For years, the plumbers, painters, carpenters and maintenance people who worked for the Texas General Services Commission (GSC) shuttled back and forth between the department’s administration building, located in Austin’s Capitol Complex, and its parts warehouse, about seven miles to the east.
While everyone knew this was an inconvenience for the painters and carpenters, what wasn’t clear was that these trips were costing the agency a considerable amount of money. ‘It was a pain to have to constantly drive from one building to the other,’ one employee told us, ‘but we just assumed that was the way it had to be.’
But it wasn’t. And now those 14-mile round trips are gone for good.
In Spring 2000, GSC decided to include the Capitol’s maintenance services in an activity-based costing (ABC) analysis to learn the true, fully allocated costs of these activities. The analysis demonstrated, among other things, that the location of the warehouse was costing the department a lot of money that could be spent better elsewhere.
By management estimates, GSC’s plumbers, painters and carpenters logged more than 48,000 miles driving between the two locations in 1999. Including salaries for drive times, gasoline, and indirect and administrative costs, the ABC analysis found that GSC could save more than $51,000 a year simply by moving the warehouse to its administration building’s basement. Within weeks, GSC did so.
This experience illustrates the benefits the state can realise from ABC. The tremendous opportunities offered by ABC analyses were discussed in the Comptroller’s 1999 Texas Performance Review report, Challenging the Status Quo: Toward Smaller, Smarter Government. In response to recommendations in that report, the 1999 Legislature adopted Article IX, Section 9-6.43 of the General Appropriations Act, creating an ABC management team of representatives from the Governor’s Office of Budget and Planning, State Auditor’s Office, Legislative Budget Board and the Comptroller’s office. This team was directed to oversee an ABC pilot project and report to the Legislature on its results no later than January 15, 2001. The process followed to fulfill this directive is discussed in detail in this report.
ABC assigns costs to all of the activities in a given process, based on the resources they consume.
Activities are the steps necessary to convert resources into a product or service; under ABC, all costs of activities, including overhead, are traced to the product or service for which the activities are performed.

Discussion points
1 What was the benefit of ABC in the situation described here?
2 Why would the state of Texas be so enthusiastic for ABC?