The ABCs of Cost Management

**A Telecast Originating**

**from the**

**BLM National Training Center in Phoenix, Arizona**

**August 19, 2003**

This transcript is from the closed-captioning file produced during the
telecast.

It may contain errors and omissions in transcription.

**Announcer:** The Department of the Interior and the Bureau of Land
Management Satellite Network present live from the BLM National Training
Center in Phoenix, Arizona, the ABCs of cost management. Accounting for
time and work to achieve our mission. And now, the host of your program,
Nina Rose Hatfield.\
\
**N. Hatfield:** Good morning. Welcome to our overview of the Department
of the Interior\'s Activity Based Cost Management program, better known
as ABC. Today we\'re broadcasting to you from what\'s not sunny Phoenix,
Arizona, but very stormy Phoenix, Arizona, and already we\'ve lost the
satellite transmission for a short period of time prior to the broadcast
beginning. So if that should happen as we go through the program, please
just stand by. You can continue to call and send your faxes, and then we
will continue the program as soon as we can get the satellite working
again. But in this program we\'re going to provide information and
direction on how the department\'s new approach to managing costs.
We\'re going to discuss how ABCM is going to be implemented within all
DOI agencies, the preparations being made to transition us to ABCM and
how things will work once the system is implemented. And we\'ll take a
look at some of the lessons from the pilot programs that we\'ve had
across interior. Joining me this morning to help us take a look at
activity based cost management is Lynn Scarlett, the Assistant Secretary
for policy management and budget in the Department of Interior. Good
morning, Lynn.\
\
**L. Scarlett**: Good morning, Nina.\
\
**N. Hatfield:** Then from the BLM\'S Idaho State Office is Mike
Ferguson. Hello, Mike.\
\
**M. Ferguson:** Good morning, Nina. Nice to be here.\
\
**N. Hatfield:** Thank you for joining us. And Maria Ramirez is also
joining us from the Bureau of Reclamation in Yuma, Arizona. She\'s here
to give us a perspective from the Bureau of Reclamation. Hi, Maria.\
\
**M. Ramirez:** Good morning, Nina.\
\
**N. Hatfield:** Completing our panel in Phoenix is Gray Payne from the
Bureau of Indian Affairs in Washington D.C. Good morning, gray.\
\
**G. Payne:** Hi, Nina. Thanks for having us here.\
\
**N. Hatfield:** Thank you for joining us. And on a video call we have
standing by in Washington D.C. members of the department\'s ABCM
steering committee. This committee consists of representative from all
the DOI agencies. Good morning, Dot. This is Dot. Dot is the project
manager who has been working with our steering committee. So, Dot, would
you like to do some short introductions.\
\
**D. Sugiyama:** I sure would. I would like to start by introducing
George, who is over above my head to my right. George f you\'ll raise
your hand. He is from MMS and sitting next to him is Charlene from USGS,
sitting next to her is Mary from the BLM, and sitting next to her is
Mike Brown from the National Park Service, sitting next to Mike is Larry
Frey from the office of service mining, and coming down to the front
row, we have Christopher Richey, representing the office of the
Secretary of the national business center, next to him and on my left is
Lewis Mony from the Bureau of Reclamation. Next to me on my right is
Kathy from the fish and wildlife sir and next to her is Marlene Walker
from the Bureau of Indian Affairs. The weather is fine here in
Washington.\
\
**N. Hatfield:** We didn\'t expect it to be quite so stormy here in
Phoenix, but we\'re going to deal with it. So we\'ll get back to the
steering committee as we go through our program today. But before we
kick off our discussion of ABCM, we\'d like to mention that throughout
this broadcast we\'d like to hear from you. If you have a question or a
comment for us, please give us a toll-free call or fax us at\.... We\'ve
also reserved some time for a dedicated question-and-answer session this
morning. We\'d also like to mention that for more information on the
Department of the Interior\'s activity cost based management program,
you can visit our website at\.... We know that you came to interior to
pursue a career as a steward of our public lands, to work on Indian
education, to do research, or to deliver water. You may want to know why
we are asking you to now focus on the costs of the work that you do.
It\'s because the taxpayers and Congress and the office of management
and budget want to know what things cost and how we are using tax
dollars. So we as interior need to understand the total cost of doing
our business by systematically documenting the time, money and resources
that go into the work activities required to produce interior\'s
products and services. Or our outputs. So now let\'s turn to Lynn, who
will talk about how activity-based cost management will help us to do
this. LYNN?\
\
**L. Scarlett:** Thank you all for participating today. I would like to
take a few minutes to talk about why we are implementing Activity Based
Cost Management throughout the Department of the Interior. President
Bush has challenged all of us in Federal service to explore ways to
better provide government and to conduct the public\'s business more
efficiently and effectively. In our department, Secretary Gale Norton
has outlined a vision for effective program management that will help us
fulfill the President\'s vision of excellent service to the American
people. Crucial to that vision is accurate cost information. Cost
information can tell us how much we\'re actually spending to get the
performance we want. It can help us understand what the most efficient
elements of our operations are. What are the most inefficient elements
so we can decide how we can improve our operations. And how can we
budget for the best results?

Activity based cost management is the tool we\'ll use to demonstrate
that we\'re providing value in how we use tax dollars. So what does
Activity Based Cost Management mean to you? In my time with the
department, I\'ve developed a profound respect for each one of you, the
people who carry out the work of this organization, the dedication you
bring to the job. I also know that your job isn\'t getting any easier.
Indeed, it grows more challenging every day. You\'re struggling to carry
out your responsibilities conscientiously even as budgets get tighter,
the workload gets bigger and you face new demands from growing
populations and new challenges in the areas of law enforcement and
homeland security, for example. You\'re being asked to be creative in
meeting these demands. In the Federal budget process we must present a
good case for the money and resources that we needed to our jobs. While
we realize that fiscal constraints will always exist, we must carefully
manage our available funds to accomplish results. One proven tool for
doing that is activity based cost management.

ABCM, for short, is part of our overall management strategy to deliver
our mission effectively and efficiently. We have drafted a strategic
plan to better describe what our mission is. In that plan we have set
forth four main mission areas, resource protection, resource use,
recreation and serving communities. Activity based cost management
allows us to break our mission down into specific activities so that we
can measure costs and performance. This information will allow interior
employees to improve program performance, assure that budget, support,
best value results, respond to customer demands and plan for workforce
skills needed to deliver program commitments. When I joined interior I
was delighted to discover that one of our agencies, the Bureau of Land
Management, had been implementing an effective ABCM system over the past
five years. BLM created a powerful tool that provides its program
managers with the information needed to allocate resources and monitor
and evaluate performance. The approach is one of the best applications
of cost information I have seen in more than 20 years of interacting
with state, local and Federal organizations. In fact, BLM\'s work in
this area earned it the agency distinction last year as a finalist in
the President\'s prestigious quality award, which recognizes excellence
in Federal management practices. In addition, the office of surface
mining, Minerals Management Service, our Bureau of Reclamation and our
Bureau of Indian Affairs, as well as the Secretary\'s office, have all
piloted new ways of looking at program costs.

In Arizona we also conducted pilots to test how the interior model could
be applied across borrows. These pilots included tests of activities in
law enforcement, our fire program, invasive species management,
recreation, maintenance, and indirect costs. We\'ve learned a lot. Now
we\'re ready to move forward. Here you can see an illustration that
demonstrates the difference in the old way of looking at costs compared
to ABCM for a specific program. You can see on the left in the screen
the traditional types of cost information we gathered, things like
travel, administrative functions, activity based costing in contrast
gives us information about the actual activities we undertake to deliver
a particular service. In this particular instance, Land Use Planning.
Let\'s look at how this can help us in looking at our programs and
improving our effectiveness. In this chart, what you see is a costing
example from permits to drill where we look at cost versus workload.
Each of the little squares represents a particular office and you can
see most of them are clustered down at the left-hand of the chart, but
we have a couple of outliers on the far right of the screen. What this
allows managers to ask is, \"gee, are those two out there at the
outliers?\" \"is it because they\'re doing things a different way, sit
because they face particular and different challenges the other field
offices don\'t face?\" The cost information doesn\'t tell you the
answers, but it helps you ask the right questions.

We\'ll begin collecting cost and performance information on all programs
in our bureaus at the start of FY-04. First we\'re going to provide you
with the knowledge and tools you need to help this effort succeed. For
the past several months, an interagency team has been developing state
of the art computer-based training on activity based costing, which will
roll out in September. This training will focus on the immediate task of
coding your time to the activities that describe your work. This is a
change for many of us. In the past, you\'ve coded to budget activities.
Now you will use your time and attendance report to describe the work
you have performed. We\'ll also be coding contracts, travel services and
other expenditures to the activities that describe our work and how they
link to those activities. The end result is we\'ll be documenting our
full costs of doing business for the first time. As we prepare to
implement ABCM, several principles are critical to our success. First,
we must all be engaged in this effort. This is about everyone throughout
all your departments and across our programs. Second, program activities
and the outputs these activities must be clearly defined so we can link
activity costs directly to program goals. Third, we have to ensure that
cost data comes from your Bureau\'s accounting records to avoid debate
about the sources of underlying financial data. Fourth, we have to
ensure that we\'re coding costs to the appropriate work activity. Fifth,
we have to ensure that ABCM activities subject to coding are the right
ones to measure.

