Value-Based Management in Government

CHAPTER TENIf ABC/M Is the Answer, What Is the Question?

ONE CAN ONLY REFER to “ABC/M” for so long before needing to visualize it and understand it as a cost-flow mechanism. Chapter 9 described what an ABC/M system looks like and how it calculates costs. In this chapter we address some of the questions that invariably loom large in the minds of organizational planners contemplating ABC/M application to their problem-solving. The chapter introduces some of the concepts and terms that are basic to understanding ABC/M as an accounting tool and, more importantly, as a management tool for encouraging behavioral change.

SO, WHAT IS THE BIG PROBLEM?

Why do some public sector managers shake their heads in disbelief when they think about their organization's cost accounting system? The authors once heard a public official complain, “You know what we think of our cost accounting system? It is a bunch of fictitious lies – but we all agree to them.” Of course, he was referring to the misallocated costs based on those broad averages violating costing's causality principle that result in flawed and misleading information. What a sad state it is when the users of the accounting data simply resign themselves to a lack of hope. And unfortunately, many of the accountants are comfortable if the numbers all foot-and-tie in total; they care less if the parts making up the total are correct. The total is all that matters to them, and any arbitrary cost allocation can tie out to the total expenses. ...