Chapter 12 - Budgeting and Performance Measurement

CHAPTER 12:
Number )ue#%io*#: 12-1 12-2 12-! 12-# 12-% 12-( 12-) 12-, 12-. 12-1/ C"#e#: 12-1 12-2 12-!

BUDGETING AND PERFORMANCE MEASUREMENT

OUTLINE T pe!T"#$ S%"%u# &re: 1'!e( New 1!-2 1!-! 1!-# 1!-% 1!-) New 1!-, re-ised 1!-. 1!-1/ re-ised 1!-1 re-ised 1!-2 re-ised New 1!-1 re-ised 1!-2 re-ised 1!-! 1!-# New 1!-( re-ised 1!-)re-ised New

Topic

Budgeting reporting Integration of planning/ udgeting/performance measurement "ine-item udgeting approaches Performance and program udgeting &nnual udget process Balanced scorecards *E& reporting and +&*B *er-ice efforts and accomplishments &cti-it' ased costing 0ederal grant accounting and allowa le costs +01& $istinguished Budget &ward Budgeting process and policies 0ederal grant accounting and allowa le costs

Explain Explain Compare $escri e Identif' $escri e $escri e $efine Explain $escri e Internet E-aluate E-aluate2 report Examine Multiple choice E-aluate E-aluate Examine2 e-aluate &nal'5e E-aluate Examine2 anal'5e

E+erci#e#!Prob,em#: 12-1 Examine the udget 12-2 3arious udgeting issues 12-! +eneral 0und annual udget 12-# Police department udget 12-% Illustrations within a udget document4 12-( *E& reporting 12-) &cti-it'- ased costing 12-, *E& reporting

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Chapter 12 - Budgeting and Performance Measurement

CHAPTER 12:
&nswers to 6uestions

BUDGETING AND PERFORMANCE MEASUREMENT

12-14 Most go-ernments pu lish a stand-alone udget document for each udget c'cle4 7he' will also pu lish preliminar' and final udget information in local newspapers4 In terms of external reporting2 budget-to-actual statements (for the General Fund and major special revenue funds with a legally adopted budget) are required as supplementary information or as a more traditional statement that compares budgeted to actual operating performance within the basic financial statements. 12-24 Illustration 12-% is a graphic representation of the acti-ities in a process that includes strategic planning2 udgeting2 and measuring performance4 Briefl'2 the go-ernment sets a direction for the organi5ation through a strategic plan2 de-elops programs and acti-ities2 designs performance measures2 udgets in such a wa' that shows resources used are expected to result in accomplishments2 monitors operations2 and then e-aluates and reports on actual results compared to the plan4 7hese steps are repeated in a c'cle that pro-ides feed ac8 to sta8eholders to whom the managers are accounta le4 0eed ac8 is then incorporated into the next strategic plan4 &n integrated s'stem of planning- udgeting-performance measurement is desira le ecause it re9uires managers to clearl' identif' targeted outputs and outcomes2 to e transparent to all internal and external sta8eholders a out those desired outputs and outcomes2 and to pro-ide leadership and written policies a out how to attain those goals4 &n integrated s'stem should e more li8el' to lead the go-ernment to achie-e its goals and o :ecti-es than a disaggregated set of planning2 udgeting2 and measurement s'stems4 12-!4 Incremental budgeting is an approach that focuses on line-item accounts or o :ects-ofexpenditure ;for example2 salaries2 tra-el2 supplies2 and rent<4 7his approach starts with actual amounts in line-item accounts from the current or prior 'ear and expected increases are added and expected decreases are su tracted for each account in arri-ing at udgeted amounts for the coming 'ear4 1ften percentage increases are added =across the oard> to all line items ased on the expected rate of inflation4 7hus2 it is low cost ut does not pro-ide information a out performance4 Incremental udgeting does not consider the effecti-eness of programs or the efficienc' with which the funds were spent in accomplishing go-ernment goals4 Zero-based budgeting also uses line-item account information from the past 'ear2 ut re9uires that the manager :ustif' each line-item amount that is eing re9uested for the new 'ear4 In this wa'2 the worthiness of a program to continue can e examined and2 presuma l'2 acti-ities or programs that do not add -alue are not funded again in the new 'ear and cease to exist4

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Chapter 12 - Budgeting and Performance Measurement Ch4 122 &nswers2 12-! ;Cont?d<

