An Introduction to Activity-Based Cost Management
At the Fish and Wildlife Service
Budget deficits and mandates such as the President’s Management Agenda (PMA) have placed increasing pressure on government agencies, such as the FWS, to better understand, explain, and control its costs while improving performance. Like many federal organizations, FWS has found that its traditional information systems do not always provide a clear picture of the information FWS needs to support strategic decisions, operational improvements, and reengineering efforts—information FWS needs to stay productive and competitive.
Coordinating with various DOI initiatives, FWS leadership resolved this missing link between financial and operational information through its Activity-Based Cost Management (ABC/M) initiative. ABC/M provides greater insight into true operational costs and illuminates options to improve ways of doing business. Rather than report costs just by object class or division, ABC/M goes a step further by assigning resource types to work activities so they can be viewed from a process perspective (see Figure 1). With ABC/M, operational and front-line managers no longer need an accounting degree or MBA to understand and manage costs effectively.
Figure 1: Traditional Costing vs. ABC/M Costing
Fundamental ABC/M Concepts
ABC/M is comprised of two components: Activity-Based Costing (ABC) and Activity-Based Management (ABM). ABC is not a financial accounting system, but an approach that provides a more effective way to view and interpret information by measuring the cost and performance of business processes and their outputs. ABM is the active use of ABC information to help organizations perform their missions more efficiently while improving the quality and delivery of products and services.
Like traditional cost accounting, ABC/M is a cost allocation methodology. Unlike traditional cost accounting, however, ABC/M operates on the premise that activities...