program support ab—the journey2001 lenhardt & colton, llc activity based—solutions the...

Program Support AB—The Journey2001 Lenhardt & Colton, LLC

Activity Based—SolutionsActivity Based—SolutionsThe JourneyThe Journey

Program Support Group

May 09, 2001

Program Support AB—Solutions

2001 Lenhardt & Colton, LLC Slide 2

May 09, 2001

Program Support JourneyProgram Support Journey

Initial Activity Analysis and ABC Model Development

What can this be used for? Examples/Illustrations

FY 2000/2001 ABC Update and Calibration Deploy ABM Institutionalize—and Get Ready for ABB



May 09, 2001

Reduce Cycle Time

ReduceCost

ImproveQuality

Increase Levelof

Service

Why deploy Activity-based? Why deploy Activity-based?



May 09, 2001

Activity-based info helps you decide. . .Activity-based info helps you decide. . .

. . . what to do differently.. . . what to do differently.



May 09, 2001



May 09, 2001

Information isData

Endowed withRelevance

andPurpose.

Peter Drucker, 1990

You Need Good InformationYou Need Good Information



May 09, 2001

Mn/DOT’s PurposeMn/DOT’s Purpose

Identify Cost, Quality, & Timeliness (CQT)

Manage CQTMeasure CQT



May 09, 2001

Relevant InformationRelevant Information

Is ActionableIs TimelyIs Available to those doing the workIs expressed in the same language

as workImparts an understanding of causes

of activities/costs



May 09, 2001

Traditional Information…Traditional Information…

Description Plan Actual VarianceSalaries & Benefits 500$ 575$ (75)$ Supplies 20 25 (5) Depreciation 50 45 5 Building Occupancy 25 25 - Utilities 75 85 (10) Transfers 50 60 (10) Total 720$ 815$ (95)$

Is not relevant to the purpose of identifying, Is not relevant to the purpose of identifying, managing and measuring CQTmanaging and measuring CQT



May 09, 2001

Traditional versus Activity-based Traditional versus Activity-based

Project ManagementProject Management

Performance MeasuresPerformance Measures

Workload RequirementsWorkload Requirements

IWS Activities Plan ActualVarianceIssue Permits 245$ Inspect Plants 125 Monitor Users 60 Respond to Spills 125 Attend Meetings 180 Collect Fees 80 Total 815$

IWS Activities Plan ActualVarianceIssue Permits 245$ Inspect Plants 125 Monitor Users 60 Respond to Spills 125 Attend Meetings 180 Collect Fees 80 Total 815$

Focus on ActivitiesAnd Outputs!

Causes!!

Description Plan ActualVarianceSalaries 575.02$ Supplies 25.38$ Depreciation 44.72$ Building Occupancy 25.00$ Utilities 84.55$ Transfers 60.00$ Total 814.67$

Description Plan ActualVarianceSalaries 575.02$ Supplies 25.38$ Depreciation 44.72$ Building Occupancy 25.00$ Utilities 84.55$ Transfers 60.00$ Total 814.67$

Do Not Focus Solelyon ResourcesVariance



May 09, 2001

Input OutputActivity

Resource $

An Activity-Based ApproachAn Activity-Based Approach

Exploits the “Process Model” of Work



May 09, 2001

Activity Based BudgetingActivity Based Budgeting

How many dollars do I need?

Activity Based Budgeting

Activity Based ManagementActivity Based Management

How well are we doing?

Activity Based Performance

Measures

How/where can I best improve the

process?

Activity Based Continuous

Improvement

Activity Based—SolutionsActivity Based—Solutions

ActivitiesActivities

Activities Outputs

Resources

Activity Analysis

Inputs

Activity Based CostingActivity Based Costing

How much does something cost?

Activity Based Costing



May 09, 2001



Activities Outputs

Resources

Activity Analysis

Inputs


The tracing and allocation of costs to products & services via the activities & processes consumed by the products and services.


The tracing and allocation of costs to products & services via the activities & processes consumed by the products and services.



