Transcript Activity Based Budgeting and Net Budget Presentation

Activity-Based Budgeting
T-FLEx Spring Conference
Las Vegas
April 5, 2006
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DART’s Current Operating Budget
Alignment
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Horizontal:
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Vertical:
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Line Items
Object Classes
Cost Centers
Divisions
Departments
What is the Value of the Current
Operating Budget?
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To a cost center manager?
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To an executive decision maker?
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To the Board?
DART’s Current Operating Budget
Alignment – Advantages
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Traditional, consistent
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Easy to understand, high level of detail
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Year-to-year trending data
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Departmental line-of-sight
DART’s Current Operating Budget
Alignment – Disadvantages
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Limited context information
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Lack of visibility
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Budget cuts can be arbitrary
Insufficient data to evaluate cost effectiveness or
prioritize expenditures
Weakened inter-departmental communication
First Step:
‘Context’ Information
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Direct Service Costs (66%) – Costs directly
related to providing transportation service to
the customer
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Indirect Service Costs (25%) – Costs that are
one step removed from direct costs; generally
impact service quality
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General and Administrative (9%) – Costs not
directly related to service but that provide
essential business functions
Next Step:
Activity-Based Management
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Activity-Based Budgeting (ABB)
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Activity-Based Costing (ABC)
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Track Expenditures
Activity-Based Management (ABM)
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Build the Budget
Prioritize Projects and Processes
Drive Efficiency
Identify Opportunities for Continuous Improvement
What does Activity Based Budget
look like?
Traditional Budget
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Activity-Based Budget
Salaries & Wages
Benefits
Materials & Supplies
Services
Utilities
Travel & Training
Other
$1,000,000
$450,000
$250,000
$100,000
$50,000
$100,000
$50,000
Maintan Hardware
Maintain Software Applications
Develop New Applications
Provide End-User Support
Provide Training Services
Total
$2,000,000
Total
$395,421
$864,185
$266,359
$286,094
$187,941
$2,000,000
Activity Elements
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Name
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Work Partners
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Type (process or
project)
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Work outputs,
measures, and metrics
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Description
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Cost Drivers
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Work Triggers
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Suppliers
Customers/Clients of
Activity
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Resources
Why Activity Based Budgeting?
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Communication with the Board
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Internal Communication
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Eliminate across-the-board cuts, cut lowest value activities
Identify of areas to target for process reengineering
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Program changes not made in isolation
Break down the silos
Prioritize Activities
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Context information
Agency activities >> Board Goals
The “A-Ha Factor”
Understanding the Cost of Quality
Rapid Prototype Implementation
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Quick, highly summarized initial effort
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Top-Down Approach
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Promoting Buy-in
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Involves every department
Provides an immediate work product
Avoids “Death by Details”
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First model is not an exercise in precise
costing
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Iterative Process
ABM Implementation Phasing
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FY06 – Phase I
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FY07 – Phase II
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Reinforce ABM culture, enhance activity list detail,
develop tracking systems, create usable ABB for FY08
FY08 – Phase III
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Define Agency activity dictionary (Model Zero), create
draft activity-based budget (information only), begin to
evaluate tracking systems requirements
Full implementation, tracking time and expenditures,
system maintenance, identify opportunities for
efficiencies and process re-engineering
Phase I Timeline
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Jan-Mar – Develop Model Zero
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6-10 half-day ABM sessions
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Apr-Jun – Review with Management
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Agency-wide Team
Create Activity List
Trace Agency Costs to Activities
Departmental Management
ELT / EMT
Jun-Sep – Create and present an ActivityBased Budget
What Activity-Based Budgeting Isn’t
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It is not a control budget
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It does not replace the department / line item
budget, it is supplemental information
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Activities are owned at the agency level, not
the departmental level
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It is not a Panacea, it is a tool
Lessons Learned So Far
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Communicate “Why”
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Agency-wide inclusiveness vs. isolated
department work sessions
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Top-down vs. Bottom-up approach
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Team Members
Rapid-prototype
# of Activities / Activity Count envy
Lessons Learned So Far (Cont’d)
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Don’t sweat the small stuff
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Activity intersections – Project vs. Process?
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How much detail do you need?
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Cost vs. Benefit