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

Slide 2 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

Slide 3 November 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 4 November 07, 2002 PSG Purpose Identify Cost, Quality, Timeliness (CQT) Manage CQT –Improve Competitiveness –Focus on Continuous Improvement –Deploy Resources Effectively Measure CQT

Slide 5 November 07, 2002 Process Model Summary InputOutputActivity Resource $ Districts Products & Services Core Activities End Cost Objectives

Slide 6 November 07, 2002 Activity Based Solutions Question Solution How much does it really cost? Activity Based Costing Activities Outputs Resources Activity Analysis Inputs Activity 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 7 November 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 8 November 07, 2002 Output HOW is the Information Developed? Activity Input

Slide 9 November 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 10 November 07, 2002 Find the Information Resource $ How many resources? Dollars from Budget Status Reports People Resources Non-Payroll Resources

Slide 11 November 07, 2002 Trace Resource to Activities Resource $ How are resources associated with activities? ABC Activities Name, hours, bargaining from BSR Detail

Slide 12 November 07, 2002 Counting Outputs InputOutputActivity 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 13 November 07, 2002 Counting Normalized Outputs How do you know how many units of NORMALIZED output you’ve got? First, Count them according to the defined variation. Second, calculate the normalized counts.

Slide 14 November 07, 2002 Calculating CPO Activity Resource $ Formula to Compute Cost Per Output (CPO): Activity $$ ÷ # of Outputs = CPO Activity $ ÷ Number of Outputs = CPO

Slide 15 November 07, 2002 Now that you know CPO… InputOutputActivity Resource $ Muni’s Products & Services Core Activities 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 17 November 07, 2002 The OUTPUT of the ABC Process The Reference Information –(Three Ring Binder) The CD –Contains the electronic files Mn/DOT PSG ABC/M FY 2001

1.a File Organization/Map 1.b File Summary Selected Highlights 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

3.1 Budget Status Report 3.2 Equipment, Inventory, Building Crosswalks (if any) Selected Highlights 4.1 Primary Activity Summary Aggregate Primary Activity Costs Aggregate Activity Direct Labor Hours 4.2 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 Customers 7.2 ABB Template Map ABC Activity Outputs to ABB Products, Services, and Core Activities

Slide 21 November 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 22 November 07, 2002 The CD Organization

Slide 23 November 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 24 November 07, 2002 Normalization File The Normalization Excel File Contains: Output Summary for ALL the Activities. A specific worksheet for EACH activity that has been normalized.

Slide 25 November 07, 2002 Normalization File: Output Summary This Report is in Tab 2 of the three-ring binder.

Slide 26 November 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 27 November 07, 2002 Normalization: Criteria

Slide 28 November 07, 2002 Normalization: Factors

Slide 29 November 07, 2002 Normalization: Raw Count

Slide 30 November 07, 2002 Normalization: Normalized Count

Slide 31 November 07, 2002 Normalization: Hours per ONE

Slide 32 November 07, 2002 Normalization: Aggregate Hours

Slide 33 November 07, 2002 Normalization: Dollars per ONE

Slide 34 November 07, 2002 Normalization: Aggregate Dollars

Slide 35 November 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 36 November 07, 2002 Aggregate Primary Activity Cost

Slide 37 November 07, 2002 Aggregate Activity Direct Hours

Slide 38 November 07, 2002 Cost per Unit Analysis

Slide 39 November 07, 2002 Hours per Unit Analysis

Slide 40 November 07, 2002 Primary Activity Pareto Report

Slide 41 November 07, 2002 The ABC Extras File Service Agreement/Partnership Agreement Template Activity Based Budgeting (ABB) Template Make copies of these files, and use them to help develop information for service agreements, partnership agreements, and budget planning by ABB product/service codes. The printed copies of these worksheets are in Tab 7.

Slide 42 November 07, 2002 Service Agreement Template

Slide 43 November 07, 2002 Service Agreement Template

Slide 44 November 07, 2002 ABB Template

Slide 45 November 07, 2002 ABB Template

Slide 46 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

Slide 47 November 07, 2002 USE the ABC Information Templates Provided –Service Agreements/Partnership Agreements –Activity-based Budgeting Other Ideas –Resource Management –Process Improvement

Slide 48 November 07, 2002 Discussion Topic 1 What is ONE way you will use ABC in your Office/Section?

Slide 49 November 07, 2002 Discussion Topic 2 What is ONE barrier to achieving optimum success with ABC in your Office or Section?