Next, we have to ensure that we don\'t have so many ABC activities that
the process becomes unmanageable. And finally, we must also be sure that
the department\'s strategic plan outcomes to performance measures and
the budget. In other words, we need to see the link between activities
and their costs on the one hand and performance and results on the other
hand. You can think of this as a balancing act. And it will take some
work to make sure we have the right balance. When President Bush
presented his plan for improving management and performance of the
Federal government, he talked about the challenge that presents for all
of us. He said, \"government likes to begin things to declare grand new
programs and causes. But good beginnings are not the measure of success.
What matters in the end is completion, performance, results. Not just
making promises, but making good on promises.\" President Bush said,
\"in my administration that will be the standard from the farthest
regional office of government to the highest office in the land.\"
We\'ve made a good beginning at the Department of the Interior, indeed
an excellent beginning. Now we must move forward and implement activity
based cost management, applying the lessons we\'ve learned, adapting
them as needed, and working together toward performance and results.
Thank you for your dedication to this effort, and I look forward to your
questions and comments later in the program. Back to you, Nina.\
\
**N. Hatfield:** Ok. Thank you very much, Lynn. I know you\'ve been
working with all the bureaus that you\'re very aware of the fact that
the bureaus have very wide and encompassing missions, all the way from

national parks to doing inspections on oil rigs or surface mines and
some of our viewers may be wondering if we can really gather information
and useful information about costs across the department.\
\
**L. Scarlett:** Nina, there\'s no doubt, each of our bureaus has its
own particular mission, its own particular activities to fulfill that
mission but we have a lot of similarities, too. You look at our
strategic plan and identification of resource use, resource protection,
recreation and serving communities, whether it\'s our Indian country and
education there, whether it\'s firefighting, whether it\'s law
enforcement. So there\'s a lot of commonality amidst the distinctive and
particular goals each Bureau has. We think it\'s real important to find
those commonalities and to find common ways of describing those across
each Bureau. That will help us to work together where we have those
confluences of activities.\
\
**N. Hatfield:** Well, thank you. I think that\'s a really good point
that we need to keep in mind as we go forward. So now if we can, we\'ll
turn to Mike Ferguson from the Bureau of land management to describe the
Bureau\'s experience. Mike?\
\
**M. Ferguson:** Thank you, Nina. Albert Einstein once said that not
everything that can be counted counts and not everything that counts can
be counted. There\'s a lot of truth in that. When BLM first started
looking into Activity Based Cost Management, there was a lot of
skepticism. People were worried we would be spending a lot of time
counting things that don\'t reflect important work or even worse, not
counting and therefore not funding things that are important. There was
also a fear that allocations would be based strictly upon unit costs. We
did, however, eventually funding allocations and decisions would be
based on our data and we wanted to know what those data said so that we
could be in a better position to defend ourselves. So we looked into it,
and we found a lot of variations in unit costs. Some of them we could
explain, some of them we couldn\'t. A lot had to do with definitions of
what the work process was. An example is we had one state that had
tremendously high costs for evaluation of grazing permits and
tremendously low costs for renewing those grazing permits.

We had other states where just the reverse was true. When we got to
looking at it, the real reason was just interpretations of what the
definitions of those work processes were. We also found that we were
spending a lot of time and money on lower priority work and sometimes
even inappropriate work for those program funds. We found that we were
funding people rather than work, and when you spend the money where it
is rather than on the work that needs to be done, it\'s hard to show
that work priorities, funding and positions are not totally balanced and
distributed appropriately. So our first step was to emphasize accurate
coding and to start planning our budgets based on work rather than
people. That meant we needed to shift some funds between offices and
activities and we did that. What we found as a result was that our
coding accuracy improved tremendously. That gave us a much better
picture what it cost to do business. When you have a better picture of
what it costs to the business, it\'s a lot easier to plan for changing
workload and it\'s easier to identify the resources that we needed to
get the job done. We found better accountability for program funds, and
that made our program leaders a lot happier because it was easier for
them to demonstrate their constituencies we were using the money in the
right places. And many employees began to see the relationship of their
day-to-day work to the Bureau and the department\'s strategic plan. So
we\'ve made lot of work in shifting from funding people to funding work.
Our next step is to move more towards performance integration in funding
the highest priority work.

We are already starting sue shift funds based on ability to do priority
work in identify hoe. Last year, for example, we shifted \$400,000 to
one office based strictly on their ability to perform high priority work
in the threatened and endangered species program. So the data are
helping us make shifts in funding, helping us plan the work, it\'s
helping us manage the positions. We\'ve learned a lot of lessons lever
the last four or five years. Probably the biggest one is you need to
analyze the data. You need to examine what the data tells you, ways to
improve program efficiencies. You might find there\'s some real specific
and logical reasons for variations in costs. The second level was it\'s
important to be adaptable. You need to adjust as you go along. The
example I used of the grazing permits and allotment evaluations is an
example of where we made some adjustments in the workload definitions.
Finally, you need to track what\'s happening throughout the year. It\'s
a lot easier to make little adjustments as you move along rather than
one big adjustment at the end. So we found a fair number of benefits in
the process. There\'s also a couple of cautions. One is the need to plan
for the unplanned work. We all have people that walk through the door
and it\'s hard to predict who is going to walk through the door, when
they\'re going to walk through the door and what they\'re going to want.
But one of the things that we found is the volume of unplanned work,
while we can\'t specifically predict where it\'s going to come from, the
volume is fairly constant, at least predictable from year to year.
Second thing is it\'s important to factor in the indirect costs. It\'s
the unmeasured stuff, ABC gives you a tool to measure and account for
those indirect costs. The caution is both of those things will increase
your unit costs. So if you\'re looking at activity based costing simply
as a way to make budget allocations related to efficiency and lowest
unit costs, it isn\'t going to work out. That\'s the analysis again.
It\'s really important to do the analysis. We got into Activity Based
Cost Management because we didn\'t want anybody to make funding
decisions using our own data when we didn\'t know what the data said.
Choices to us seemed to be we could either complain about the system,
point out its pitfalls and fall victim to the system or figure out a way
to make it work for us. I think we figured out someways to make it work
for us and we found a lot of benefits in the process. We found a lot of
benefits related to costs. We have a much better handle on what it costs
us to do business. We\'re doing a much better job with coding integrity
and use of our program funds. We found some efficiencies in our workload
processes and we can more clearly describe what our funding needs are
and that\'s certainly more than we expected to find when we first got
into activity based costing three or four years ago.\
\
**N. Hatfield:** Thank you, Mike. I\'m interested in your point about
you\'ve moved to funding work rather than people and that leads me to
wonder about what happens when you have people who are not in the areas
that you really want the work to be.\
\
**M. Ferguson:** That\'s a really good question, Nina. In the example
that I used of moving the \$400,000 of endangered species money, our
cost data showed we should have moved almost double that. That was too
big a chunk to bite off in one year without affecting people. So what
we\'re trying to do is we\'re trying to blend our cost data into our
workforce planning efforts and set up a plan where we can take advantage
of opportunities to move both funding and positions around as those
positions become vacant. So it\'s going to take us a little while to get
there but we have a plan.\
\
**N. Hatfield:** And that\'s the important thing, is having the plan.
Well, thank you, Mike. Now we would like to turn to Maria Ramirez who
give us a point of view from what\'s happening at the Bureau of
Reclamation. Maria?\
\
**M. Ramirez:** Thank you, Nina. Many of you are probably not familiar
with the Yuma area office, so let me start there. Our office is at the
southern end of the Colorado River in the southwest corner of Arizona
beside California and the Mexican border. It\'s a fairly large area
office. We operate with about 225 reclamation employees and nearly 100
contractor employees. Our role in reclamation is very straightforward.
We have four core products and services which we are responsible for.
That is to deliver water to irrigation districts, to deliver Colorado
River water to Mexico to ensure our treaty requirements are met. To
manage the Yuma area groundwater wells and that to provide environmental
mitigation restoration enhancement. Now, how do we get started with ABC?
We started on the ABC path a little over two years ago, although at that
time we didn\'t call it ABC. We referred to it as our resource plan, and
we still call it that. Why? Because we were tired of putting out fires.
We were making too many decisions by gut feeling. And there was also too
much uncertainty about what we would actually receive for the money we
spent. All of these problems meant that we didn\'t have enough insight
into our own business, or own work.

