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Timely,
accurate information about program costs is the critical missing link
between public programs and the financial systems designed to support
them.
Obligations,
outlays, and undelivered orders can be calculated by the federal
financial systems. We are only now, however, on the threshold of
providing information essential for day-to-day program management.
Information on program costs is the gold to be found in our financial
systems, and we are learning how to mine it.
Today we
are linking budget and financial systems so that the investments we have
made in systems produce returns for program managers and the public.
When I joined the Interior Department earlier this year, I was delighted
to discover what the Bureau of Land Management (BLM) has accomplished
over the past five years in implementing an effective activity-based
cost (ABC) system. BLM has created a powerful tool that provides
its program managers with the information needed to allocate resources
and monitor and evaluate performance effectively. The approach is
one of the best applications of cost information I have seen in over 30
years of interacting with state, local and federal
organizations.
BLM is a geographically
dispersed organization responsible for managing 264 million acres of
public land and more than 700 million acres of subsurface mineral
estate. It oversees commercial activities on public lands
producing over $13.7 billion annually.
In this context of
diverse responsibilities, knowing what each program costs to operate is
critical information. The bureau's ABC |
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system
compares costs, enables managers to identify best practices, and
improves business processes. It integrates performance , budget,
cost and financial reporting, and also complies with applicable
accounting standards and the Government Performance and Results Acts.
Cost
information is a powerful tool. It can transform raw financial
data into valuable information for improvements at all levels of the
organization. An ABC system helps managers identify the most
critical cost drivers in a program, as well as those areas of the
program's operations that are especially efficient or inefficient when
compared to the norm. It assists managers in making capital
investment decisions and in analyzing the return on such
investments. It provides information on the cost of government
operations that can be used to make competitive sourcing decisions and
obtain the bet value for the taxpayer.
In short, activity-based
costing helps managers direct resources to achieve the best return in
value. An effective ABC system answers the question, "How
much are we actually spending for what we are getting?" and thereby
assists managers in matching resources consumed with results achieved.
BLM's analytic use of
its ABC system is saving resources and producing cost-effective changes
in its processes. Evaluating its grazing leasing process across
several states, BLM identified more efficient operations and business
processes that are now being replicated across all of the western
states. The ABC system is being used to determine more accurate
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fee-for-service
costs so that fees are set appropriately to match actual costs.
BLM
managers are competitive. Interior's mission is broader than its
resources, and its managers are constantly looking for ways to match
funds and obtain the maximum return on their financial resources.
Activity-based costing provided an incentive for managers to compare
costs with similar operations in other states, other national parks,
other wildlife refuges, and other activities across the department.
Information
on what it costs to carryout an operation efficiently in one location
can be used to identify and replicate successful best practices across
the nation and to recognize and reward effective managers.
I have
asked BLM to work with two other bureaus to establish ABC systems this
year and to extend its use to all Interior bureaus by the end of next
year. While BLM developed its system over several years, its
experience will help shorten the time required for development and
implementation of this powerful tool throughout Interior. In
employing this process departmentwide, we will tap into the rich vein of
information contained within our financial systems and achieve
greater value for our operations serving the American people.
P. Lynn
Scarlett is Assistant Secretary for Policy Management and Budget and the
Chief Financial Officer at the Interior Department.
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