton, LLC

12. Activity Based Costing How much does something cost? Activity Based Costing Activity Analysis Activity Based Management How/where can I best improve the process? Activity Based Continuous Improvement Resources How well are we doing? Activity Based Performance Measures Activities Activities Activities Inputs Outputs Activity Based Budgeting How many dollars do I need? Activity Based Budgeting Activity Based—Solutions 2001 Lenhardt & Colton, LLC

13. Activity Analysis Resources Activities Activities Activities Inputs Outputs Activity Based—Solutions Activity Based Costing The tracing and allocation of costs to products & services via the activities & processes consumed by the products and services. 2001 Lenhardt & Colton, LLC

14. Program Support Journey • Initial Activity Analysis and ABC Model Development • FY 2000/2001 ABC Update and Calibration • Deploy ABM • Institutionalize—and Get Ready for ABB • Where is it all taking you?—Examples/Illustrations 2001 Lenhardt & Colton, LLC

15. Initial Activity Analysis and ABC Model Development 2001 Lenhardt & Colton, LLC

16. Activity Analysis Mn/DOT Computer Databases Resource $ Input Activity Output Resource Tracing Workbook Activity Dictionary Normalization Workbook Crosswalks Schematics Factors Workbook ABC Operational Model ABC Dollarized Model Much has been accomplished! 2001 Lenhardt & Colton, LLC

17. Program Support Journey • Initial Activity Analysis and ABC Model Development • What can this be used for? Examples/Illustrations • FY 2000/2001 ABC Update and Calibration • Deploy ABM • Institutionalize—and Get Ready for ABB 2001 Lenhardt & Colton, LLC

18. Activity-based Examples Activity-based Cost Estimate Activity-based Service Agreement ABC Data Activity-based Budget Activity-based Continuous Improvement Scenarios—Net Prophet II 2001 Lenhardt & Colton, LLC

19. Activity-based Cost Estimate • What are you costing? • What activity outputs does it consume? • Are the outputs normalized? Which variety is consumed? • How many are consumed? Use an Activity-based cost estimating worksheet to quickly obtain your answer. 2001 Lenhardt & Colton, LLC

20. Activity-based cost estimating worksheet 2001 Lenhardt & Colton, LLC

21. Activity-based Service Agreement • What are you costing, for which district? • How many outputs are consumed by that district? • What is your negotiated cost-per-output with that district? Use an Activity-based service agreement worksheet to quickly obtain your answer. 2001 Lenhardt & Colton, LLC

22. AB Service Agreement Worksheet 2001 Lenhardt & Colton, LLC

23. Activity-based Budget • What is the projected workload, expressed in terms of activity outputs? • What is the forecasted cost per output? 2001 Lenhardt & Colton, LLC

24. AB Budget Worksheet 2001 Lenhardt & Colton, LLC

25. Program Support Journey • Initial Activity Analysis and ABC Model Development • What can this be used for? Examples/Illustrations • FY 2000/2001 ABC Update and Calibration • Deploy ABM • Institutionalize—and Get Ready for ABB 2001 Lenhardt & Colton, LLC

26. Update and Calibrate for FY2000/2001 2001 Lenhardt & Colton, LLC

27. Process to Maintain Documentation From the Modelers’ Meetings 1 and 2. 2001 Lenhardt & Colton, LLC

28. Program Support Journey • Initial Activity Analysis and ABC Model Development • What can this be used for? Examples/Illustrations • FY 2000/2001 ABC Update and Calibration • Deploy ABM • Institutionalize—and Get Ready for ABB 2001 Lenhardt & Colton, LLC

29. Activity Analysis Resources Activities Activities Activities Inputs Outputs Activity Based—Solutions Activity Based Management A formal management process that supports excellence: Encourages an understanding of how activities and processes contribute to the strategic objectives of the organization. Encourages changes to traditional management. practices to emulate best practices and establish process controls to ensure consistently good performance. Enables a systematic process of continual process improvement, allowing organizational improvement to be planned, budgeted, monitored and controlled. 2001 Lenhardt & Colton, LLC

30. Continuous Improvement. . . 2001 Lenhardt & Colton, LLC

31. Deploy ABM 2001 Lenhardt & Colton, LLC

32. “Deploy ABM” Process • Elements of ABM • Plan the ABM Rollout • Internalize the Vision • Execute First Cycle of ABM • Assess the Execution of ABM • Institutionalize the Process of ABM 2001 Lenhardt & Colton, LLC