So naturally we asked ourselves why? Here we are drowning in data but
don\'t have enough solid information to run our business. So some things
need to do change. What ABC gave us was a common language. Our defined
work activities reflect the way we actually talk about, plan and do our
work in the Yuma area office. I have been in Federal service for 21
years. Most of the other directors at the Yuma area office have 10 more
years of service than that. And for the first time, each of us is able
to sit down with hands-on employees, supervisors and managers and really
discuss how time and effort is spent and what we got accomplished as a
result of that. How has ABC worked for us? Overall, quite well. But like
many changes, there were bumps along the road. It took us more time and
effort than we thought would it to convince employees that this was not
another flavor of the month program or that if they waited long enough
this, too, would pass. Our office is long over that. However, there is
another road bump that we are still working with. Most of our office is
still getting comfortable with the transparency of the data that ABC
creates. For example, now a manager can ask, \"why does it take 100
hours of engineering effort to support 500 hours of dredging crew
work?\" ABC creates a lot of useful information. You will have answers
you never had before and you will also have issues you didn\'t have
before. For the Yuma area office, operating strictly under programmatic
budgeting and reporting made our world sort of opaque. ABC creates
clarity about the results that time and effort produce. That\'s new, and
it\'s not comfortable for everyone. Managing that is something we are
continuing to do. Since we\'ve been working at ABC for a while, we
naturally have our lessons learned. The things that we think are most
critical to the implementation of ABC are: Number 1, unwavering top
management support and assistance. Done right, ABC isn\'t a program that
just changes the way you budget and report. It changes much of the way
your office operates, the way you plan, the way you ask questions,
identify problems and give awards, even the way you talk to your
customers.

Implementing that kind of change takes unwavering insistence by top
local persons, his or her whole staff and we have that and couldn\'t
have done it without that pit number 2, use a fix and refine philosophy.
We did this, and we wouldn\'t have it any other way. We knew that ABC
would not be perfect. We learned and made improvements along the way. We
are still doing that today. The only standard that we\'ve held ourselves
to is managing progress. ABC may never be perfect, in fact, it doesn\'t
have to be perfect to be really useful. Number 3, increase participation
in the organization as quickly as possible. Frankly, if we had our
implementation to do over again, we would have involved more of our
office more quickly. Number 4, you can\'t over communicate. Communicate
often. Number of 5, have a robust financial and information technology
support to make it all happen. In closing, let me leave you with this
thought. ABC gives managers the tools that they need to manage their
organization. It gives them information they may have not had before or
may have had a difficult time in obtaining. It also gives them clarity
about the specific activities within the project and the cost associated
with each. Managers and employees engage in the process, they will
benefit from it. The Bureau of Reclamation Yuma area office definitely
has. Thank you, Nina.\
\
**N. Hatfield:** Thank you, Maria. Those are all really good points and
I know that the Bureau of Reclamation has had a very, very intense
program for a number of years in terms of costing projects as you do
your many water projects across the west especially, and I\'m curious
about how you see the work that you\'ve done in terms of project costing
fitting in with what you\'re now doing in terms of activity based
costing.\
\
**M. Ramirez:** What we have done is broken our work into two
categories. It\'s work we considered regular and recurring, which we
refer to Baseline category work and initiatives. It\'s work that is \--
has a beginning and an end and thus how we have done it differently.\
\
**N. Hatfield:** As a result you sort of have a broader range of
management information to use?\
\
**M. Ramirez:** yes, we do.\
\
**N. Hatfield:** Now we like to turn to Gray from the Bureau of Indian
Affairs who is going to talk to us about how BIA has been using ABCM.
Gray?\
\
**G. Payne:** Today I\'m here to talk about where we have come from
within BIA and where we\'re going to go in BIA regarding activity based
costing. BIA is one of the two largest bureaus within the Department of
Interior. We have 12 regional offices and waive 70-plus agency offices
throughout the United States. As a result, we have a \$2.1 billion
organization which means we need to make sure we have accounted for all
our funds. So accountability is a very, very important thing when it
comes to an organization this large. We started implementing activity
based costing about a year ago with a BIA team of employees as well as
consultants. Today we have successfully built ABC models in 12 regional
BIA offices and will be building models for Indian education, law
enforcement and facilities management within the first quarter of 2004.
Our ABC model is standardized across all 12 regions and we have also
developed a standardized activity dictionary across the whole Bureau,
and by standardizing it, it allows us to be able to compare like
activities across the regions to see who is doing jobs more efficiently
and effectively so that we can work at improving regions that aren\'t
quite up to speed on those functions. We also implemented activity based
management which we also call ABM. What is AB (it\'s a way to evaluate
and measure performance and it\'s only good when you combine witness
activity based costing because within activity based costing is where
the data is. And then once the data is in activity based costing, you
pull it out, analyze it using an ABM process. ABC along with ABM gives a
manager a better picture of the total cost of doing business. It also
makes accountability of program funds easier to see and allows managers
to align funds to actual priority work instead of just smoothing it
across all the areas of the work.

ABC also enables us to provide full cost reporting of activities across
the Bureau so that we can compare regions and like processes. An example
I like to use is Navajo region has a lot of roads. We can take and we
can look and see what it costs for one square mile of road \-- I mean
one mile of road and then compare that against other regions to see, is
it costing about the same or is there a difference? The differences may
not mean inning or there may be inefficiencies or it could just be there
are terrain issues that require costs to be higher in other regions. But
the bottom line is it allows us to look at these things and they stand
out easier. ABC basically is a non-accountant\'s tool to manage funds.
It gives detailed information for better decision making. It\'s a
manager\'s tool. The ABM portion of the model will be used by managers
to identify areas of efficiency as well as inefficiency so that you can
measure costs against performance and see where you need to do
improvement.

With ABC, managers will be able to track how their dollars are used, and
also track their workload so that they can see whether their workloads
measure up to what they should be across all the regions. So managers
can also see program goals and objectives and to see if they have been
achieved. It\'s a benchmark for that. With regards to budgeting, ABC can
also help identify shortfalls in the workforce which can also help
support more accurate workforce planning. ABC enables you to do full
cost reporting of activities within the branches, and that\'s what \--
where we really feel it\'s going to be good. Right now managers focus on
direct costs and overlook the indirect costs which is rent and salaries.
They never look at indirect. Now you have to marry indirect with direct
to get full cost reporting and you get a sobering view what your costs
are. ABC can also help in future budget formulations because you can get
a clearer picture of where you\'re spending your dollars. ABC gives the
managers more detailed information, and they\'ve never had this kind of
detail, so the detail that they get from ABC allows them to actually
make better and more meaningful decisions. That\'s really where \-- what
we\'re wanting to use it for, is a decision making tool, Nina.\
\
**N. Hatfield:** Great, Gray. I know you spent a good deal of name BIA
working on the activities that describe BIA work as many of the other
bureaus have, and then at the department we\'ve also looked at
describing activities across the entire department. So can you share
with us about how you see those two fitting together?\
\
**G. Payne:** Sure. When we first started this initiative at BIA, we
really stood back and we said, what does BIA do for a living and nobody
really could formulate in words everything. So we thought, let\'s go out
and let\'s document through our activity based costing what we do, and
with our ABC effort we documented every function there is within the
Bureau, and once these functions were documented and we\'ve created an
activity dictionary we\'re now able to take this dictionary and marry it
up to the active \-- I think the DOT and you guys have put together at
the DOI level this, enables us, Nina, to be able to roll up to your
dictionary so we can use our detailed dictionary for the managers at the
lowest level and it also allows you to use it for OMB reasons and
reporting requirements and be able to see it. So it\'s a marriage that I
think is going to work pretty well.\
\
**N. Hatfield:** Great. It allows us to see costs from top to bottom,
wherever we are.\
\
**G. Payne:** Right.\
\
**N. Hatfield:** That\'s terrific, Gray and I think know you have put a
lot of work into this. We are in the process of opening up the phones to
hear from you. So if you have an activity based cost management question
or comment for any of us or our DOI steering group in Washington D.C.,
please just give us a call or send us a fax. Again, the toll-free
call-in number is\.... At this point I would like to go back to
Washington D.C. to our steering committee and ask Cathy to explain how
that interior really did go about the process of developing the
activities that describe our strategic plan. So, Cathy?\
\
It\'s good to see you and everyone there. I would like to draw on a few
things the participants have mentioned. When Lynn mentioned that the
work activities allow us to appropriately define our work and Marie
mentioned work activities provide with us a common language, and I\'d
like to mention that the activity definitions that have been set up are
actually the foundation and the building blocks for accurately coding,
for identifying this common language, for us finding a way to describe
our work across Bureau and within bureaus. This work has been a year in
the making. For the past year, there have been bureaus involved in three
long \-- week-long sessions to define the work that they do. These
sessions have been interactive. They\'ve had folks participating from
all the bureaus, from multi-disciplines, from field level, program
managers, everyone has been involved in this.

