King County

Better decision making at King County

With lean, activity based costing and management King County in Washington wants to meet the customer demands while maintaining King County’s operational cost low.

 

Senior management has been forced to find ways to maximize the use of resources to provide the same level of service in an efficient manner. 

The traditional way of managing operations and keeping with status quo was not an option when the cost increase became higher rate than the revenue increase.

"Activity based costing and management will help us understand the productivity on process and activity level, and the real costs at cost object level", says Eunjoo Greenhouse, Finance and Business Deputy Director at King County.

 

Combines Lean with Activity Based Costing

King County has been working systematically with Lean since 2010.

 

Lean is a set of principles and practices that focuses on eliminating waste and non‐value added activities in all areas of business. Activity Based Costing, ABC, supports this approach really well.

 

According to Eunjoo Greenhouse there are several gains from this. Such as improved discussion climate, improvement of service portfolio and reduced waste in processes.

 

Prodacapo, a user-friendly solution

To implement ABC King County initiated a project in 2014. The project included the assessment and selection of an ABC-costing system. King County chose Prodacapo. 

 

"Prodacapo came up with the best soution for our purposes. We need a user-friendly solution, which visualizes how activities are linked together in processes, how they consume resources, what they cost, and how services consume activities", says Eunjoo Greenhouse and continues: 

"In the end, it is all about value, we want to create value for our clients, for the inhabitants of King County. This means we need to be efficient."

The King County ABC implementation 

King County initiated an Activity Based Costing (ABC) Rapid Prototype Sessions to understand the feasibility and application and use of ABC information for King County, as well as to answer two challenges posed by senior management:

 

- How do we build a cost management methodology to support the line of business budgeting?


- How do we hold managers accountable for productivity?

 

Two agencies, Finance and Business Operations Division and Jail Health Services, were selected for Rapid Prototyping and sessions were conducted over a two day period.

 

Each of the Rapid Prototypes was successful and answered these questions.

 

Developments

King County decided to choose Prodacapo as the main system to support the Activity Based Costing Methodology and Arkonas as subject matter experts to implement the models.

 

After the successful implementation of the two initial agencies, King County decided to continue building ABC models for the Information Technology Department, KCIT, Solid Waste Management and the Department of Assessments. 

 

Each model was built in less than two months and provided a great level of detail to set the stage for informed decision making to maximize performance and increase productivity.

"Our activity based costing models create an understanding on how your daily activities affect your cost and profitability."

Eunjoo Greenhouse

Finance and Business Director, King County

Cost of processing invoices

After the completion of the different ABC models, detailed data to support decision making was generated. The results from the Finance and Business Operations Division model showed meaningful outcomes related to the unit cost of invoice processing.

 

Three types of unit costs were generated: Cost of processing invoices with errors, cost of processing manual invoices, and cost of processing electronic invoices.

 

The cost of processing invoices with errors was more than 5 times the cost of processing the other two types of invoices. As a result, specific actions were taken in order to reduce the number of invoices with errors and the overall efficiency of the department improved significantly.

 

Cost of transfer station activities

The Solid Waste ABC model generated detailed operational activities related to the work performed in each of the 8 transfer stations, the landfill, and the administrative functions of the department. 

 

The cost of the transfer station activities were benchmarked among each other in order to get a better understanding of the differences in performance and asset utilization. The average unit cost per ton transferred varied significantly across transfer stations.

 

 

Improved performance

The KCIT, Department of Assessments and Jail Health Services models were each created according to the specific needs of senior management and provided new information for better decision making support.

 

The KCIT model detailed the cost of different services provided to internal end users as well as the cost structure of resources needed to support the services. This information provided KCIT management with the necessary information to improve the customer/service mix as well as to improve the resource deployment by type of service.

 

The Department of Assessments model provided the cost of detailed activities by department and showed redundant work as well as manual work that risked the integrity and efficiency of data management.

 

The Jail Health Services model included cost by patient type, services provided, and detailed activities performed by the agency’s departments. Idle cost as well as non-value added activities were identified and recommendations were provided to improve performance and effectiveness.

What our customers say

"Implementing Prodacapo was a strategic decision we made to respond to the new market conditions for the healthcare sector in the Netherlands."

 

"At the early phase of the project, some of the departments were quite hesitant in participating, but as soon as we were able to present the first results of our project the doubtfulness was replaced by enthusiasm."

Niek Bossché & Paul Steinbush
Erasmus Medical Centre, The Netherlands

 

 

"Prodacapo provides us with great information and more precise patient costing data."

 

"It's also very important for us to compare and analyze on different levels and in between different departments. Prodacapo gives us better management information of for example resource consumption per patient treatment."

Reidun Martine Rømo

Ekonomichef, Helse Midt-Norge

”Using Prodacapo's TDABC methodology (Time Driven ABC) means we have got a an easy-to-use costing tool, a costing model that is easy to understand and a unified method to track the patient level costs.”

Roland Ylander
Head of patient level costing, County council of Jämtland, Sweden

Erasmus MC
Helse Midt Norge
Jämtlands läns landsting