&lthough 5ero- ased udgeting is conceptuall' sound and eas' to understand2 incremental udgeting is simple to appl' and leads to continuation of existing programs at increasing le-els of funding4 1f course2 when the a-aila ilit' of resources decline2 more rational approaches such as 5ero- ased udgeting are attracti-e when difficult allocation decisions must e made in the udget4 12-#4 &n ad-antage of performance budgeting and program budgeting o-er incremental budgeting is that the former two methods relate resource inputs to units of wor8 accomplished ;outputs< and there ' permit e-aluation of an organi5ational unit@s performance4 Performance and program udgeting mo-e udgeting to a managerial tool that can e used to focus attention and resources on impro-ing performance2 or operating programs most li8el' to ad-ance the goals and o :ecti-es of the go-ernment4 Incremental udgeting merel' pro:ects changes in costs from the prior 'ear to the new 'ear without considering whether those expenditures =made a difference4> Performance udgeting is not without costs2 howe-er2 since it suggests the need for an accrual accounting s'stem2 and possi l' a well de-eloped cost accounting s'stem2 in order to determine the costs of programs or acti-ities4 12-%4 Each udget period2 a go-ernment should follow a well-defined udget process that includes a udget calendar of acti-ities with associated target dates for completionA udgets for appropriations2 re-enues2 capital expenditures2 cash receipts and cash dis ursements and identification of responsi le personsA pu lic hearingsA and presentations to the oard or council for appro-al4 7he process ma' e coordinated ' a udget officer or udget office4 7he udget ma' e presented along with performance measures of outputs and outcomes that the go-erning od' can use in determining whether or not to recommend appro-al of the udget4 12-(4 Balanced scorecards t'picall' report on performance measures that fall into four categoriesB financial2 customer2 internal usiness processes2 and learning and growth ;of the emplo'ees or the organi5ation<4 7his management tool was designed for the usiness sector2 so go-ernments will need to adapt these categories to include performance goals appropriate to go-ernment2 such as the followingB ;1< 0inancialC7he cit' will not urden the next generation with the cost for ser-ices pro-ided toda'4 ;2< CustomerC Citi5ens will e a le to con-enientl' tra-el from an' point in the count' to the downtown district4 ;!< Internal usiness processesC7he state will register -ehicles in an efficient and con-enient manner4 ;#< "earning and growthC7he school district will support its teachers in maintaining and ad-ancing their academic credentials4

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Chapter 12 - Budgeting and Performance Measurement Ch4 122 &nswers2 12-( ;Cont?d<

7he ad-antage of choosing performance goals that can e easil' understood2 measured2 and communicated to citi5ens in pu lic forums or on go-ernmental De sites is that attention will e focused on the success in accomplishing those goals4 Citi5ens can e sur-e'ed ;e-en online< to assess whether the' percei-e impro-ement in meeting these goals4 Indi-idual accomplishments can e profiled in each of these areas2 which ma8e the goal more easil' understood while recogni5ing the success of a department or emplo'ee in impro-ing the 9ualit' of go-ernment ser-ices to the pu lic4 12-)4 Dhile the +&*B has not issued standards for ser-ice efforts and accomplishments ;*E&< reporting2 it has sponsored and conducted extensi-e research on *E& measures and pro-ides guidance for go-ernments that -oluntaril' choose to produce such reports4 Concepts Statement No. 2, *er-ice Efforts and &ccomplishments Eeporting> ;1..#< was amended ' Concepts Statement No. 5 in 2//,4 +&*B also issued a 2//% user guide2 Government Service fforts and !ccomplis"ments #erformance $eports% ! Guide to &nderstanding and a Suggested Guidelines for 'oluntar( $eporting, S ! #erformance Information in 2/1/. 7hese documents pro-ide suggested criteria for use in preparing reports on ser-ice efforts and accomplishments measures2 descri e essential components of an effecti-e *E& report2 and identif' 8e's to effecti-e communication4 12-,4 *er-ice efforts and accomplishments ;*E&< measures includeB (1) input measuresmeasures of ser-ice efforts2 (2) output and outcome measuresmeasures of ser-ice accomplishments2 and (3) efficienc' and effecti-eness measuresmeasures that relate efforts to accomplishments4 12-.4 In essence2 con-entional cost accounting s'stems were de-eloped for a production econom' that produced generall' simpler2 less di-erse goods and ser-ices in a simpler2 less competiti-e2 and slower changing en-ironment than is common toda'4 +o-ernments2 no less than usinesses2 must compete for increasingl' scarcer resources while satisf'ing higher and more di-erse customer expectations4 Both go-ernment and usiness are eing held to higher standards of expected performance in terms of more efficient and effecti-e use of resources in producing goods and ser-ices4 In such an en-ironment2 it is important that costs per unit of output e measured with reasona le accurac'more specificall'2 at a cost that represents the total resources consumed in producing that unit of output4 &cti-it'- ased costing ;&BC< focuses on identif'ing the primar' cost dri-ers for each set of acti-ities used to produce a good or ser-ice4 In doing so2 &BC reduces significantl' the need for ar itrar' allocations of indirect ;o-erhead< costs using allocation ases that often lead to o-ercharging costs to high -olume outputs and undercharging costs to low -olume outputs4 B' identif'ing the cost dri-ers for acti-ities2 go-ernments ha-e een a le to see whether there are unnecessar' steps in a process or costl' steps that can e eliminated4 In this sense2 &BC has ecome a managerial tool for impro-ing performance4