Up until this past March. At which time we pulled together a small
workgroup, many of the members are here with us today, to sit down and
take the labor of everyone\'s loved work on work activity definitions
and sit down and see if we could find the best set of definitions that
reach across bureaus to accurately describe and talk about the work we
do. It has been an interesting process for the park service, for Fish &
Wildlife, for BLM to talk about restoring wetlands or restoring habitat
in a common way that we can all say this work belongs to us, this
accurately describes what we do and I think we have been successful in
that effort. We do have a common set of work definitions that are
available for all the bureaus to use, and the nice thing about it is
this is a very dynamic process. It allows the bureaus to submit
recommendations for changes in the definitions as we go along, to refine
them, to come back and change them. So this won\'t be your last
opportunity to work with these definitions. There will be other
opportunities. We would like everyone in the Bureaus to contact your
representative on the DOI steering committee if you have suggestions and
just let us know. We are pleased to work on these definitions. We think
they\'re a valuable way of knowing how much it costs to do the work we
do and making improvements there. I think I\'ve pretty much covered how
we got to where we\'re at. If there\'s anything anybody would like to
ask about that, I would be happy to answer those questions.\
\
**N. Hatfield:** Well, I know, Kathy, that you all spent a lot of hours
in terms of culling through the information from the suggestions from
the field and the way that we did the pilots in Arizona. I think that we
now have about 300 activity definitions that describe the work all
across the Department of Interior, and what would you say that you are
anticipating that an individual employee \-- how many activities would
an individual employee probably be dealing with?\
\
This is a question we\'ve talked about in the Fish & Wildlife Service
for a while. When we talk about having 300 work activities in the Fish &
Wildlife Service, you aren\'t used to coding at that level, they grown
and think there\'s a problem, this is going to be difficult, but
actually folks in the field will probably only be dealing with a handful
of codes during any single pay period. You may use various codes in the
system, but for the most part, it will be no more than five, six codes
at best, I would guess. We have folks who have had experience with
detailed ABC. Our director of the Fish & Wildlife Service, Steve
Williams, has implemented activity based costing in two states, and he
assures the rest of the folks in the Fish & Wildlife Service that it
will be a handful of codes in a pay period. So we don\'t envision this
being burdensome or difficult at all.\
\
**N. Hatfield:** Ok. So don\'t be scared when you see the total
dictionary, right?\
\
Right.\
\
**N. Hatfield:** Well, thank you. We will continue to join our steering
group back in Washington as we get questions that they would like to
help us answer. I will remind you that our toll-free call-in number is
1-877-862-5346 or our fax number is 602-906-5701. Mike, once we have
coded to the activities, what happens to the data that you have? I know
in BLM now you all have been coding to work activities for several
years. What have you done with that data?\
\
**M. Ferguson:** BLM has an automated system that tracks our cost data
and we can retrieve and analyze the data and all employees have access
to that system. Now, not everybody\'s making use of it, but those people
who are making use of it are able to have discussions about what the
data is telling us and how we might apply it. I think it\'s turning out
to work to our benefit in terms of being able to better portray the
budget needs that we have. I know the department\'s working on a similar
system that should allow us all to do the same thing.\
\
**N. Hatfield:** Ok. We have our fax from Albuquerque from Patrick
Morrisy and he would like to know the difference between the goals of
zero based budgeting which was in vogue 10 to 12 years ago to what we
are doing now with ABCM. Lynn, I think that\'s a question that would be
great for you to answer.\
\
**L. Scarlett:** They are really are very different. Zero based
budgeting was a concept that said, gee, we used to just do our budgets
and then each year in examining what we wanted those budgets to be we\'d
say go up 2% or 4% but never really go back and look at our core
programs, reexamine when we\'re doing as if we\'re starting from scratch
and zero based budgeting was kind of starting from scratch, reexamining
your overall programs and trying to determine what the level of funding
for that program should be on a budgeting level at the national level
and within agencies. Activity based costing is much more of a management
tool. It really is about trying to say, what\'s our goal? How are we
acting in every given day to lead us towards achieving that goal? How
many resources, whether it\'s people, whether it\'s materials, whether
it\'s other activities, are we utilizing to get there so we get a real
good handle on that activity? That allows us to ask a lot of important
management questions. Should we do this differently? Do we need more
people? Might we organize ourselves different \-- differently to perform
this bet center why is one office performing this task in a way that is
more expensive than another? Is it because one has an innovative way of
achieving that goal through different activities? Or do they face
perhaps more complex circumstances which require more costly kinds of
activities? So it\'s a management tool about your ongoing management.
It\'s much more relevant to each and every person on the ground, in the
field, each one of our 70,000 employees has an important role here to
play. The information is power f you will, power to achieve management
excellence.\
\
**N. Hatfield:** I like the thought we\'re not only talking about
information for managers per se, but for everyone in the organization to
use because we can all improve what we\'re doing in our own daily work.\
\
**L. Scarlett:** That\'s exactly right. This really is about \-- since I
have been at interior I\'ve realized how much people have a passion for
the missions that we fulfill and this is about helping you perform that
mission in the very best possible way by giving you information that
someone described as transparent rather than opaque.\
\
**N. Hatfield:** Absolutely. Well, we have a caller on our line and this
is Dale from to that low, Mississippi. So, Dale, would you like to ask
your question?\
\
**Caller:** Yes, I\'m with the National Park Service and I\'m at the
NACHES straits parkway in TUPELO, and the base question I have will how
it change the way we\'re organized within our organizational structure?
We tend to be in the \-- I understand activity based cost management,
but in the past, our current organization is set up we were\' on a
divisional level. We have ranger activities and maintenance and
administration and those kinds of things, but if I understand the way
that this new system will work, that\'s going to really blur those
lines. I would like to hear what your thoughts are on that and maybe
what some of the folks \-- and maybe some of the folks who use this
already what their experience is with that.\
\
**N. Hatfield:** Why don\'t we turn to Mike Ferguson to answer that, who
has had a good deal of experience in working with organizations from
Idaho.\
\
**M. Ferguson:** I think on the surface there might not be any automatic
changes but one of the things we frequently do with organizations and
reorganizations is we decide how to organize and then we try to figure
out how to put the work into that organization and when that doesn\'t
work, then we\'ll adjust the organization and try it again to force the
work into it. I think one of the things that activity based cost
management will do, it will allow us to focus more on the work first and
then build an organization around the work that we need to accomplish
that\'s the most efficient and effective way of getting the job done.\
\
**N. Hatfield**: Ok.