May 09, 2001



FY 2000/2001 ABC Update and Calibration

Deploy ABM Institutionalize—and Get Ready for ABBWhere is it all taking

you?—Examples/Illustrations



May 09, 2001

Initial Activity Analysis and ABC Model DevelopmentInitial Activity Analysis and ABC Model Development

ES TS CC LM BS BO MR TE AT IM EC CM MDS

1 Pre-Kickoff Conference2 Office Kickoff Meeting

Office Process Analysis3 Identify Office Demands (Outputs)

4 Identify Office Activities

5 Define Output Normalization Criteria

6 Identify Office Resources & Utilization

7 Define Office Data RequirementsCollect Office Data

8 Collect Output Quantities

9 Validate Office Org Structure

10 Complete Crosswalk TablesBuild the Model in NetProphet

11 Draw the Initial Model Schematic

12 Hold Initial Office Modeling Meeting

13 Input Initial Model Boxes & Links

14 Input the Initial Model Factors

15 Identify & Resolve Modeling Issues

16 Import Dollar Data from Crosswalks17 Validate the Model18 Prepare Office Summary

Project Task

Program Support Offices



May 09, 2001

ABC Operational Model

Crosswalks

Mn/DOT Computer Databases

ABC Dollarized Model

Much has been accomplished!Much has been accomplished!

Activity Analysis


Resource $

Activity DictionaryResource Tracing

WorkbookNormalization

Workbook

Factors WorkbookSchematics



May 09, 2001







May 09, 2001

Activity-based ExamplesActivity-based Examples

ABC Data

Activity-based Cost Estimate

Activity-based Service

Agreement

Activity-based Budget

Scenarios—Net Prophet II

Activity-based Continuous

Improvement



May 09, 2001

Activity-based Cost EstimateActivity-based Cost Estimate

What are you costing? What activity outputs does it consume? Are the outputs normalized? Which variety

is consumed? How many are consumed?

Use an Activity-based cost estimating worksheet to quickly obtain your answer.



May 09, 2001

Activity-based cost estimating worksheetActivity-based cost estimating worksheetSign Shop Cost Estimate for: One 30 inch Stop Sign

Primary ActivityNormalization

CriteriaComplexity

FactorActual

QuantityNormalized Quantity

Hours perOutput

ExtendedHours

Cost Per Output

Extended Cost

OCM-29Prepare Production Work

OrderNot Normalized 1.000x 1 1.000 1.4994 1.499 Hours $65.000 $65

OCM-30Pull Parts from Stock

Not Normalized 1.000x 2 2.000 0.0077 0.015 Hours $0.375 $1

2.000x 1 2.000 0.0195 0.039 Hours $1.210 $2

OCM-32Apply Legends to Signs

3.000x 1 3.000 0.0344 0.103 Hours $1.550 $5

OCM-33Assemble Sign

ComponentsNot Normalized 1.000x 1 1.000 0.0845 0.085 Hours $5.055 $5

OCM-34Prepare Sign Order

for DeliveryNot Normalized 1.000x 1 1.000 0.0800 0.080 Hours $0.400 $0

GRAND TOTAL 0.322 Hours $13

OCM-31Apply Sheeting to Blanks

Sign > 36" X 36"

Requires Screening

Requires Cutting

Used Sign Blank

Squeeze Roller



May 09, 2001

Activity-based Service AgreementActivity-based Service Agreement

What are you costing, for which district? How many outputs are consumed by that

district? What is your negotiated cost-per-output with that

district?

Use an Activity-based service agreement worksheet to quickly obtain your answer.



May 09, 2001

AB Service Agreement WorksheetAB Service Agreement Worksheet

FY 2001 Cost per Normal Output =>

$4,180

PropertyDescription

Total or Partial Take

Type of Acquisition

Value of Property

ComplexityFactor

Weighted Cost per Acquisition

Estimated # of FY2001

Acquisitions

Estimated Cost of FY2001

Acquisitions

Normalization Criteria

Fiscal Year: 2001

Customer: MetroLand Management

Service Agreement Estimate

Activity: Purchase Real Estate

Narrative Partial Take Eminent Domain $10K-$200K 2.13X $8,903 4 $35,612

Narrative Partial Take Eminent Domain >$200K 3.88X $16,218 1 $16,218

Total 202 $1,632,885



May 09, 2001

Activity-based BudgetActivity-based Budget

What is the projected workload, expressed in terms of activity outputs?