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Chapter 12 - Budgeting and Performance Measurement

Ch4 122 &nswers ;Cont?d<

12-1/4 1MB Circular !-)* is the source identified in Illustration &12-1 in the &ppendix that pro-ides guidance to state and local go-ernments on cost principles for federal grants4 7he circular is readil' a-aila le on the 1MB De site at www4om 4go- and lists allowa le and unallowa le costs for federal grants and contracts4 0or example2 go-ernments will find that depreciation on e9uipment used on the grant is an allowa le cost2 alcoholic e-erages are an unallowa le cost2 and ad-ertising ma' e an allowa le cost under certain restricted conditions4 0ederal agencies that ha-e a num er of grant programs2 or large amounts of mone' to grant2 also ma' pu lish guidelines for the use of grantees4 *ince federal grants are awarded for specific purposes and funded with pu lic resources2 it is important that the use of the resources e controlled4 &s discussed in Chapter 112 federal grants are monitored -ia single audits4 *olutions to Cases 12-14 a4 7here is a list of all state and local go-ernments that are $istinguished Budget Presentation &ward winners for the most recent 'ear in the +01&?s annual report2 posted on its De site at www4gfoa4org under the =&ward Programs> ta and =Budget &wards Program> lin84 Eeaders will find at least one awardwinning municipalit' for most states and do5ens in the largest states4 7he num er of 'ears that the municipalit' won the award is indicated next to its name2 some for all 2) 'ears that the award program has een in existence4 *tudent responses will -ar'4 7he' should list 8e' udgetar' priorities and issues for each go-ernment and discuss the udgetar' trends descri ed in the two udgets4 &n interesting class discussion might address significant udgetar' trends noted within a state4 *tudent responses will -ar'4 7his re9uirement emphasi5es that the students are users of the udget document and their opinions are important4 Encourage students to share the feature of the udget presentation that the' considered noteworth' and explain wh'4

b4

c4

12-24 a4 7his passage from the Cit' of 7ope8a appears to e written such that it could e easil' understood ' the a-erage reader4 7he udget is a legal document and2 as such2 must con-e' information to demonstrate that the processes the go-ernment follows compl' with laws4 7his passage seems relati-el' succinct with appropriate references to legislation ;e4g42 F4*4&4 ).-).2)<4 De can presume that the =a-erage> reader of a udget document has some asic understanding of the relationship among the udget2 accounting2 and auditing4 7his passage pro-ides information a out the udget calendar2 the sanctions for spending more than what was appropriated2 and the re9uirement for an audit and disposition of the audit report4

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Chapter 12 - Budgeting and Performance Measurement Ch4 122 *olutions2 Case 12-2 ;Cont?d<

