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Activity-Based Cost Management

Activity-Based Cost Management. FY 2001 Results November 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. ABC in Mn/DOT PSG. Why are you using ABC?

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Activity-Based Cost Management

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

  2. Agenda • Introduction & History of PSG ABC Project • Overview of FY2001 ABC Process • The Outputs: The Book and the CD • Using ABC to Make Decisions

  3. 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?

  4. PSG Purpose • Identify Cost, Quality, Timeliness (CQT) • Manage CQT • Improve Competitiveness • Focus on Continuous Improvement • Deploy Resources Effectively • Measure CQT

  5. Resource $ Input Activity Output End Cost Objectives Products & Services CoreActivities Districts Process Model Summary

  6. Solution Question How much does it really cost? Activity Based Costing Activity Analysis Activity Based Management How do we know what to improve? Activity Based Continuous Improvement Resources How well are we meeting our objectives? Activity Based Performance Measures Activities Activities Activities Inputs Outputs How can we institutionalize improvements? Activity Based Budgeting How much should we charge? Activity Based Service Agreements Activity Based Solutions

  7. 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?

  8. Input Input Input Input Activity Activity Activity Activity Output Output Output Output HOW is the Information Developed?

  9. Resource $ What Are the Questions? • 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?

  10. Resource $ People Resources Dollars from Budget Status Reports Find the Information • How many resources? Non-Payroll Resources

  11. ABC Activities Resource $ Name, hours, bargaining from BSR Detail Trace Resource to Activities • How are resources associatedwith activities?

  12. Resource $ Input Activity Output Counting Outputs • 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).

  13. 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.

  14. Resource $ Activity Activity $$ # of Outputs Calculating CPO ÷ = CPO • Formula to Compute Cost Per Output (CPO): Activity $ ÷ Number of Outputs = CPO

  15. Resource $ Input Activity Output End Cost Objectives Products & Services CoreActivities Muni’s Now that you know CPO… • What do you do with it? • Answer questions, such as “How much should I charge the muni’s (partnership agreements)?

  16. Say Pete, Can we take a break?

  17. Mn/DOT PSGABC/M FY 2001 The OUTPUT of the ABC Process • The Reference Information • (Three Ring Binder) • The CD • Contains the electronic files

  18. Selected Highlights 1.a File Organization/Map 1.b File Summary 2.1 Activity Dictionary 2.2 Average FTE’s by Activity 2.3 Output Summary 2.4 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

  19. Selected Highlights 3.1 Budget Status Report 3.2 Equipment, Inventory, Building Crosswalks (if any) 4.1 Primary Activity Summary • Aggregate Primary Activity Costs • Aggregate Activity Direct Labor Hours 4.2 Cost & Hours per Output Analysis by Activity

  20. Selected Highlights 5. Primary Activity Report & Graph • Pareto Analysis 7.1 Service Agreement Template • Map ABC Activity Outputs to Customers 7.2 ABB Template • Map ABC Activity Outputs to ABB Products, Services, and Core Activities

  21. 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.

  22. The CD Organization

  23. 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”.

  24. Normalization File • The Normalization Excel File Contains: A specific worksheet for EACHactivity that has been normalized. Output Summary for ALLthe Activities.

  25. Normalization File: Output Summary This Report is in Tab 2 of the three-ring binder.

  26. 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

  27. Normalization: Criteria

  28. Normalization: Factors

  29. Normalization: Raw Count

  30. Normalization: Normalized Count

  31. Normalization: Hours per ONE

  32. Normalization: Aggregate Hours

  33. Normalization: Dollars per ONE

  34. Normalization: Aggregate Dollars

  35. 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.

  36. Aggregate Primary Activity Cost

  37. Aggregate Activity Direct Hours

  38. Cost per Unit Analysis

  39. Hours per Unit Analysis

  40. Primary Activity Pareto Report

  41. The ABC Extras File Service Agreement/Partnership Agreement Template Activity 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.

  42. Service Agreement Template

  43. Service Agreement Template

  44. ABB Template

  45. ABB Template

  46. Agenda • Introduction & History of PSG ABC Project • Overview of FY2001 ABC Process • The Outputs: The Book and the CD • Using ABC to Make Decisions

  47. USE the ABC Information • Templates Provided • Service Agreements/Partnership Agreements • Activity-based Budgeting • Other Ideas • Resource Management • Process Improvement

  48. Discussion Topic 1 • What is ONE way you will use ABC in your Office/Section?

  49. Discussion Topic 2 • What is ONE barrier to achieving optimum success with ABC in your Office or Section?

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