Governmental acquisition can involve many different things. It is important for organizations that deal with governmental acquisition to understand why they do various things and what it is that they must do (Angelis, 35). This helps them not only comply with many of the financial management laws that have been created, as well as regulations dealing with these things, but it also helps manage costs as well (Angelis, 35). This is a very critical step in being able to define outputs, develop systems, identify customers, and trace and collect the costs of the various resources that they have all the way through to the outputs that they produce (Angelis, 35).
There are many different models that are designed for collecting and tracing these costs but the most popular one is known as the ABC model (Babbitt, 4). This stands for activity-based cost and it is important to look at how governmental acquisition organizations use this model to help understand and define the processes of the outputs that they deal with, trace and collect the various costs that come with doing business, and look at how information that has been collected in one particular acquisition can be utilized in the future (Babbitt, 4).
In 1996, a federal act was created to deal with improving financial management (Angelis, 36). It required agencies to produce financial cost information that allowed Congress and various other financial managers to look at the performance and the cost of federal programs and various activities. It is hoped that this act will eventually improve the decision-making that is done on this level. It may also increase many of the capabilities that agencies have in order to monitor how well their budgets are actually being distributed. It will do this by providing better support for preparing reports that look at the results of various activities and the spending of resources that took place.
Because of the act governmental agencies have now found that they need to not only understand and measure costs but be able to manage them as well (Angelis, 36). The Air Force is one acquisition area that has strongly embraced the philosophy of understanding, measuring, and managing various costs. The individual who works as the Chief of Staff of the Air Force has directed all of the major commands to identify what it is that they do and relate those principal tasks to the core competencies and missions set out by the Air Force (Angelis, 36). This is important because it is necessary for these individuals to specifically understand what it is that they do and how it relates to many of the things that they have been taught.
The ABC method that the Air Force decided to utilize was actually developed originally to regulate and measure manufacturing costs (Babbitt, 1998). Even though this was its initial intent it has been expanded and changed in many ways so that it can deal with any type of business at this point, including those that are in the service sector. This particular model looks at the various costs from resources such as supplies, labor, travel funds and many other issues to the activities that they are used for and on to the outputs, or the services or products, that are created (Angelis, 36).
There are specific benefits that are offered by looking at the cost of activities and calculating them. First, the activities are more easily able to be identified (Angelis, 36). By identifying and also defining many of the organizational activities that are taking place, managers are given more insight into the specific process of the business. In other words, they are more able to understand how and why they perform specific tasks. In helping to understand the value of various activities that they do and also the effectiveness of them, this information can be extremely useful.
Looking at how costs relate to activities is the second benefit this particular model provides (Angelis, 36). Very different activities are often performed utilizing specific resources and the cost of these resources must be noted. This helps to show whether the business process based on taking resources and utilizing them for various activities is working efficiently (Angelis, 36). If the business process is working efficiently than the company can rest assured that what they are doing is appropriate. If the business process that a particular company has is extremely inefficient then it may be necessary for that business to stop and look at specifically what it is doing and why and perhaps adjust some of the things that it does in order to reduce the cost that is involved in specific activities.
Each specific activity also has its own unique output (Little, 1999). This output helps to contribute to the final service or product that is created by the business. By looking at and computing the unit cost that comes with each activity businesses are able to compare activity efficiency and various business processes. By doing this resources can be better allocated to activities that are cost-effective and efficient as opposed to simply being generalized to various activities across the board (Angelis, 36). By being able to trace the cost to various activities and also understanding which activities are needed for which products the costs can be traced to their various outputs in a manner that is correct and logical. This gives the highest benefits to all that are attempting to learn more about this issue and determine how businesses can be run the most efficiently.
This is what been Air Force initially did and they picked four specific offices to utilize as pilot programs to be studied (Angelis, 36). The program ran for one year and it did so well within the Air Force that the program was implemented across all other areas later that year (Angelis, 36). The discussion so far has dealt mostly with measuring, collecting, and tracing money but there is a great deal more to being able to manage the cost of the business for organizations than those things. Efficiency and effectiveness both of products and activities must also be measured.
Unit costs can be calculated in order to measure efficiency but outputs must be identified first (Ely, 5). Not only must they be identified but they must be recorded and methods must be created in order to ensure that they are counted correctly (Ely, 5). There are some outputs that are extremely easy to count because there is a final product that is very tangible. Other outputs are much more difficult because the product that they create is not of a tangible nature or there are many differences between the output data and the cost data. Many of these differences are involved in timing which may make it rather difficult to keep track of what output specifically goes with what cost (Angelis, 36).
Timeliness and quality are often utilized to measure whether something is or is not effective (Ely, 7). It is important to understand whether the service or product is good and whether or not the customer is actually satisfied. Whether a specific service was also delivered in a timely manner is important for effectiveness as well. Any type of measure of effectiveness or other kinds of performance must be established and also must be documented very strongly. If these things are done but they are not matched to the outputs and activities then the effectiveness will still not be measured correctly. Allocating resources correctly and making decisions quickly with the most information available are some of the things that must be incorporated into specific management procedures and that is why this model is so extremely important for governmental acquisition.
Not only are benchmarking activities and processes created in this way but goals and standards are established, controls are also established, and various trends and problems are highlighted for consideration in the future (Stidham, 1998). One of the most important things about utilizing this type of model for governmental acquisition, however, is that consideration and analysis is necessary when it comes to many of the underlying factors and how these relate both to the timeliness and quality of what is being accomplished (Angelis, 36). If timeliness needs to be increased then goals can be set to reduce the time it takes for specific given activities.
However, it is not quite as simple as it sounds. It is important to understand what the cost will be for reducing the time for a given activity and whether more individuals are required to shorten the length of the task may indicate whether or not it is actually cost-effective (Angelis, 36). In other words if the task is cut in half of the time that it normally takes to complete but twice as many people must work on it to complete it in this fashion then it is quite possible that completing the task more quickly will not be cost-effective or efficient and the long run. Many governmental agencies have limited budgets and therefore if one activity…