b4 Ges2 somewhat4 & preliminar' udget must e pu lished with a notice of pu lic hearing at least ten da's prior to the pu lic hearing4 Pu lic notices of udget amendments are also re9uired at least ten da's efore amendment hearings4 Pu lication of pu lic udget hearings do allow citi5ens the opportunit' to re-iew and comment on cit' udgetsA howe-er2 few citi5ens t'picall' exercise the opportunit' to participate in the udgeting process4 c. *tudents ma' find as the' re-iew examples of udgets from other go-ernments? De sites that the' ha-e preferences in format and presentation4 0or example2 larger font si5e2 more headers2 an inset calendar of 8e' dates4 &s presented2 the content of this section is thorough and necessar' for an'one with responsi ilities for administering the udget4 Perhaps2 a simpler one-page udget summar' along the lines of a popular report descri ed in Chapter . would e more useful to citi5ens4 & summar' document could supplement rather than replace the nearl' !// page udget document that is posted on the on the cit'?s De site4 7he &+& is encouraging go-ernments to prepare short citi5en-centric documents that ma' e appropriate for this purpose4 12-!4 a. 7he appropriate document to research the allowa ilit' of costs charged to federal grants for a local go-ernment is Circular !+)* =Cost Principles for *tate2 "ocal and Indian 7ri al +o-ernments> a-aila le at httpB//www4whitehouse4go-/om /circularsHdefault4 b. 0rom the list2 items 22 %2 and ( are allowa le4 *ome are not straightforward2 as discussed elowB ;1< &ccording to *ection 2)2 costs of meetings and conferences2 the primar' purpose of which is the dissemination of technical information2 are allowa leA howe-er2 in *ection #! e2 direct charges for foreign tra-el costs are allowa le onl' when the tra-el has recei-ed prior appro-al of the awarding agenc'4 ;2< Inder *ection 1!2 the costs of emplo'ee recreational acti-ities2 emplo'ee counseling ser-ices2 and an' other expenses incurred in accordance with the go-ernment@s esta lished practice or custom for the impro-ement of wor8ing conditions2 emplo'eremplo'ee relations2 emplo'ee morale2 and emplo'ee performance are allowa le4 ;!< &ccording to *ection 1) 2 costs of in-estment counsel and staff2 and similar expenses incurred to enhance income from in-estments are unallowa le4 ;#< &ccording to *ection 2#2 the cost of lo 'ing acti-ities underta8en to o tain grants2 contracts2 cooperati-e agreements2 or loans is generall' not allowed4 ;%< &s long as depreciation charges are reasona le and computed in con:unction with *ection 11 specifications2 depreciation is allowa le4 ;(< Inder *ection 222 costs of insurance re9uired or appro-ed and maintained2 pursuant to the 0ederal award2 are allowa le4

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Chapter 12 - Budgeting and Performance Measurement Ch4 122 *olutions

*olutions to Exercises and Pro lems 12-14 Each student should ha-e a different udget2 so answers will -ar'4 0or those students who chose a municipalit' that recei-ed the +01&?s $istinguished Budget Presentation &ward2 the' will find each of their documents includes2 at a minimum2 the re9uired criteria noted on the +01&?s De site ;and indicated ' as asteris8 in Illustration 12-1<4 Class discussion of different practices noted ' the students is generall' interesting and profita le4 0or more information on the criteria used in the +01&?s $istinguished Budget Presentation &ward program2 go to www4gfoa4org and see =&ward Programs4> If possi le2 use the Internet in class and pro:ect -arious De sites of municipalities to show differences in the udget formats4 12-24 14 24 !. #. %4 12-3 a. While Southwest City includes a statement of goals and a discussion of output measures for the Street Department, the budget itself uses a line-item format. f, howe!er, accrual cost accounting data are collected aside from the modified accrual budget data, the information in the budget could easily be used for performance budgeting. "here is some indication that the city uses incremental budgeting because the 2#13-2#1$ budget is appro%imately 11#& of the 2#12-2#13 estimate 'with the e%ception of capital outlay( and the 2#122#13 budget is appro%imately 11#& of the 2#11-2#12 actual results. b. )ecause the budget pro!ides *uantitati!e indicators or measures for both inputs 'e.g., tons of asphalt used( and outputs 'e.g., feet of drainage ditches cleared(, some indication of Street Department performance might be gleaned from the budgetary data by comparing the nonfinancial input and output measures, together with departmental staffing and e%penditures data, to data for similar si+e cities with similar demographics, or to prior years, data for Southwest City. d4 b4 d4 a4 a4 (4 )4 ,4 .4 1/. b4 d4 d4 a. c4

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Chapter 12 - Budgeting and Performance Measurement Ch4 122 *olutions2 12-! ;Cont?d<