What is the forecasted cost per output?



May 09, 2001

AB Budget WorksheetAB Budget Worksheet



May 09, 2001







May 09, 2001Update and Calibrate for FY2000/2001Update and Calibrate for FY2000/2001



May 09, 2001

Process to Maintain DocumentationProcess to Maintain Documentation

From the Modelers’ Meetings 1 and 2.



May 09, 2001







May 09, 2001

Activity Based ManagementA formal management process that

supports excellence:1. Encourages an understanding of

how activities and processes contribute to the strategic objectives of the organization.

2. Encourages changes to traditional management. practices to emulate best practices and establish process controls to ensure consistently good performance.

3. Enables a systematic process of continual process improvement, allowing organizational improvement to be planned, budgeted, monitored and controlled.

Activity Based ManagementA formal management process that

supports excellence:1. Encourages an understanding of

how activities and processes contribute to the strategic objectives of the organization.

2. Encourages changes to traditional management. practices to emulate best practices and establish process controls to ensure consistently good performance.

3. Enables a systematic process of continual process improvement, allowing organizational improvement to be planned, budgeted, monitored and controlled.



Activities Outputs

Resources

Activity Analysis

Inputs



May 09, 2001

Continuous Improvement. . . Continuous Improvement. . .



May 09, 2001

Deploy ABMDeploy ABM



May 09, 2001

““Deploy ABM” ProcessDeploy ABM” Process

A. Elements of ABM

B. Plan the ABM Rollout

C. Internalize the Vision

D. Execute First Cycle of ABM

E. Assess the Execution of ABM

F. Institutionalize the Process of ABM



May 09, 2001

Activity Based Continuous ImprovementActivity Based Continuous Improvement

Problem? Solution!

How/where can I best improve the process?

Activity Based Continuous

Improvement

Eliminate wasteful (non-value added) activities Optimize resources by continuously improving

value-added activities Use activities/outputs to link all management

tools



May 09, 2001

Establish “Value” Definitions—ExamplesEstablish “Value” Definitions—Examples

An activity could be considered value added (VA) if:

An activity could be considered non-value added (NVA) if:

It is required to meet external customer requirements.

It can be eliminated without impacting the form, fit or

function of the product.

It is required by the government or other regulatory

agency.It involves rework or inspection.

It modifies or enhances the raw materials of our

product.It results in waste and adds no value to product or

service.

The customer is willing to pay for the incremental value

added.It is performed due to inefficiency in the upstream

process.

It is a critical step that cannot be eliminated in a

business process.It is duplicated in another department or adds unnecessary steps to the process.

It is performed to resolve or eliminate a quality

problem.It is performed to monitor quality problems.

It is performed due to a request or expectation of a

happy customer.It is performed due to a request from an unhappy

customer.

It produces a valuable output.

It produces unnecessary or unwanted output.



May 09, 2001

Quality Tools for ImprovementQuality Tools for Improvement

ToolPlanningAnalysis

Prioritize &

InterpretTeamingPersonal

Brainstorming X X X

Storyboard (Affinity Diagram) X X X

Matrix Diagram X X

Root Cause Analysis X X

Fishbone Chart (Cause/Effect) X X

Criteria Rating X X X

Data Sheets X X X

Tree Chart X X

Pareto Chart X X

Sequence Flow Chart X X X X

Process Flow Chart X X X X

Scatterbrain Diagram X X

Control Chart X X X

Histograms X X X X

Task



May 09, 2001

Where to start?Where to start?

Scenario: Improve ProcessScenario: Improve Process

You’ve been given a 10% productivity goal.



May 09, 2001

Generate a listGenerate a list

To define the opportunity, start by listing some of the visible adverse symptoms, or “effects” of some underlying problems within your workgroup– The visible signs of underlying problems

generally are symptomatic of a deeper problem

– Your goal is to brainstorm some of the effects, then work backward to determine the root cause



May 09, 2001

Remember Your Activity Analysis?Remember Your Activity Analysis?



