A major difficulty facing IT departments is ensuring that the projects and activities to which ICT resources are committed represent an effective, economic, and efficient use of those resources. ABC, however, cuts through or supplements the traditional costing reports to present the same information by activity to see how resources are spent. A rent opportunity cost was also included in the serviced space costs, based on an approximation of the market rate for similar furnished space. A program is a series of activities that produce a product, service, or other output to achieve a desired result. Activities are the steps or sequences of events that convert inputs to outputs; they exist within programs.

While the guidance is based on Iowa’s experience, the concepts and steps are applicable to all governments. Costing services is one of the biggest challenges facing governments today. Identification of the activities driving cost is critical to a costing system because not having that understanding severely restricts any practical use of the model. The absorbed costing model requires that all costs be absorbed into or assigned to the cost drivers. ABM uses the information in a management environment with other tools such as service redesign and process improvement.

An activity focuses on what an agency does as measured by the number of units or outputs produced. Rather, it simply relates the attendant resource cost to the activity’s completion. Again, this does not preclude any activity with a potentially beneficial impact on the institution that is not directly financial. Direct costs are defined as those costs that relate directly to the activity being undertaken. It is through ABM that ABC fits and supports Iowa’s performance management and service redesign efforts.

Generally the costs are can be grouped into product related, customer related, unused capacity and the rest are ‘business sustaining costs’. By absorbing all the costs into these cost elements, we have enabled estimates and projections based on them to be both accurate and relatively simple to use. ABM includes resource allocation, activity flow, and performance measurement analyses.