"he data in the budget pro!ide no indication, howe!er, of how many personnel hours, and at what cost, were spent on each acti!ity- nor is there an allocation of supplies e%pense, depreciation, etc. to each acti!ity. "hus, one cannot lin. specific inputs to specific outputs and therefore cannot assess the performance for each acti!ity conducted by the Street Department. n a relati!e sense, it might be useful for the city council, the chief administrator, and departmental managers to note whether the le!els of outputs are more or less than in prior years, e!en though that would still not indicate whether the performance in any gi!en year was efficient or effecti!e. c. "he goals are not sufficiently specific to ser!e as standards for e!aluating departmental performance. "hree of the goals are stated in terms of a nonspecified /increase./ "hus, if the number of repairs for old utility cuts, miles of street shoulder repaired, or manhours spent on trimming o!erhanging limbs and brush are increased e!en slightly, departmental managers can claim they were efficient or effecti!e. f the goals were stated more specifically, such as to increase the number of utility cut repairs or miles of shoulder repaired by 1# percent, they would commit management to achie!e a measurable le!el of performance. nterestingly, the goals represent a mi%ture of inputs, process, and outputs. 0or e%ample, the goal to /increase manhours spent on trimming o!erhanging limbs.../ is stated in terms of an input. "he goal to /pursue an aggressi!e weed and grass control program.../ is process oriented and simply describes an acti!ity. What is meant by /aggressi!e/ could be sub1ect to !aried interpretations. 2ther goals are stated in terms of outputs. "he goals might be better stated in terms of outcomes desired by the citi+ens. 0or e%ample, to reduce the number of accidents, number of traffic fatalities and in1uries, etc. "34 could play a role in determining citi+ens, desires regarding streets and highways.
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Chapter 12 - Budgeting and Performance Measurement Ch4 122 *olutions Cont?d<

12-$. a. "his is a classic e%ample of incremental budgeting. 0rom the perspecti!e of the new town manager, who apparently is interested in applying +ero-based budgeting concepts, the police chief,s argument that last year,s budget should be the base, without further 1ustification, is wea. and not li.ely to be accepted. b. 5es, generally spea.ing, the town manager is to be applauded for attempting to implement a rational budgeting approach. 6olitics, howe!er, may be more important than economics in this particular case. 2ne would need to .now if the town council hired the new town manager to impro!e the performance of town go!ernment, including the budget process, or is the town manager acting on her own without .nowing what support she can e%pect from the town council. c. 7s discussed in part b, the town manager would be nai!e to underta.e budgetary reform without the bac.ing of a ma1ority of the town council. f the police chief has held office for a long period and is well respected in the community, the town council may direct the town manager to bac. off. n this case, the new town manager not only will ha!e lost some credibility with the council but will be less effecti!e in dealing with the police chief, and other town officials as well.

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Chapter 12 - Budgeting and Performance Measurement Ch4 122 *olutions2 12-# ;Cont@d<

d. )ased upon the information pro!ided, the town presently uses incremental line-item budgeting, probably organi+ed along departmental lines. 7lthough the new town manager,s effort to impose +ero-based budgeting discipline into the budgeting process is laudable, de!elopment of a program budget would further enhance the performance of the go!ernment. 7 well-designed program budget would utili+e citi+en participation to formulate broad goals from which more specific ob1ecti!es would be deri!ed. 7 budgetary structure and performance measurement system could then be de!eloped using features from one or more of the approaches discussed in Chapter 12 '66)S, 8)), "34, )alanced Scorecard, or S97(. Such an approach would contribute to more rational allocation of resources, specifically targeted toward attainment of the identified goals and ob1ecti!es. 12-:. a. 7!erage city ta% bills ha!e increased 2$& o!er a two-year period. "he areas of greatest increase ha!e been the library, employee benefits and bond and interest charges 'at a whopping 3##&(. 4ost other areas ha!e remained stable or increased at a reasonable rate. ;6<0 ';ansas 6olice and 0ire 6ension( had an increase followed by a decrease. Citi+ens may be comfortable with the rising ta%es for ser!ices, such as the library, but may *uestion the large increase in debt-related costs. While the increased costs of employee benefits and debt costs mimic national trends, citi+ens are rarely pleased to pay them through increased ta% bills.