May 09, 2001

Link Adverse Effects to ActivitiesLink Adverse Effects to Activities



May 09, 2001

Estimate the Impact (ROM)Estimate the Impact (ROM)

Let’s investigate this one.



May 09, 2001

Determine Root CauseDetermine Root Cause

Some Quality Tools to Identify Root Cause– Brainstorming– Cause and effect diagrams– Data Collection (Check sheets) and

Analysis– Pareto Analysis– “Five Why’s” approach



May 09, 2001

Fishbone (Cause/Effect) “Tool”Fishbone (Cause/Effect) “Tool”

Project:

Reduce Unplanned Changes

Reason Selected:

Initial Cost Driver analysis showed that unplanned changes causes close to $ 650 thousand of recurring activity cost.

PeoplePeople

PoliciesPolicies

ProcedureProcedure

SystemsSystems

Analysis

Cause of unplanned changes?

Cause of unplanned changes?

Lack of training

Customer makes changes

Policies inadequate

Procedure not being followed

Inadequate tracking & communicationtools



May 09, 2001

Data Collection/AnalysisData Collection/AnalysisData Collection: Checksheet

Reason> Date Customer Change

Inadequate Procedure

No Communication Other Total

12-Aug ✔✔✔✔✔ ✔✔ ✔ ✔ 919-Aug ✔✔✔ ✔ ✔ 526-Aug ✔✔✔✔✔✔ ✔✔✔ ✔✔ ✔ 122-Sep ✔✔✔ ✔ ✔ 59-Sep ✔✔✔✔ ✔✔✔✔ ✔ ✔ 1016-Sep ✔✔✔ ✔✔ ✔ ✔ 7



May 09, 2001

Idea

IdeaIdea

Idea

IdeaIdea

Idea

IdeaIdea

Idea

Idea

Affinity Diagram

Prohibit Changes Hold Monthly Review

Design CollaborativeGoals with Incentives

Other

Identify Possible SolutionsIdentify Possible Solutions



May 09, 2001

Prioritize Possible SolutionsPrioritize Possible Solutions

Solution Alternative>> Alternative 1 Alternative 2 Alternative 3Decision Criteria Weight Rank Score Rank Score Rank ScoreCost of Solution 20% 1 0.2 4 0.8 6 1.2Effectiveness of Solution 40% 10 4 7 2.8 9 3.6Probability of Success 20% 1 0.2 5 1 7 1.4Resistance 10% 1 0.1 6 0.6 6 0.6Ease of Implementation 10% 4 0.4 7 0.7 5 0.5Total 100% 4.9 5.9 7.3

Rank 10 = Most Favorable 1 = Least Favorable

Alternatives1 Prohibit changes altogether.2 Hold monthly meetings with customers, systems design and software design

to discuss changes, change impact and forecasted changes.3 Sponsor a Customer Communication event. Communicate issue, share results of

cost analysis, propose collaborative arrangement to jointly determine and reduce thenumber of unplanned changes. Develop a proposed incentive/reinforcement plan to increase effectiveness.



May 09, 2001

Trace Improvement to Primary ActivitiesTrace Improvement to Primary Activities

No. Primary Activity

Base Total Cost

TS1 Produce a PS&E Package $1,360 k

TS2 Provide OTS expertise $1,427 k

TS3 Prepare muni/utility agreements/permits $926 k

TS4 Manage consultant contract process $916 k

TS5 Develop customized software/systems $2,953 k

TS6 Develop/design final project plans/guides $506 k

TS7 Design and deliver OTS Training Events $680 k

TS8 Prepare and distribute PS reports $813 k

TS10 Publish and update stds. & specs. $568 k

$10,149 k

Base Unit Cost

Projected Total Cost

$3,417 $1,224 k

$46 $1,356 k

$785 $926 k

$860 $916 k

$55,717 $2,510 k

$42,167 $506 k

$12,593 $680 k

$2,180 $813 k

$3,665 $568 k

$9,499 k

Projected Unit Cost

$3,075

$44

$785

$860

$47,358

$42,167

$12,593

$2,180

$3,665



May 09, 2001

Monitor the ImprovementMonitor the Improvement

Pareto Diagram

0

5

10

15

20

25

A B C D

Reason for Unplanned Changes

Frequency of Occurrence

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Diagram - After 6 Months

0

5

10

15

20

25

B C D A

Reason for Unplanned Changes

Frequency of Occurence

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Average Monthly Unplanned Changes