**G. Payne:** Nina, by like to add to that, too. In the past whenever
you collect costs for financial \-- mainly the only time costs were ever
collected were financial reporting reasons and so the only place costs
ended up was in the financial statements, in the general ledger and so
forth. And the general ledger is no good to anybody but accountants.
Only accountants understand the categories in the general ledger. What
activity based accounting does is it takes all the costs out of the
general ledger and puts them into the activity categories so that
you\'ll see full costs reporting in each activity and so instead of just
seeing one large expenses on your balance sheet, you know, this is where
you carve it out and I think it becomes more meaningful because of
that.\
\
**L. Scarlett:** I would like to add a comment on this. Activity based
costing helps us ask the right questions. It doesn\'t necessarily tell
us what the answers are. So as you gather that information about costs,
it may suggest to you, gee, perhaps we ought to organize a little bit
differently. That is not necessarily the outcome. You might find that
the particular organization structure you have works well for other
purposes. But it allows you to ask that question. It allows you to link
your questions about delivering your mission with organization structure
in a way you weren\'t able to before. So there\'s no essential or
necessary change in organization structure, but it helps you to think
about those questions in a different way, which I think is fund
fundamentally what Mike is saying.\
\
**M. Ferguson:** Exactly.\
\
**N. Hatfield:** Terrific. Now we have some other calls so let\'s turn
to Rita in death Valley, California.\
\
**Caller:** Yes, hello. We were just wondering, where is the coding
dictionary that has been mentioned? Where are we going to be able to
find that?\
\
**N. Hatfield:** Let\'s go back to our steering group in Washington,
and, Dot, would you like to answer that?\
\
**D. Sugiyama**: Yes, I would, Nina. We will be posting the activity
dictionary up on our DOI website. I think you saw the website being
flashed on your screen very briefly, but our ABC website is located at
www.doi.gov\\training\\abc. And although we don\'t have a specific
category to put that up there yet, you\'ll find that very easily as a
hot link on the actual web page, the homepage. Thank you.\
\
**N. Hatfield:** I believe in addition to that, Dot, each Bureau is
planning on a way of providing that information to their specific
employees.\
\
**D. Sugiyama:** That\'s correct.\
\
**N. Hatfield:** Through the training. Let\'s go next to Doug in
Louisiana. Those guys in the south here are interested in ABC. So we\'ll
talk to Doug in Louisiana. Doug, would you like to go ahead?\
\
**Caller:** Yeah. My question is about, we\'re currently using the SAMS
system as a manage maintenance management, we\'re just learning it, and
we\'re wondering how ABC will affect that? Will it replace it? Will it
work with it or supplement it?\
\
**N. Hatfield:** Doug, you\'re with the Fish & Wildlife Service?\
\
**Caller:** Yes, southeast Louisiana refuge.\
\
**N. Hatfield:** Kathy, would you like to address that?\
\
I would actually like to address it, but I don\'t know that I can answer
him right now on that question, but I tell you what, if you e-mail me at
kathy_tynan@fws.gov, I\'ll get you answer and get back to you.\
\
**N. Hatfield:** We also have a fax from Ann with the National Park
Service and she asks us that the National Park Service depends heavily
on volunteer work and some of our programs would not exist without them.
How will ABCM give credit for volunteer work? I know that that\'s an
issue that\'s come up in several bureaus because many of our bureaus do
use a lot of volunteers and without our volunteers we really would not
be able to succeed in our mission. So, Mike, would you like to address
that? Actually, Nina, I think the way to address this is to say that
what activity based cost management is capturing is the funded work, and
by that, it\'s what we are actually as salaried employees are
compensated for, what we receive overtime pay for, and/or approved
compensatory time. At the current time, we don\'t have a good way of
capturing the information or the contributions from our voluntary
workforce, and that\'s something that we\'re going to have to take on
outside of activity-based cost management. But we do recognize that from
the department that they do play a vital, vital role in helping us
achieve our mission. But, yes, that is something that we are going to
have to address.\
\
**L. Scarlett:** Nina, let me add a few comments on that. That\'s an
excellent question. We have some 200,000 volunteers each year at
Department of the Interior, just phenomenal contributors in helping us
perform our mission and as I\'ve been out in the field, whether it\'s
with folks from the National Park Service or with folks from Fish &
Wildlife Service or any of our other bureaus, many of them have said,
you know, golly, I do a lot of work with volunteers, and it really
leverages my results that I achieve, not only takes the dollars and
multiplies them, but also actually allows me to have many hands instead
of just my two, and how do I reflect that? I think as was noted we will
have to deal with that and address that as we think through activity
based costing, but the other place where we need to really folk us and
work on capturing the value of that is, in fact, as we do our
performance evaluations. We have worked as a department and then with
the bureaus to define our goals to have metrics for those goals and
we\'re working to try to ensure that there\'s a way to capture that
partnering activity, that volunteer activity towards your achievement of
your goals on the ground. So very much aware of that challenge. There\'s
been a lot of good minds put to the task. I was just out at the golden
gate national recreation area with its superintendent Bryan O\'Neal. He
has a lot of thoughts and I think we\'ll work with you and if you have
thoughts on that, we certainly would enjoy hearing them.\
\
**N. Hatfield:** Great, Lynn. Now we have a caller, Sean in Sacramento,
California. Sean, welcome to our program.\
\
**Caller:** Thank you. Thank you. Just a quick question that I have.
Here in the field I\'m a budget program person for our division for
minerals, and, of course, we work quite a bit with the management
information system to track costs, unit costs, that the program element
level, workload measures, things like that. Can you explain the
difference or the marriage between MIS and ABCM? I have never really
been clear on that.\
\
**N. Hatfield:** Mike, I know that the management information system is
one that collects the data and uses the data. Do you want to talk about
how the ABC fuels the MIS system?\
\
**M. Ferguson:** Yeah, I can talk about it a little bit. I\'m not one
that really gets into delving into \-- digging into the system and
analyzing the data, but M.I.S. will \-- is the overall system that
includes a lot of information, the activity based cost information is
one piece of that. So there\'s a lot of things you can get out of the
overall management information system and the ability to analyze what
your costs are is just one piece of that. So I look at the M.I.S. as
being kind of an umbrella and ABC being a component of that.\
\
**N. Hatfield:** Ok. We are in the department also developing reporting
capability so that as you\'re doing the data, putting the data entry in
terms of what it is that you\'re actually doing to your work and so we
can get the information about costs, we are also developing a system so
that employees and managers can look at the results of that, they can
see what the costs are, they have ways of analyzing the data, getting
different looks at the data, and also developing an executive dashboard
so that \-- where you don\'t want to go into data, you can at least see
what the results are, and all those are things we\'ll have online by
January of \'04. So we have several more questions, and one of the
questions is that it\'s taken \-- this is a question from Portland,
Oregon. It\'s taken BLM five years and BOR two pilot years to get ABCM
instituted, and what\'s the department\'s expectation for when ABCM will
be fully operational at all organizational levels within an agency? If
we\'re beginning implementation in fiscal year \'04. Lynn, would you
like to start addressing that?\
\
**L. Scarlett:** Yes, of course. We have the great, great benefit of
being able to build upon the experiences the Bureau of Land Management
has had over five years. They were our guinea pigs, if you will,
piloting this starting from the beginning, and that, therefore, has, if
you will, accelerated the time line with which we think our other
bureaus can really get up to speed, utilize this information effectively
because we can learn from past experience. It is our goal we will have
everybody up and running in this 2004 year. But let us think of activity
based cost management like all other management endeavors as a journey,
not a destination and you heard the other panelists note that this is a
constant process of refinement. We have some definitions for activities
across the Bureau. We will begin to utilize those and code to those, but
if we find some bumps in the road, we will make adjustments. If we find
we don\'t have that balance quite right between needing some
granularity, some refinement, some specific information versus being
overwhelmed with too much, we will make some adjustments along the way.
So we\'re going to get this rolling everywhere in the department in
2004. We have a really good start because we have a lot of bureaus, many
sitting here right with us today, that have this already under way. But,
you know, if we don\'t get it perfect right away, that\'s ok, we\'ll
make adjustments as we go along. Keep in mind, ultimately the purpose is
to allow everyone out in the field to manage as best they can. So this
isn\'t just something to put on the shelf. It\'s something to use, and
that means we have to constantly adjust it.\
\
**N. Hatfield:** Great. I see our panelists all shaking their heads in
agreement and I know Maria you all have been at this for some time and
you have found you can make these adjustments so that it does become
more meaningful.\
\
**M. Ramirez:** Yes, if you compare what we have now to a year ago,
it\'s different. The beauty of this is you have to recognize that you
have to make changes as you go along because you learn from the mistakes
that you made, and it\'s not \-- it\'s bad expectation to think at the
end of the year it\'s going to be perfect, because it\'s not going to be
perfect, but the key s let\'s communicate, let\'s talk to each other,
and let\'s refine the work as we move along into the process.\
\
**N. Hatfield:** Now we would like to turn to reed in fort Laramie,
Wyoming. Reed, can you tell us what you\'d like to ask?\
\
**Caller:** Yeah, does ABC interface with MAXIMA?\
\
**N. Hatfield:** That\'s a really good question. I think that what
we\'re looking at is that MAXIMO provides us some information, and the
ABC will provide us some additional and slightly different information,
that you we are planning to take advantage of the information that\'s in
MAXIMO and then add some additional cost information to that. So we\'re
looking at the full range of systems that we have in interior that
provide performance data information about what we\'re planning to do
and ABC will help us to see what we have actually done. I don\'t know
Lynn if would like to add anything to that \--\
\
**L. Scarlett:** I think you have it exactly right. This question is
similar to several of the others that have been asked about management
information systems, MAXIMO, SAMS and the list of other tools we\'re
utilizing. Think of activity based costing as providing additional
information of a different sort. It\'s a complement, not a substitution.
Each of these tools provide us a different window into what we\'re doing
and the idea sue bring that all together so we can manage across our
facilities management challenges, our overall activities and functions
to achieve our mission, and the variety of other things that way do. So
it\'s a different window into how we do our work and what activities
lead to goal fulfillment.\
\
**N. Hatfield:** Ok. Maria, I was interested when you were talking a
little bit earlier about your mentioning the interaction and how that
ABCM helps you in terms of your conversation with your customers, and we
at interior have the entire American population as our customer. So can
you talk a little bit about that for a moment?\
\
**M. Ramirez:** Yes, what we\'re doing with our resource agencies and
local customers we have, is we can sit down at the table and say, when
we talk about projects, that we have a process in which we have to
incorporate any new work, and we try to explain to them how that process
works and share with them the terminology so they know when they come to
us we can no longer stop what we\'re doing to accommodate their need.
Understand that there is a process, and there is a planning process and
they work good witness trying to work with us to accommodate that.\
\
**N. Hatfield:** Thank you. We now have a fax from BOR, and the
questioner would like to know: at how high a level will the coding and
definitions be aimed at? The department\'s four strategic goals plus the
Bureau\'s and office level or at just the higher level of the
department? Gray, would you like to address that?\
\
**G. Payne:** Well, I know from our standpoint at the Bureau of Indian
Affairs we\'d like to be able to know whether we\'re meeting our actual
Bureau goals, and since our Bureau goals should, if they\'re done
correctly, roll up to the department goals, then we definitely want to
make sure that we understand exactly what our goals are and whether
we\'re actually meeting them and measuring correctly so that they do
roll up property. So my answer is that we are going to try to \-- we\'re
going to make sure that they all roll up in that way and it\'s important
\-- it\'s a very important thing, because if we\'re missing our goals,
then \-- in our strategic plan is probably not being tracked right.\
\
**L. Scarlett:** Let me tackle that a little bit, too. We have had for
the past year-and-a-half a strategic planning effort within the
department trying to get a department-wide look at the commonalities
that each of our bureaus have as goals and as mission and to develop
some common outcome goals, some common metrics for those outcome goals
but then think of it as a tearing process or maybe as a nesting process
where each Bureau then steps down from or nests within that larger
departmental picture and gets a more refined look at its activities and
its particular goals, but ultimately many of them will funnel up into
and be consistent with the department-wide goals. We\'ve had tremendous
numbers of conversations, workshops, sequential discussions to make sure
that the department level goals in fact are meaningful at the Bureau
level. It\'s critical that they be meaningful, otherwise we won\'t be
able to use them for management purposes.\
\
**N. Hatfield:** Absolutely. And after all, that is our goal. We have
another question here from the USGS, and the question is: We have many
contractors in the USGS minerals information team, and will the
contractors\' activities be coded in the same way as employees? Dot,
would one of you all like to tackle that question?\
\
**D. Sugiyama:** The answer is basically we\'re going to be coding the
efforts of the contractors against the activities that they actually
support, but it doesn\'t get coded as hours spent against the job like
you and I would be coding our time. It\'s going to be coded as a
