ABC Cost Management Summary Bay Metro Transit.

Bay Metro Station Bay Metro Transit, like all public transit systems, is interested in operating as efficiently as possible. In the budgeting process it is clear that local systems do not have as much control over revenues as they would like. Outside interests, like state and federal transportation departments, play an important role by providing capital and operating assistance to local agencies, and these departments are subject to fluctuating political and financial changes that greatly impact their ability to respond to the needs of local communities. As the State of Michigan’s economic condition worsened in recent years, the need for local agencies to control their expenses became even more obvious. State reimbursement for smaller systems has gone down from over 50% of eligible expenses to about 38%. Larger systems receive even less. On the other hand, local agencies do exercise considerable control over their own expenses. For most systems, 70% to 80% of expenses are directly related to personnel costs [wages and fringe benefits]. Therefore, Bay Metro has been very interested in finding ways to control these costs. There’s an old saying: “If you want to understand how an organization works, just try to change it.” Bay Metro staff wondered if it might be possible to better understand how the agency works, so that if changes were to be made, there might be some assurance that we would actually accomplish what we set out to do. The goal was to identify cost-related decisions made by employees. If it were possible to identify decisions that resulted in unnecessary costs [non valued added costs] then the agency could target those activities for elimination or modification.

Activity Based Cost [ABC] Management Project.

These deliverables provided the basis for the negotiation team to develop proposed contract language for the articles cost estimated, enabling the parties to measure the plus and minus cost impacts by comparing against the current documented standard. Since MDOT reimburses every transit system a percentage of its eligible operating expenses, it has a stake in everything done by local public transit agencies. Even a small dent in everyone’s expenses could have a significant impact statewide on the reimbursement percentage. Therefore, MDOT agreed to provide grant funds to allow Bay Metro Transit to work with a consultant to assist Bay Metro in its effort to identify cost-generating activities and to eliminate or modify those of little value. The grant was used to examine activities in the planning, operations and maintenance areas of Bay Metro, which cover 90% of the workforce.

Goals of the grant project.

Step 1 – Interview key employees to identify all cost-related decisions made at all levels within the organization. Segregate those decisions that add value to the agency’s mission from those that add cost but no value.

Step 2 – Target for elimination or modification the non value added activities identified in Step 1. Bay Metro’s primary resource is its employees. Eliminating non-productive activities could potentially free up some of their time so that they could be cross-trained to perform other duties. In order to do this, it would be necessary to identify and then eliminate each department’s non value added activities.

Step 3 – Cross train employees to cover value added activities. With the identification of non value added activities, and the cross-training/retraining of employees, Bay Metro could implement an initial effort to reorganize and redistribute work activities.

Step 4 – Reorganize and redistribute value added work as opportunities occurred through employee attrition. As retirements or other employee separations occurred, rather than automatically filling existing positions, Bay Metro would be in a position to put the reorganization plan into effect by covering only value added activities. It was important to assure the workforce that this effort was not designed to eliminate them. The goal was simply to develop a roadmap which would allow for a gradual transition as opportunities for personnel changes occurred.

Documents generated following analysis of data obtained during the interview process.

Interview Techniques, suggested by consultant. Interview Protocol used by Bay Metro interview team. Example of an Activity Dictionary [in this case, the Operations Dept] resulting from department interviews, showing percentage of each employee’s time spent on each activity and the value added percentage of that activity. Single activity map [in this case, the Planning Dept] showing each step in a single work activity, from start to finish, within the entire department. Activity by Process Cost summary, showing all activities and their associated costs within a single department [in this case, the Planning Dept], within each process, activities are ranked from highest cost to lowest, regardless of each activity’s value. Activity by Department summary for each department [in this case, the Planning Dept] showing every work activity within the department and ranking each activity by cost, highest cost to lowest.

This information is used to determine which work activities appear to be non value added [non productive]. High cost, low value activities are the first to be addressed. Other low value activities are then addressed in their descending order of cost.

Initial outcomes of the process involving the planning and operations departments.