0

5

10

15

20

25

30

35

Baseline Month 1 Month 2 Month 3 Month 4 Month 5 Month 6

# Changes Per Month

Great Job!!



May 09, 2001

ABM - A Systematic Process ABM - A Systematic Process

Identify improvement opportunities

Develop action plans

Implement & Evaluate

Improve Processes

Cost, Quality, Time (CQT)

Evaluate Performance


Resource $Assign Resources

to achieve Performance

Budgeting

PL

AN

DO

CH

EC

K

ACT

AC

T



May 09, 2001

A New A New FocusFocus



May 09, 2001

How do you get there?How do you get there?



May 09, 2001

Deploy ABM in Program SupportDeploy ABM in Program Support

A. Elements of ABMB. Plan the ABM RolloutC. Internalize the VisionD. Execute First Cycle of ABME. Assess the Execution of ABMF. Institutionalize the Process of ABM



May 09, 2001

Planning the ABM RolloutPlanning the ABM Rollout

Identify and/or refine project goals & objectives Create project “scoreboard” to keep project focus

– Predetermined success criteria Identify project sponsor

– Provide “roadmap”, suggesting active leadership role for sponsor to carry out

Recruit steering team and ABM project teams– Provide clear guidelines

Develop and gain approval for project plan and key milestones Communicate plan as part of overall ABM communications

effort



May 09, 2001





May 09, 2001

Internalize the VisionInternalize the Vision

Educate managers and employees to obtain:

– Buy-in– Commitment– Participation

Create the environment in which ABM can succeed– Communications– Rewards & recognition– Trust

Educate managers and employees to obtain:

– Buy-in– Commitment– Participation

Create the environment in which ABM can succeed– Communications– Rewards & recognition– Trust



May 09, 2001





May 09, 2001

Execute First Cycle of ABMExecute First Cycle of ABM

Ya’ll fired!

Identify improvement opportunities Determine root cause, possible solutions Prioritize, recommend plan Coordinate with business planning Develop CQT performance

measures.



May 09, 2001





May 09, 2001

Assess the Execution of ABMAssess the Execution of ABM

Summarize results Assess results vs. success factors Present findings to steering team Identify and charter process improvement

teams as appropriate Hold periodic follow-up meetings to

evaluate progress Determine next steps



May 09, 2001





May 09, 2001

Institutionalize the Process of ABMInstitutionalize the Process of ABM

Create/refine “ABM Process” dictionary

Establish and train “ABM Process-owners” within each office

Plan (with ABM process-owner teams) execution of ABM Cycle 2

Coach office teams during Cycle 2



May 09, 2001

Pitfalls to AvoidPitfalls to Avoid

Lack of Top Management Buy-In Project Perceived as Just Another

“Accounting Project” Lack of Absolutely Clear Goals & Objectives Insufficient Resources Committed to the

Project Resistance to Change- Individual &

Institutional Lack of Long-Term Vision Regarding the Role

of ABM



May 09, 2001







May 09, 2001


The process of planning and controlling the expected activities or business processes of the organization to derive a cost-effective budget that meets forecasted workload and agreed strategic goals.


The process of planning and controlling the expected activities or business processes of the organization to derive a cost-effective budget that meets forecasted workload and agreed strategic goals.



Activities Outputs

Resources

Activity Analysis

Inputs



May 09, 2001

ABB—Getting ReadyABB—Getting Ready

Update and Calibrate Process Definitions and Models– Activity Definitions– Normalization Factors– Resource Tracing

Develop Simple Output tracking methods Maintain and update the Process

Documentation Set Make “Process Understanding and Definition” a

regular part of your business meetings

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