purchase, because, after all, that\'s really what a contract is. So the
short answer is, yes, we are going to be capturing the dollar value of
their level of effort against the activity they\'re supporting.\
\
**G. Payne:** That would show the non-labor categories is what it would
\--\
\
**N. Hatfield:** Going one step further from that, I would like to go
back, if we could, gray, to the of the indirect costs because I think
that\'s one thing that\'s so important about information we learn from
ABCM that as we\'re looking at what we do from day to day and as we
manage programs, that\'s frequently a piece we don\'t really think
about, and ABCM, I believe, really does help you in terms of getting a
handle on the indirect costs.\
\
**G. Payne:** That\'s absolutely correct, because most of the time you
go through your daily life in the \-- in your programs only thinking of
the direct costs, what is the cost of this contract? What is the cost of
me purchasing this and so forth? You never see the indirect costs
because it gets dumped on at the very end, and nobody knows about it.
Only accountants know about it. So activity based costing really brings
indirect costs out into the forefront. It just jumps out at everybody so
that they can understand exactly what it really costs if they want to
jump in with both feet into a function, into a project and be committed,
because indirect costs can be very large in some organizations and so
you really have to understand that and that\'s why it\'s important.\
\
**L. Scarlett:** Nina, it\'s also very important in the budgeting
process. When we have that indirect cost information and we go, for
example, to the Office of Management and Budget or ultimately up to
Congress saying, by golly, we have an exploding population out there,
many, many demands for those public lands in a variety of different
ways, and when we go up saying we need some resources to help us perform
our job, it really helps to be able to say, you know, to do those land
use plans it\'s not just the hours of the people that you see right
there actually writing the bottom line of the plan, there\'s a lot of
stuff behind the scenes in the form of indirect costs. If you want us to
do those plans in a timely fashion f you want us to do those permits a
timely fashion, there\'s this backdrop, the tip of the iceberg, and then
all the stuff underneath it that we need resources in order to really do
this so we don\'t get behinder and behinder, if you will.\
\
**G. Payne:** Always tougher to go back to OMB the second time saying
you miscalculated. That\'s exactly what ABC tries to keep you having to
do.\
\
**N. Hatfield:** I have found in my Bureau experience, it gives you a
much better picture of the total costs and especially when talking to
people outside the Bureau about what your true costs of doing business
is. In looking at beyond the budget system and other systems, we have a
National Park Service employee who would like to know how the ABCM
system will interface with existing budget finance, payroll and GPRA
systems, or will it be a separate system? Lynn, do you want to tackle
that first in terms of how the \-- that the ABCM will interact with our
GPRA systems and our payroll systems?\
\
**L. Scarlett:** Yes, and then I think it would be very helpful to hear
from our colleagues here who have actually seen this in action. Let me
speak just to the GPRA, the government performance and results act.
That, of course, is the congressional statute which requires us to
define our goals and that is, in fact, the strategic planning process
that I referred to a little bit earlier where we\'re trying to say what
really is our mission? What are the goals? How do we measure those goals
or our progress to them? What we\'re trying to do through the activity
based costing process is to align the activities that are selected and
the definitions of those in ways that will, in fact, link to those
program goals that are set out \-- or rather those department and Bureau
mission goals that we\'ve set out in GPRA, in the government performance
results act. So we\'re trying to have this all link together in a very
coherent and consistent way. In terms of how it links to the financial
system, let me turn to my colleagues here. I know they\'re eager to
chime in on that topic.\
\
**G. Payne:** I think I can handle that, being in the finance arena. As
I have told everybody when we go out and we brief ABC to the Bureau of
Indian Affairs and they ask that question, \"will our finance system go
you a,\" and I say absolutely not. Our financial system is our system of
record. It is our certified financial system that all our costs go into
that the auditors certify at the end of the year with the CFO audit. So,
no, that system does not go away. What ABC is, it takes information from
FFS and rearranges it in different categories so that non-accountants
can understand it in more of an activity base level. So, no, it won\'t
go away.\
\
**N. Hatfield:** Mike, I know that BLM has actually begun to look at
your budget differently as a result of this new cost information.\
\
**M. Ferguson:** Yeah, I think \-- you know, again, it\'s back to the
focus on the work that we\'re doing rather than whether it\'s labor or
contract or whatever else that we\'re buying. I think what we\'re
finding is that while the accountants may still have a different way of
counting beans using this system kind of lines everything up better for
us so we can move all the way from the individual work that people are
doing on the ground up through our coding process and our budget, annual
work plan and people\'s performance plans and our statewide strategic
plan all the way up to the department strategic plan and reporting goals
under GPRA and we can go the other direction, too.\
\
**N. Hatfield:** Ok. One of our questioners from Montana says that: My
understanding is that ABCM is measuring the cost of products we produce
and costs historically with administrative support should be identified
one of the specific products we produce, however, by doing this we start
to lose the specific costs of an administrative support function, and
this questioner is specifically concerned about I.T. costs. Should they
be charged to the product produced or captured and look at strictly as
overhead? And so if I can, I would like to turn to Dot in our steering
committee and talk about how we are dealing with indirect costs as
we\'re looking at our activities across the entire department.\
\
**D. Sugiyama:** I think Chris Richey, who has been working the indirect
cost model, is in the best position to answer that particular question.
But insofar as the other question about how you would be capturing the
costs of your I.T., what we\'re trying to do there is to capture that
\-- the cost of the I.T. system and associate that with the product or
function or program that it supports. So you would be capturing that
cost against that particular direct work activity. However, if the I.T.
system itself benefits the entire organization, then we would capture it
against one of three that we now have in our activity dictionary and one
of three I.T. activities. Chris, can you amplify on the indirect cost
model?\
\
I think I would just back up what you were saying. Generally the
business rule with activity based costing is it\'s relevance. If you can
take something like an I.T. expense and say this is directly
attributable to one of our direct work activities, then you can charge
it against that. If it\'s an activity that benefits all of the
organization, just like the indirect costs really are activities that
benefit all of the organization, not just one area of the mission, go
ahead and charge it to one of the three indirect cost categories.\
\
**N. Hatfield:** Ok. Thank you very much. Now, one of our questioners
raises a really very good issue, I think and that one of the reasons the
cost of a product may differ is due to the quality and quality work
takes more time, takes more money. How will ABCM address the issue of
quality?\
\
**L. Scarlett:** Let me give an example. It\'s one that I\'ve had the
benefit of seeing in the Bureau of Land Management. Again, underscoring
that activity based costing helps us ask questions, it doesn\'t give us
the answers. In the case of Bureau of Land Management with their grazing
permit process, for example, through activity based costing they were
able to identify that were certain offices where that activity was
costing more per unit than certain others. Now, the first thing you ask
when you see that is, gee, maybe those folks where it\'s costing more
really are doing everything right. Maybe they are providing a quality
process. They\'re really making sure, they\'re dotting the Is, crossing
the Ts, procedurally doing everything appropriately and maybe that\'s
what lies behind their costs and maybe the other folks that are a little
on the cheaper end are cutting some corners. So what you do when you see
some disparities in costs among one office to another or one delivery of
an activity and someone else\'s delivery of that activity, it allows you
to ask some questions. You sort of peel that 8181 \-- onion back and you
say, is that because this office has good quality and the other doesn\'t
or maybe it\'s the reverse, maybe some corners are cut. Then you put in
place the appropriate management activities or actions to make sure
you\'re all being as best you can be.\
\
**N. Hatfield:** Ok. Mike, would you like to add anything to that.\
\
**M. Ferguson:** I\'m not sure I can add anything to that. I think Lynn
is exactly right. I don\'t think there\'s anything I can add to that. It
was a good answer.\
\
**N. Hatfield:** But gray would like to.\
\
**G. Payne:** I would like to tell you this is exactly why we\'ve gone
to a consolidated dictionary, so that we can compare like processes and
we know that they\'re all done the same way. Otherwise, it\'s comparing
apples to oranges. So when you do peel the onion skin back, you can look
whether it\'s the Bureau \-- with our 12 regions, if they\'re doing road
work and I see it\'s done a lot more expensive here versus here, can I
start peeing the onion skin back and say, they are doing the same
functions. I feel comfortable there. Why sit it costs more? But if you
are doing all different functions, there is no way to start to compare.\
\
**L. Scarlett:** Sometimes you\'ll find in that exploration there are
external factors that cause things to be more expensive in one place and
less expensive another. Geography might be different. The numbers of
populations you deal with might be different. So there may be external
factors, but the key here sit gives you \-- it allows you to ask the
question so you can find out some of that information and then manage as
best you can be.\
\
**N. Hatfield:** Sort of focuses our attention.\
\
**L. Scarlett:** Yes.\
\
**N. Hatfield:** Now, we have a question from Idaho about why we\'re
waiting until the middle of August to talk about the implementation of
ABCM when we\'re actually going to begin October 1st of \'04. So I think
that what we\'re really trying to do as we talk about activity based
cost management today is to make sure that you begin to understand about
where we\'re headed, and then as Lynn mentioned earlier, we have a very
extensive training package we\'re beginning to roll out in September so
that you\'ll have that information just as you\'re beginning to move
into doing activity based cost management and actually costing the work
that you\'re doing. So we\'re trying to get you the information as we
are getting ready to go. I think the other thing that has to be
recognized, Kathy mentioned earlier that we spent a lot of time in
looking at what are the activities that are appropriate describe our
work across interior and it\'s taken us quite a while and so now we\'re
ready to begin to look at those activities and ask you to cost to those
activities.\
\
**L. Scarlett:** Also important to underscore what Maria and others have
said, this is an ongoing process. So as this rolls out department-wide
and across all the bureaus, as employees get experience with it, they
will, I\'m sure, go back to their bureaus, to their Field Offices and
say, \"this isn\'t just quite working, we need some adjustments here.\"
So this is a living process, a dynamic process. So there\'s been a lot
of work undergone over the last year through pilots and through our
Bureaus have already been utilizing ABC. We are now rolling it out. But
think every it as a dynamic process in which all of you as you begin to
engage will be able to feed more information back and improve the
system.\
\
**N. Hatfield:** We have a rather specific question in a way from a park
service employee in the Lowell national historic park and that employee
would like to know about the interface between ABCM and GPRA in
performance management data, or what the park service refers to as its
PMDS system, and it\'s reporting of work measures, and so for an answer
to that question, could we turn back to Washington and ask Mike to
address that?\
\
Sure. Thank you, Nina. We\'re still working on how those applications
going to be working together, however, we do know we will be integrating
PMDS with our general ledger face AFSD3. The information will be
integrated. We\'re still working on the process.\
\
**N. Hatfield:** Ok. Thank you, Mike. We have a questioner from
Portland, Oregon, who mentions that, if robust I.T. systems are needed
to ensure solid and accurate reporting, why did our Bureau and others
\-- why are we scheduled for reduction in I.T. funding? In this case,
Fish & Wildlife for \$8 million in the \'04 President\'s budget and
won\'t that pose an additional challenge for data management for ABCM.
Lynn, I know this is a question you really want to answer.\
\
**L. Scarlett:** Yes, thank you for that question. One of the things
that we have found as we\'ve begun to really take a look at our I.T.
systems in interior is that we have a tremendous amount of duplication.
We have a lot of multiple, for example, e-mail systems, numerous servers
that may have been necessary some years ago when the power and capacity
of servers was much less than it is today. But that means we have them
spread all across the landscape in many locations with all the support
that that requires in terms of warehousing, in terms of additional
support for those systems. So we\'re taking a look at and that saying,
perhaps we ought to eliminate some of the duplication, improve some of
the ways we utilize I.T., improve some of our purchasing. We have found,
for example, that in some instances we\'re purchasing equipment on a
single machine or laptop by laptop basis, and as we\'ve looked appear
that we\'ve realized we can have tremendous savings if we think smart
and do this more wisely and kind of work together. We figured out ways,
for example, to reduce our laptop costs from a come thousands bucks each
to half that amount. So hopefully what this ultimately will mean is not
so much less resources, but using the resources that we have, perhaps
spurred by that reduction that has been proposed, but ultimately to not
reduce our capacity but rather use it as wisely and as best we can.
Certainly no question about it, we face a lot of challenges. I think
this was a surprise to this department as it was to many others that we
would be moving forward with those constraints but we think we can step
up to the plate and do things actually better.\
\
**N. Hatfield:** Ok. And now we have a caller. Mark, from Flagstaff,
Arizona. So, Mark, would you ask your questions?\
\
**Caller:** Good morning. I see the value in what\'s being suggested,
especially comparing and tracking expenses versus your productivity in
essence. I see tracking expenses being done, but what do you do use

