Creating a Nexus between Workload and Costs
Jon M. Shane
At some point in an executive’s career they will be required to develop a budget for something. Indeed it is a prime responsibility. A budget is merely a plan described in financial terms. Knowing which budget plan to choose is a matter of what needs to be conveyed. There are many different budget styles, each with a different purpose. For example, the most common government budget is the line-item style, which answers the question: what is to be bought? This budget plan is oriented toward control and economy. A program budget answers the question: what is to be achieved? This budget plan is oriented toward planning and effectiveness. And a performance budget answers the question: what is to be done? This plan is oriented toward management and efficiency.1 Each has its place depending upon the goal. However, one budget style, which has gained popularity over the last few years, has the ability to link activities to
costs, giving executives a better understanding of the full costs of service and resource allocation. This plan is an activity-based budget (ABB). Activity-based budgeting is an outgrowth of activity-based costing (ABC), which is similar to zero-based budgeting.2 This budget type accounts for how staff members allocate their effort among activities. Once the full cost of each activity has been calculated, drivers can be established that link support activities to the primary activities of the organization—in a law enforcement environment the primary activities are the direct costs of program delivery3 (e.g., patrol services, investigations, tactical operations, traffic control, etc.). By developing a comprehensive activity-based budget executives are able to create a clear nexus between workload and costs. Once developed, executives and managers can exercise control in several ways: 1) assign personnel based upon a demonstrated need, 2) expand or contract personnel proportionately as the need changes, 3) uncover waste and hidden costs, 4) view which activities are most and least expensive, thus subjecting them review, 5) assess the full efficiency of the
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organization, 6) identify places to cut spending, 7) establish a cost baseline that may be influenced through process or technology changes that reduce effort requirements for the activity,4 and, perhaps most importantly 8) argue from an informed, objective position in favor of
the organization’s budget.
This article will analyze a hypothetical police precinct and the activities of the patrol force to determine: 1) how many officers are required to handle the workload, 2) the salary, material and equipment costs, and 3) the distribution of time across three primary categories of patrol work: calls for service, administrative and proactive activities. ACCOUNTABILITY AND THE POLITICS OF BUDGETING
Being entrusted with public monies requires the utmost integrity and responsibility. In recent years there have been efforts afoot to make budgets more readable and understandable. An ABB is transparent and eliminates hidden costs. Not only does it afford a reader the ability to see where the funds are being spent, it gives a manager who has oversight the ability to see at a glance the most expensive activities and where to exercise control. One of the keys to accountability is to ensure the manager assigned to the budget has real control over the resources that take the form of decision-making authority, information and skills. “A manager cannot be responsible for a budget in which they have no authority to approve expenditures.”5 The Politics of Budgeting
Appropriations battles are common. In fact, as an executive charged with budget implementation and control, subordinate personnel expect the executive to engage in appropriations battles as an exercise in leadership and argue...