Problem Identification:
The City has made minimal efforts to establish the specific costs of targeted service functions.

Recommended Action:
Utilize activity-based costing to determine true operational costs, identify inefficiencies, and establish more useful performance measures.

Cost Savings, Organizational

Functional/Operational Area:

Estimated Annual Impact:
While the immediate financial impact cannot be estimated, activity-based costing can assist decision makers to make more informed decisions about resource allocations by isolating particularly costly services for in-depth review and analysis.

Estimated Implementation Costs:
Can be accomplished with existing resources.

Barriers to Implementation:

Projected Implementation:
45 – 60 days

Next Steps:
Identify a small number of the City’s most costly services. Collect and analyze information related to the provision of those services so as to isolate particularly costly elements of the total service cost and target these areas for either process or competitive reengineering.

The City, to a degree, is already involved in limited activity-based costing. The City’s annual budget includes appropriations for seven proprietary type funds accounting for the financing of goods and services provided by certain City agencies to other agencies on a cost reimbursement basis. These efforts, however, are generally restricted to large-scale activities such as managing the City’s fleet of motor vehicles.

For every identifiable activity of government, activity-based costing determines the cost of everything that goes into conducting that activity. Accurate information about costs provides a foundation for managers to identify inefficiencies, apply managed competition principles, and establish performance measures. By measuring the real cost of providing a service, the City will know what it actually spends, how its funds are spent, establish a baseline for costs, and pinpoint areas where savings might be achieved. Activity-based costing provides real performance indicators, in which costs can be measured on a per-employee, per-task, or per-project basis. This allows decision-makers to determine which divisions are incurring the greatest costs, examine the reasons for this, and make informed decisions as to whether the process should be reeningeered or considered for outsourcing. (Analysis section adapted from the Manhattan Institute’s publication The Entrepreneurial City: A How-To Handbook for Urban Innovators.)