as performance measures for something like a research and technical and
research agency like the USGS and where do you gather this information
in terms of what is the productivity?\
\
**N. Hatfield:** Ok. One of the things we mention is that as we\'re
developing a system to track costs, there will be a parallel piece of
that system that also tracks the kind of performance that we have, as
we\'ve laid out in strategic plan and told Congress that we\'re going to
do a certain level of performance, we have a part of this new system
we\'re in the process of developing that allows you to put that
performance into the system, and so that\'s one of the ways we will have
the parallel information of both cost and performance. I don\'t know if
anybody from our steering committee would like to add anything to that.\
\
We have been working for a year now on both moving the strategic plan
and the work activities together step by step. We\'ve had several teams
working on these throughout our research groups and we believe that
we\'ve defined some work activities that are very, very useful for the
capturing what we\'ve started capturing already in \'03 in the way of
common business practices and looking at the work activities that are
done by research organization. We are marrying those up with our
strategic plan and we\'ll be hearing more about this if you tune in next
week, this is an advertisement, for our cyberseminar on Tuesday
afternoon and Thursday afternoon. We will be giving an ABC and basis of
costs first level training course. It will be in advance of the
department-wide training that will be coming in September. This is an
effort to try to get our supervisors, project managers, cost center
chiefs up and running looking at this and starting to sort out problems
before we get \--\
\
**D. Sugiyama:** That\'s USGS.\
\
**L. Scarlett:** Nina f I could add to that, the government and
performance results act strategic planning process at the department
level we have been undertaking, seems like a century, but I think it\'s
been a year-and-a-half really has had to tackle some very challenging
questions. It\'s not easy to figure out what outcomes that one should
measure and then more particularly, what the metrics for measuring that
out\-- those outcomes should be. Some things it\'s a little easier.
Things like very search \-- research are very difficult and challenging.
We\'ve had a number of folks working on that kind of question. What is
the appropriate metric for determining your performance in something
like a research project? Is it satisfaction of the user of that
research? Or is there some knowledge building metric that one tries to
set forth? So there\'s been a lot of dialogue. We have some metrics in
place in the government performance results act that were very much
informed by U.S. geological service personnel and again, this is one of
those things if we didn\'t get it quite right the first time we\'ll have
to make adjustments over time but the goal is to recognize that this is
a very important mission of the organization, that we want to measure
the outcome, which is not just, gee, how many researchers do we have or
how many dollars we are spending, but what kind of product are we
producing? What kind of research? Sit relevant? Is it useful? Is it
adding to the state of knowledge? So we\'re working with USGS on how
exactly to capture that. Very important question. If you have insights
on how that might be captured better than what is currently set forth,
we really would welcome those thoughts.\
\
**N. Hatfield:** Lynn, I know several of our panel members have
mentioned how important it is to have everybody in the organization and
particularly managers, involved in what we can do with the activity
based cost management data. Could you address for a moment the position
of the second and maybe top leadership in the entire department? I know
you meet routinely with the Secretary and the deputy Secretary.\
\
**L. Scarlett:** We\'re very excited about activity based cost
management. Actually, I\'m very excited simply because our department
more than any other in the entire Federal government really is a lead
inner thinking about performance, thinking about how to connect the dots
between activities we do and the fulfillment of our mission and activity
basted costing is a tool to help us do that. It\'s going to help us to
\-- you know, you go to the budget, just think of yourself as a citizen.
You go to the department\'s budgeter, any other department\'s budget,
for that matter right now and you\'ll see a line item that says travel,
or you\'ll see a line item that says fuel, or one that says I.T., but as
a citizen, you say, golly, what are you doing with that? How is that
achieving the mission that Congress bequeathed to you? And that we as
citizens want activity based costing that let\'s them go in and see, for
example, what kind of resources are we allocating to our Land Use
Planning? Something they care about. Gee, what does it \-- is it costing
us to take care of those trails, to make sure that they\'re in good
condition? What kind of resources are we using to deliver interpretive
services in the parks? Things that they care about that are meaningful
to them in terms of the mission. This information allows them to ask
that question. It allows us to look at that information and ask whether
we can be utilizing our dollars and people even better than they
currently are used around those activities. So we\'re excited about it.
It\'s really tough. It\'s hard. It\'s a challenge, but we think it\'s
going to make this department really shine in terms of fulfilling its
mission.\
\
**N. Hatfield:** And very easy to tell our story.\
\
**L. Scarlett:** Yes.\
\
**N. Hatfield:** Ok. We have a question from Amy in California. So, Amy,
could you join us this morning with your question?\
\
**Caller:** Yes. I have a question about subactivities and program
elements. In the BLM in California, we have certain subactivities that
we can code to and then a wide variety of program elements that may not
be appropriate for the subactivities. How does the department-wide plan
to reconcile those issues?\
\
**N. Hatfield:** Ok. That\'s a very good question. So let\'s turn to our
steering committee in Washington and maybe Mary from BLM would like to
describe what you\'ve been doing in terms of getting those two things
together.\
\
Yes, this is Mary. I\'m from the BLM in Washington. I\'ll \-- what we
have been doing is we have been trying to keep the activities \-- our
subactivities and our activities our program elements \-- letting the
field know where our priorities are in each of our subactivities and
each of our programs so that \-- and we\'re basing those on the program
elements. So they will be able to tell us exactly where our priorities
are. We\'re telling them we think our priorities are here, here and here
and they should be coding to those priorities, and if they are not being
coded to those priorities, at least back here in Washington we\'ll be
able to find out, is there another priority in the field, or if not,
maybe the priority should be reiterated better to the field on what the
priorities for the Bureau are. So we do keep track of what subactivities
and what program elements are being used in conjunction with each
other.\
\
**N. Hatfield:** Mike, I think this, too, would go back to the
importance of coding to the work that you\'re doing.\
\
**M. Ferguson:** Yeah, and I think that\'s a real big issue, and you\'ve
got to focus on the work that it is that you\'re doing, and different
people are going to have different opinions on whether or not a
particular program element may be appropriate or inappropriate for that
subactivity and I think we need to really spend some time. Here again,
it\'s the analysis issue. We have to spend some time talking about what
is that program element? What is that piece of work actually doing to
further the mission of the organization? And if it fits and it\'s a part
of that subactivity, then that should be fine. But I know there\'s an
awful lot of debate in BLM, and I assume there is department-wide about
what\'s appropriate and not appropriate, and I think in order to resolve
that, I think we need to have a mixture of people who are familiar with
budget, the budget process, managers, and some program folks that are
responsible for those subactivity funds.\
\
**N. Hatfield:** And I think BLM has another best practice that we\'re
going to try to adopt in the department in that you annually have a
conference in which you talk about those activities and try to make sure
that you have the right activities to describe the work you\'re doing.\
\
**M. Ferguson:** Right. Again, that gets back to, Lynn said several
times, this whole process is a journey, not a destination, and I think
it\'s going to continue to evolve. When we got started four or five
years ago we figured a year or two and we\'d put on it cruise control
and be done. Well, we\'re five years into it and I don\'t think we\'re
ever going to totally finish. It\'s just a constant evolution. I think
we\'re moving in the right direction.

