Reallocate some expenditures strategically, based on the fuller information developed through activity-based budgeting techniques
Traditional line-item budgets do not reveal the true cost of an organization’s activities because overhead and indirect costs – such as salaries or office space – are not fully captured in an activity’s unit costs. Activity-based budgeting (ABB) enables leaders to better understand the true cost of each activity and budget more strategically. (ABB is usually implemented after a city, department or unit has adopted activity-based costing (ABC) to track the true costs of their activities.)
ABB can be implemented at different levels of an organization and with varying degrees of granularity. The implementation time frame can take from a few months to a few years depending on the scope and granularity of the implementation. Adopting ABB comes with start-up costs, but in the long term it can deliver strategic value that usually pays for itself.
ASSESSMENT
Some questions to guide your thinking
- If your city is considering implementing ABB, which departments or units could benefit from piloting the tool?
- What level of granularity would increase the city’s ability to allocate resources during the pandemic?
- If your city is already implementing ABB, how can it be used strategically to allocate resources during the pandemic?
Resource
Implementing activity-based costing (ABC) in government
Institute of Management Accountants (IMA)
The article walks local government leaders through the process of implementing ABC using an example from the Texas Department of Agriculture.
Reading
Using activity-based costing (ABC) for budgeting
World Bank 20 minutes
This resource distills lessons in designing better budgets using activity-based costing and management. The reading covers ABC’s politics, common uses and pitfalls, and the benefits that cities can expect by using ABC to budget their resources.
- Relevant Information is on pages 218-227.
Reading
Implementing time-driven activity-based costing (ABC)
Harvard Business Review (HBS) 15 minutes
In this reading, Harvard’s Robert Kaplan discusses the innovation of time-driven ABC and argues that it is quicker to implement due to its simplicity and cost-effectiveness. This innovation can be used to pilot the use of ABC for budgeting.
Resource
Implementing activity-based costing (ABC) in government
The article walks local government leaders through the process of implementing ABC …
Reading
Using activity-based costing (ABC) for budgeting
This resource distills lessons in designing better budgets using activity-based …
Reading
Implementing time-driven activity-based costing (ABC)
In this reading, Harvard’s Robert Kaplan discusses the innovation of time-driven …