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Chapter 12 - Budgeting and Performance Measurement Ch4 122 *olutions2 12-% ;Cont@d<

b. 7s would be e%pected at the city go!ernment le!el, most re!enues come from ta%es 'state and local, property, motor !ehicle, and other(. "he greatest e%penditures for 4anhattan are related to utilities, public safety, debt ser!ice, and economic de!elopment. "he data e%plain that utilities in!ol!e water, wastewater, and stormwater operations. t is interesting that the utility user fees are combined with license fees in the re!enue categori+ation. Separate presentation of utility re!enue might pro!e useful to budget document users, although more detail is pro!ided in other sections of the document. 7gain, aside from high debt costs, citi+ens are generally willing to pay for the public ser!ices included in this diagram. =egarding city finances, citi+ens may *uestion if resources are put aside in a >rainy day? fund, since this balanced budget has re!enues and e%penditures e*ual. c. 7nswers will !ary according to indi!idual preferences and the number of other budget documents that the students ha!e e%amined. 12-@. a. "he first performance measure that the City of 7shcroftAs library lists is authori+ed full-time positions. "he eight staff members who wor. in the library can be considered input to the operations. n a narrati!e titled >Bibrary )udget? the amount of Ceneral 0und budget dollars in!ested in the library can also be seen as input to library operations. "he ma1ority of the performance measures on the list pro!ides a count of acti!ity or output- for e%ample, !isits, circulations, in*uiries, 6C users, and participants in special programs. "he library pro!ides a narrati!e section titled >Citi+en 6erceptions? that can be considered an outcome. "he last three items on the list of library performance measures are efficiency ratios that compare the cost of pro!iding ser!ices to some measure of output, such as number of borrowers, circulations, or !isitation.
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Chapter 12 - Budgeting and Performance Measurement

Ch4 122 *olutions2 12-( ;Cont@d<

b. 9fficiency measures are usually presented as a ratio- for e%ample, dollars spent per person. "he City of 7shcroftAs library reports the costs per registered borrower, per circulation, and per !isitation. c. 7 citi+enAs perceptions or feelings are based on more than 1ust reported statistics and must be respected for being real to him or her. Dowe!er, a re!iew of the statistics presented in the S97 report suggests that the library is ser!ing more cardholders who chec. out more boo.s and materials, use the computer more, and attend more special programs in the current year compared to four years ago. )udgeted resources to support this increased acti!ity seem to ha!e remained constant o!er the same four year periodconse*uently, the library is operating more efficiently or doing more with less based on the decreasing cost per borrower, or per circulation, or per !isitation. 2ther sources of re!enue, such as fines and county support, appear to be relati!ely stable o!er that same time period, but not significantly large in amount. 2ften the perceptions of citi+ens and ta%payers will change after re!iewing ob1ecti!e data as long as data are easily accessible and prepared in an easyto-understand format.

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Chapter 12 - Budgeting and Performance Measurement Ch4 122 *olutions ;Cont@d<

12-E. a.

"he primary acti!ities of the 2range!ille 7nimal Control 6rogram are complaint response, impounding of dog, care of dog that is returned to its owner, and care of dog that is adopted. "he acti!ities, resources and cost dri!ers are shown below.

7cti!ities, =esources, and Cost Dri!ers 7cti!ity F1G =esponding to a complaint Resources required: Program director Labor (animal control wardens) Specially equipped e!icles "ost dri er: #umber o$ complaints 7cti!ity F2G mpounding an animal Resources required: Labor (animal control wardens) Specially equipped e!icles "ost dri er: #umber o$ animals impounded 7cti!ity F3G Care of impounded animal returned to its owner Resources required: "ontract%speci$ied $ee "ost dri ers: #umber o$ animals impounded Lengt! o$ stay at &ennel 7cti!ity F$G Care of an impounded animal that is adopted Resources required: "ontract%speci$ied $ee "ost dri ers: #umber o$ animals impounded Lengt! o$ stay at &ennel

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Chapter 12 - Budgeting and Performance Measurement Ch4 122 *olutions2 12-) ;Cont@d<

b. 7cti!ity F1Hresponding to a callHaccounts for a large proportion of the animal control programAs budget, due to salaries for wardens and administrati!e personnel, as well as !ehicle costs. 2nly about one-si%th of complaints result in an impoundment. "he money spent on this acti!ity does little to help the program fulfill its purpose of .eeping stray dogs off the streets. 7lthough it is unrealistic to e%pect e!ery call to result in an impoundment, e%ploring ways to ma.e complaint response more efficient could ma.e the whole program more efficient. 7cti!ity F2Hlocating and impoundingHaccounts for only a small portion of the programAs budget. 7lthough the transportation costs in!ol!ed in this acti!ity ha!e captured the publicAs attention, reducing these costs would not greatly affect the o!erall cost of the program. n fact, these costs will rise should the program become more efficient and more of the calls result in impoundments. 7cti!ity F3Hcare of an impounded animal that is returned to its ownerH 7lthough caring for animals that will be adopted 'acti!ity F$( is more costly per animal than caring for animals that are returned to their owners, e%penses for this acti!ity are li.ely minimal when compared to salary and administrati!e costs of the program. When searching for ways to reduce the cost of acti!ities F3 and F$, city officials must remember that acti!ity F3 is relati!ely self-funding, gi!en that owners must pay a fine and reimburse the city for boarding e%penses to get their animal bac.. n a sense, acti!ity F3 is subsidi+ing acti!ity F$ since people who adopt animals do not contribute enough to co!er the costs incurred by the city.