**N. Hatfield:** Great. Gray, we have a question here specifically a
concern about the fact that the department\'s expecting we begin to do
cost management all across the department in October of \'04 and
concerned about the fact that BIA is unable to use the Internet and how
will you go about compensating for that?\
\
**G. Payne:** Right. That\'s a good question. Right now what we\'re
doing is we have the access to the intranet. So we can do a lot of our
work through the intranet. Until we get occupy a time and attendance
system where we can actually do direct coding, we\'re going to use our
surveys so that we can capture our data through our activity surveys,
which we have basically put out to all regions as well as the fact once
we get our mainframe up, we\'re going to have a server up and once the
server is up, we will be able to get access and they can code their
information through the server. That\'s, really, where we\'re going to
go. We\'re kind of having to evolve into this process because every time
we think we may be ready it \-- something happens.\
\
**N. Hatfield:** Ok, gray. Thank you very much. We\'d like to thank
everyone for those questions and your participation. We weren\'t able to
answer every one, but we will provide some information for you either
directly by responding back to you or you can look at the frequently
asked questions section of the ABC site. Gray, do you have anything else
you would like to add from the BIA perspective?\
\
**G. Payne:** From the BIA perspective, one thing I would like to add is
in the 21st century managers now have to learn to manage, not just their
programs but their program dollars, because dollars in a shrinking \--
shrinking budgets, dollars become much more accountable and so managers
have to learn to manage using both their program skills as well as their
dollars in knowing how to be financial managers, and I think ABC is
going to help this a lot.\
\
N. Hatfield: Thank you, gray. Maria, I know we would like to hear if you
have any additional thoughts about Activity Based Cost Management.\
\
**M. Ramirez:** Yes, I do. I want everybody to recognize and be
cognizant change is difficult, and so the more you communicate, the more
you get your first line supervisors involved and your employees involved
in the process, I think that the better support you will receive to make
it happen and the change will be so much easier to manage at the end.\
\
**N. Hatfield:** Thank you, Maria. And Mike?\
\
**M. Ferguson:** I think it\'s pretty clear that ABC is here for a
while. It\'s not going to go away in the near future, but it\'s also not
going to happen overnight. So I think we need to take the time to do the
analysis, make the adjustments. It\'s not a perfect system, but does it
have some real values and I think if we look at it as a tool and take
advantage of the value that it can provide, the bumps will smooth out
over time.\
\
**N. Hatfield:** Thank you, Mike. We would like to thank our steering
committee back in Washington for all the help they\'ve given us. The
folks who have been on the steering committee have really been at this
for a long time and they have been very instrumental in getting the
department to the point in which we can actually implement in October,
and we really are very grateful for all the time and effort that\'s gone
in there. Lynn, do you have any final thoughts for us?\
\
**L. Scarlett:** Yes. Thank everybody for participating today first. The
Department of the Interior has a wonderful suite of missions that we
fulfill, and we are really fortunate to have such dedicated and
outstanding professionals who work here. But we also have complex
challenges. Law enforcement challenges. We have a growing set of
communities next to us that work in the areas and adjacent to our public
lands, growing uses of those lands, a desire by the American public to
have more accountability from government, more transparency. ABC is a
tool and I think we need to recognize it as a tool. It\'s an ongoing
one, its improvements, will depend upon the people in the field
utilizing it, making suggestions for improvements, but like any tool,
its actual potential lies in how folks use it, not in the tool itself.
And we\'ve talked a lot about the benefits this afternoon or this
morning. We\'ve talked a lot about some of the pluses that the
experiences of people in our bureaus have had, but let there be no
doubt, this is tough. It\'s hard to figure out what your activities are.
It\'s hard to come up with that dictionary of definitions. It\'s
difficult to figure out just exactly what are the primary activities we
undertake. That is hard. And change, as Maria said, is also very
difficult. But if we keep our eye on the ball, which is really serving
the public, and understand that this isn\'t a tool just to be glamorous
and stick on a shelf or to say, gee, we have the best or the most state
of the art tool, but rather it\'s a tool to help us manage because
behind the mission ultimately the real delivery mechanism for our
mission is how well we manage, and that\'s what this tool is about. If
we go forward with that spirit, I think everyone will come to see that
this can be a good tool, something useful, something that helps us do
our jobs well. So I would just like to end on that note that this is all
about having healthy land and thriving communities. That\'s what it\'s
about. Although sometimes it sounds a little bit green eye shades in the
meanwhile.\
\
**N. Hatfield:** Very good point, Lynn. So to sum up, we will begin to
collect data about our work across interior beginning October 1 and you
will be getting some specific training from your Bureau between now and
October 1 about what you\'ll need to do to provide the information about
the costs of your work. We\'re also building a reporting system that
will allow us to collect the dated you a and allow us to analyze it once
we have it. And we\'re all learning and we will be flexible, to adapt
what we\'ve learned as we go forward in terms of cost management. Now,
that about wraps up our program today. And we\'d like to add \-- thank
all of our studio panelists and participants from DOI steering committee
in Washington D.C. for their participation. And remember that for more
information on cost management, you can visit the Department of the
Interior\'s ABCM website at\.... For those of you in you are offices who
were unable to hear the information today, you will be able to obtain a
copy of today\'s broadcast from your ABCM steering committee member. We
hope that today\'s program has been able to help you understand activity
based cost management. And thank you for being with us, and so long from
Phoenix.