Because Bay Metro has a planning [service development] department, something most small agencies do not have, and since it is through this department that virtually all service requests are channeled, it was decided to begin the review of the organization in this department, especially in terms of its interaction with the operations department which carries out the plans.

Streamlined communication between planners/schedulers and dispatchers/vehicle operators. Example, added a computer work station in the drivers area to pass information through, for example, permanent route changes and temporary route changes due to road construction. Streamlined ridership collection/sorting/tabulation process; eliminate unnecessary steps [half-way houses for data].

Eliminated dated demand-response computerized/GPS scheduling program with one costing only about 15% of the price of the original program. Revised procedure for processing vehicle operators “request for schedule leave” forms to make the activity more effective. Follow-up on connecting the initial submittal of a leave request with the time when the employee’s request is either approved or denied and a replacement scheduled. Eliminated double and triple checks involved in timekeeping activities, for payroll purposes, equalization of overtime purposes, etc. Eliminated wasted time and effort to concentrate on more effective activities. Added subscription route passenger information to a “common file” for the dispatch and safety/training office to access. Added calendar of scheduled employee time off to a common file for all departments to access. Added calendar of upcoming special event for which transportation is being scheduled to a common file accessible to all departments.

Outcomes of the next phase involving the maintenance department.

Confirm maintenance department access to common file data and ensure department staff is trained in its use. Preventive maintenance schedule of all revenue vehicles to be posted in common file for access by operations department personnel. Generate work order form to be used for all revenue vehicle maintenance work that can be accessed by mechanics, maintenance supervisors, inventory controller, purchasing agent, finance department, and safety/training department. This will eliminate duplication of entries for this work.

Real life example of cost savings measures undertaken following the first phases of the ABCM project by Bay Metro Transit.

In fiscal year 2005, a reduction is state operating assistance was announced part way through the year. This reduction was estimated to result in a loss to Bay Metro of about $240,000. Bay Metro departments and employees were asked to participate in an effort to identify non value added activities and/or processes within the agency which could be targeted for modification or elimination during fiscal year 2005 to help offset that year’s expected operating deficit, and to prepare the agency to enter the next fiscal year with a reduced operating budget to meet the expected lower state reimbursement percentage for operating assistance. This effort involved interviewing representatives of both employee unions, department heads, the board of directors, and the passengers who use the transit system. A summary of proposals to reduce operating costs is shown as attachment “G” at the end of this report. Almost all of these proposals were implemented in the summer of 2005. By the start of the next fiscal year [October 1, 2005] the recommended changes were in place, and the results of these changes were tracked during the ensuing fiscal year. At the end of fiscal year 2006, it was determined that operating changes made prior to the start of the year had resulted in an overall cost reduction of more than $330,000 from the previous year, much of which was attributable to the changes made during the summer of 2005. Concepts learned from using the Activity Based Cost Management process were instrumental in shaping this effort.

Summary.

At the beginning of this project, the consultant had expressed interest in working with Bay Metro Transit to demonstrate that a cost management process initially developed for use in manufacturing could be applied to a public transit or similar type enterprise. The consultant’s personnel had chosen Bay Metro since, in their words, Bay Metro was already “a solid performer with a reputation within the community for quality and timely service.” Also, they stated that the transit system’s leaders were visionary enough to believe that they could still do better. The project was not triggered by a perceived financial crisis, but as a means to assist the agency in eliminating unnecessary costs while continuing to provide good service to the community. As it happened, events in the state provided an opportunity to test the process early on, by providing an opportunity to see if non value added activities could be eliminated in order to significantly reduce costs in the short term, and thereby remove the need for making major organizational or service changes in the face of declining state revenues. Participating in the ABCM process has caused transit authority staff to re-think how it views all day-to-day internal decision making activities. This should provide a sound basis for all future endeavors. The goal of this organization is to be around for many years to come, by providing transit services desired by the local community, at a cost that can be sustained in the long term. In the long run, Bay Metro feels that the time and money spent on this project was well worth the effort.