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Chapter 12 - Budgeting and Performance Measurement Ch4 122 *olutions2 12-) ;Cont@d<

7cti!ity F$Hcare of an impounded animal that is adoptedH7s with 7cti!ity F3, most of the cost associated with this acti!ity results from the cost for the animalAs stay at DonnaAs ;ennels. Since this cost is !ariable, it is a good target for cost reduction. 0or e%ample, shortening the stay of the animals from an a!erage of 1$ to an a!erage of E days would sa!e money. "his could be done by promoting adoptions or by ha!ing the animals put to sleep if they are not adopted within a gi!en time frame. ConclusionsG 0or most acti!ities, changes may lower some costs while raising others- e.g., promoting adoption may in!ol!e additional e%pense. 6utting unadopted dogs to sleep also entails costs for the euthanasia procedure and disposal with the resultant lost adoption fees. 9ach alternati!e solution has to be e%amined carefully and a brea.-e!en analysis or other cost analysis has to be performed to assess the financial impact on the o!erall processes. 7lso, some of the solutions produced by an 7)C analysis may not be !iable alternati!es. 4any factors constrain what solutions can be implemented. 6ublic relations, humanitarian, political and regulatory considerations e%ist- for e%ample, the 2range!ille community or the ser!ice pro!ider may not accept the euthani+ing of unadopted dogs. t is up to local go!ernment managers to identify these constraints and ma.e sound financial decisions based on them. 7dapted from Ser!ice Report: Introduction to Activity-Based Costing nternational CityICounty 4anagement 7ssociation, Jol. 3#, Ko. 2, 0ebruary 1LLM, pp. L-13. =eprinted with permission of the C47. 7ll =ights =eser!ed.

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Chapter 12 - Budgeting and Performance Measurement Ch4 122 *olutions ;Cont@d<

12-M. a. "he City of Jancou!erAs fire department has met its goals for all four years in the following areasG percent of false alarm calls, medical calls to nursing assistance and medical facilities, determine cause of fire, and academy cost per new recruit. t has also performed well o!erall in minimi+ing the effect of fires, medical response effecti!eness, fire pre!ention, training, and e*uipment maintenance. 7ll this has been achie!ed with stable costs per response. "he city has missed its goals related to a!erage response time, urban response time, and suburban response time in all four years. Citi+ens are typically most concerned with response times. "hey may also note some wea.ness in use of resources, especially all of the o!ertime, which it appears the city has wor.ed on gi!en it is down in 2#1#. b. "he City of Jancou!erAs fire department and the City of )elle!ueAs fire department both utili+e performance measures related to response times, fire maintained to room of origin, cardiac arrest sur!i!al rates, number of fire inspections, and training hours. While some of )elle!ueAs performance measures may appear higher, it should be noted that Jancou!er has a slightly higher population than )elle!ue '1@1,EL1 !s. 122,3@3 in 2#1#(. S97 reporting illustrates trends in selected performance areas and helps to focus resources and efforts to those areas. "he >top accomplishments and challenges this year? portion of the snapshot helps to highlight areas of strength and wea.ness for future planning and budgeting purposes. n class discussion, it should be noted that comparisons based on limited statistical data are difficult, e!en for cities located within the same state. "here are some factors that students should consider in an

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Chapter 12 - Budgeting and Performance Measurement Ch4 122 *olutions2 12-, ;Cont@d<

analysis that may not be presented in the data 'such as population density(. c. "he fire chief will li.ely still wish to focus on response times. =ecent efforts ha!e been successful in reducing o!ertime e%penses, which should help the budget. 2ne natural area a chief might loo. to cut would be e*uipment costs on a short-term basis. "he chief may re*uest more grants and federal funds. "his *uestion reflects the perpetual challenge faced by go!ernment administrators N how do you deli!er high *uality public ser!ices with limited resourcesO

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