Budget business insanity is the practice of management in public, private or government sectors trying to reduce cost this year and improving service while still using last years processes. 

Today, management “cure all(s)” for lagging performance and rising cost of service is to immediately cut staff, reduce service and acquire a new computerized business system.  This may appear to be a short term emotional “fix” but the real “root” cause is not going to be resolved this way.  What is really lacking is basic business philosophy 101.  It is like a football team after having a losing season believes that believes that by merely acquiring an outstanding player will improve the team’s record for the following season.  If the team does not continuously practice “basic” blocking and tackling skills, their chances of success are slim.  Management in government, public and private sectors need to return to the “basics” of operating a business.  It is not as glamorous as getting a new computerized business system but it will stem the “bleeding” of resources and eroding service.  Acquiring a new computerized business system without first identifying the problems with the current process only perpetuates (and frequently compounds) the problems while adding additional cost for the new systems.

The following is an actual illustration of what can happen when management has not mapped the process, written desk instructions, developed measurement to know how long it takes to perform the activity or even developed “score cards” to monitor trends.  Mapping the process flow is essential to provide management with a tool to visually examine the entire activity process in order to identify and remove non value added tasks or substitute tasks that may be in the activity.  It is essential to remember that all activities consume resources.  Lean manufacturing proponents refer to non value added tasks or substitute task as “muda” a Japanese term that mean “waste” or an activity that absorbs resources but creates no value.  Another fundamental component is measurement.  Without a process for measurement, management can not reliably determine how long it takes for the activity(s) to be performed and to use this information to develop a staffing guide.  Lacking this information management has no way of knowing what it is costing to perform that activity.  Management is unable to budget properly, reduce cost or improve response time to the customer.

The client* in this study had two locations where the same identical activity was being performed.  This allowed for a direct comparison of steps as well as developing and establishing a “bench mark”.

Initially it appeared that it was a very basic activity being performed.  The activity was to setup and close out a case.  The basic tasks involved the receiving of a document, entering the document data into computer data base and then closing out the case from the system.  Close analysis found that each location had developed its own non documented concept of how the process was to be done.  Because the process had been allowed over time to go undocumented and unmeasured, it was found that employees and management had added additional steps.  Some of these steps were “just in case” activities.  Therefore this basic major process having been left unchecked continued to expand and consumed more resources than actually needed.  Documentation of the process revealed and allowed management to identify and remove unnecessary steps that were previously being performed.

The following charts show what it cost using the same volume in terms of time and cost to perform the same activity using Process “A”, Process “B” and Process “C”.  Process “C” is the new streamline process that was developed for the same major activity.  In addition desk instructions and measurements were also developed for the client.  The new “streamlined process resulted in “Total Hours going from 1289 hours to 432 hours and the Cost per Document from $2.98 per document to $1.00 per document.  The new streamlined process allowed the client to be able to both reduce cycle time and to realize annualized savings of $17,820 to process the same number of documents using the new "streamline” process.

The focus of ABM (Activity Based Management) is the management of the activities that consume the costs to provide the service, not the workers.  ABM methodology allows the users to identify and evaluate opportunities for process improvement by examining processes.  The intent is to insure the use of “best practices” and promote the concept of continuous process improvement.

Regardless of the nature of the business; the same opportunities for process improvement exist in manufacturing, office, banking, medical and government environment.  Implementing a continuous process improvement mindset (or best practice) using ABM methodology with documented process mapping, activity measurement, desk instructions and regular tracking of trends can result in an initial 15 to 30 percent improvement in productivity. 

*The client in this study was a government office.  Similar processes have also been observed in public and private work places where using ABM principles have achieved comparable saving.