33. Problem? Solution! How/where can I best improve the process? Activity Based Continuous Improvement Activity Based Continuous Improvement • Eliminate wasteful (non-value added) activities • Optimize resources by continuously improving value-added activities • Use activities/outputs to link all management tools 2001 Lenhardt & Colton, LLC

34. An activity could be considered value added An activity could be considered non-value (VA) if: added (NVA) if: It is required to meet external customer requirements. It can be eliminated without impacting the form, fit or 4 4 function of the product. It is required by the government or other regulatory It involves rework or inspection. 4 4 agency. It modifies or enhances the raw materials of our It results in waste and adds no value to product or 4 4 product. service. The customer is willing to pay for the incremental value It is performed due to inefficiency in the upstream 4 4 added. process. It is a critical step that cannot be eliminated in a It is duplicated in another department or adds 4 4 business process. unnecessary steps to the process. It is performed to resolve or eliminate a quality It is performed to monitor quality problems. 4 4 problem. It is performed due to a request or expectation of a It is performed due to a request from an unhappy 4 4 happy customer. customer. It produces a valuable output. It produces unnecessary or unwanted output. 4 4 Establish “Value” Definitions—Examples 2001 Lenhardt & Colton, LLC

35. Prioritize Task & Planning Analysis Teaming Personal Tool Interpret Brainstorming X X X Storyboard (Affinity Diagram) X X X Matrix Diagram X X Root Cause Analysis X X Fishbone Chart (Cause/Effect) X X Criteria Rating X X X Data Sheets X X X Tree Chart X X Pareto Chart X X Sequence Flow Chart X X X X Process Flow Chart X X X X Scatterbrain Diagram X X Control Chart X X X Histograms X X X X Quality Tools for Improvement 2001 Lenhardt & Colton, LLC

36. Scenario: Improve Process • You’ve been given a 10% productivity goal. Where to start? 2001 Lenhardt & Colton, LLC

37. Generate a list • To define the opportunity, start by listing some of the visible adverse symptoms, or “effects” of some underlying problems within your workgroup • The visible signs of underlying problems generally are symptomatic of a deeper problem • Your goal is to brainstorm some of the effects, then work backward to determine the root cause 2001 Lenhardt & Colton, LLC

38. Remember Your Activity Analysis? 2001 Lenhardt & Colton, LLC

39. Link Adverse Effects to Activities 2001 Lenhardt & Colton, LLC

40. Estimate the Impact (ROM) Let’s investigate this one. 2001 Lenhardt & Colton, LLC

41. Determine Root Cause • Some Quality Tools to Identify Root Cause • Brainstorming • Cause and effect diagrams • Data Collection (Check sheets) and Analysis • Pareto Analysis • “Five Why’s” approach 2001 Lenhardt & Colton, LLC

42. Reason Selected: Project: Initial Cost Driver analysis showed that unplanned changes causes close to $ 650 thousand of recurring activity cost. Reduce Unplanned Changes Procedure People Customer makes changes Procedure not being followed Lack of training Analysis Cause of unplanned changes? Inadequate tracking & communication tools Policies inadequate Policies Systems Fishbone (Cause/Effect) “Tool” 2001 Lenhardt & Colton, LLC

43. Data Collection/Analysis 2001 Lenhardt & Colton, LLC

44. Affinity Diagram Hold Monthly Review Design Collaborative Goals with Incentives Prohibit Changes Other Idea Idea Idea Idea Idea Idea Idea Idea Idea Idea Idea Identify Possible Solutions 2001 Lenhardt & Colton, LLC

45. Prioritize Possible Solutions 2001 Lenhardt & Colton, LLC

46. Trace Improvement to Primary Activities 2001 Lenhardt & Colton, LLC

47. Monitor the Improvement 2001 Lenhardt & Colton, LLC

48. Evaluate Performance Cost, Quality, Time (CQT) Budgeting Assign Resources to achieve Performance Resource $ Input Activity Output Improve Processes Implement & Evaluate ABM - A Systematic Process ACT ACT CHECK Identify improvement opportunities PLAN Develop action plans DO 2001 Lenhardt & Colton, LLC

49. A New Focus 2001 Lenhardt & Colton, LLC

50. How do you get there? 2001 Lenhardt & Colton, LLC