Cost-analysis software wins fed business
- By Heather Harreld
- Jan 24, 1999
Fueled by the requirements of the Government Performance and Results Act and dwindling budgets, several federal agencies have begun to use activity-based, cost-management software from Atlanta-based Armstrong Laing Inc. to display the true costs of services.
The Treasury Department, the Patent and Trademark Office and the Customs Service all are using Armstrong's HyperABC software, which is designed to restate financial data from financial reporting systems in ways that will be more helpful for strategic decision-making.
HyperABC assigns cost to activities based on measurements of resources used, such as people's time, space used and head count, as opposed to arbitrary allocations, such as direct labor hours, said Ellen Valentine, Armstrong's vice president of marketing.
The software is designed to answer cost questions with a simple point-and-click technique, and costs can be sliced and diced across any number of segments. For example, a user can spread costs to customers using "number of visits" as a cost driver and then spread costs to products based on the volume purchased by each customer.
"It transforms traditional costs like salary and rent into activity-based costs," Valentine said. "It really unlocks process-based business decisions. With activity-based costing...you actually can say, 'In this branch of the agency it costs us two times [as much] to do the same activity as another branch.' It really gives you this link between expenses, processes and performance."
For example, Customs has been using the software to analyze the costs of processing forms for people and goods coming into the nation at various entry points across the country, Valentine said.
The agency's workload had increased, while its funding to process at entry points had remained stagnant. As a result, the agency used the product in an effort to optimize performance. By using the software, Customs officials found they had different costs associated with the same processes in various airports and ports, and they were able to pinpoint the best practices across the organization, Valentine said.
Treasury has used the software in its comptroller's office for the past several years and this year began using it in the Debt Management Services division of the Financial Management Service. The division, which collects debts owed to the government by people and businesses, used the software to put together fiscal 1999 projections, said Dave Rebich, manager of the policy and planning branch in the Debt Management Services division.
Debt services officials were able to change accounting structure costs to actual work units, he said. For example, debt services divided up its rent by square footage.
"You can look at your operations and say...'I spent $1 million for salaries' by [displaying] that $700,000 of that salary money was spent producing output X and $300,000 was spent producing output Y," Rebich said. "We just really wanted to get a handle on our full costs."
The data is used to justify the fees the division charges for its services and for planning officials to determine if there are services that should be discontinued because of inefficiencies, he said.
David Caruso, vice president of enterprise applications strategies at Boston-based AMR Research Inc., said Armstrong's cost-management software enables users to visually map business processes and then simulate changes—two features that are particularly attractive to customers.
"When you start seeing where costs build up, you can really quickly go back and make changes," Caruso said.
The product also enables users to map a study of costs associated with a variety of business processes, as opposed to other products, which can strictly limit what type of business processes can be analyzed, Caruso said.