Online and Just-in-Time:
21st Century Asset Management

The year before, the Big Spring State Hospital was planning to open a children’s diagnostic and evaluation center in an existing building on hospital grounds. The local facility manager, however, was skeptical that the building was suitable for this purpose. Consulting data in the agency CAFM system, he found that the building would need more than $1 million of renovations to its roof and electrical, plumbing, and fire control systems before it would be usable. Armed with this information, MHMR administrators found a suitable building for the center elsewhere in Big Spring, at a fraction of the cost.

In both cases, information MHMR had collected on the condition and value of its assets allowed the agency to spend tax dollars wisely.

The CAFM project began in 1997. Agency staff gathered and centralized information on all of the major components of each of MHMR’s 1,490 buildings throughout the state. They evaluated the condition of the roofs, the heating and cooling systems, the elevators and escalators, and the plumbing. They consulted experts on the remaining useful life of these systems, and set standards for labor and material replacement costs. The CAFM team found 26,000 building deficiencies among the agency’s facilities, and classified them in three categories: those likely to fail within one year, those that would fail in one to two years, and those that would fail in two to three years.

The information in CAFM now allows the agency to plan for major capital expenditures in its future budgets. In addition, the system sets separate values for building components, allowing the agency to depreciate individual components more quickly, ultimately resulting in earlier recovery of federal reimbursements for these items.[1]

It would be nice if MHMR’s program represented standard procedure throughout state government. And someday it might. Right now, however, this intelligent approach to asset management is the exception, not the rule.

Take the state’s vehicle fleet. We found that the state can’t even determine exactly how many vehicles it owns, much less what their condition is. We also found a number of disturbing and colorful problems, from a 1959 Chevy truck in sore need of a paint job to a garage that “stores”—piles, really— almost a year’s worth of tires and batteries in the open, exposed to the elements. Some state garages still use hand-written logs to document contract work. To be fair, some agencies run their fleets as efficiently as any private company, but most fleet operations could stand considerable improvement.

Maintaining state buildings, warehousing supplies, running vehicle fleets, processing tax returns, managing land holdings, repairing equipment—they’re not particularly exciting topics. But they are essential functions of the $49 billion-a-year organization that is Texas state government. And in many of these areas, we can do better, much better.

Texas’ Asset and Financial Management

Texas state government has enormous resources invested in various assets. In 1999, primary government assets were worth $228.5 billion; cash, investments, and receivables (debts owed the state) accounted for 90 percent or $206.5 billion of the total. Valued at historic or acquisition cost, fixed assets such as land and buildings accounted for the remaining 10 percent, or about $22 billion (see Figure 13-1). Of the state’s fixed assets, $10.8 billion is invested in buildings, $5.2 billion is invested in furniture and equipment, and a total of $1.8 billion is invested in land and land improvements.[2]

Texas state government’s capital and investment portfolios are managed by the Comptroller’s office, the state retirement and university systems, and other investing agencies. Other state agencies, such as the Veterans Land Board, the Texas Public Finance Authority, and the Texas Water Development Board, manage various bond programs.

Land and Buildings. Opinions as to the actual amount of land Texas government owns vary considerably. Estimates by the General Land Office (GLO) and Sunset Advisory Commission vary from 20.3 million to 20.6 million acres.[3] We simply don’t know exactly how much land Texas owns or what it’s worth, because land records are scattered throughout state government.

E-Texas has compiled GLO estimates placing the current value of 878,000 acres of land and buildings owned by various state agencies—primarily the Texas Department of Transportation, the Texas Department of Criminal Justice, and MHMR—at $3.4 billion.[4] Because this estimate represents only about 5 percent of all lands managed by the state, many experts believe the total dollar value of all state-owned lands is far greater.

Also, because traditional state accounting methods require property values to be recorded at their historical cost to the state, Texas’ official annual financial report values all 20-plus million acres and associated buildings and improvements at just $12.6 billion.[5] That’s about four times the current value of a tiny share of the whole. And that’s the problem with using “historical costs.” It makes about as much sense as valuing Manhattan Island at 60 Dutch guilders, the purchase price in 1626.

Texas owns or leases 171 million square feet of office space, 26 million square feet of it in Austin. These figures, moreover, include some but not all of the space owned or leased by public colleges and universities. State government spends $110 million annually on leased space alone. The state also leases 74 warehouses across the state, a third of them in Austin, for $3.8 million annually.[6] At present, the costs of owning building space are not included in the reported costs of agency services, although they do represent a cost to the state and to the taxpayer.

The legal authority of state agencies to buy, sell or lease real property varies tremendously. GLO receives reports from state agencies on their land holdings, but has no real way to verify them. The General Services Commission (GSC), the state’s building and property manager, attempts to track leased and state-owned office and warehouse space, but several agencies have been exempted from reporting requirements, and make reports only in their own time, out of courtesy. Universities and colleges generally keep their own data and share them with the state only by special request.

Vehicle Fleet. About 140 different state agencies and institutions own more than 29,000 cars, trucks, and other vehicles. Almost one in three of these is more than 10 years old, and one in five has been driven for more than 100,000 miles.[7] When sold, the state nets an average return on the vehicles’ original purchase price of only about 20 percent.[8]

Surplus Property. To eliminate surplus properties, Texas state agencies identify them as such to GSC, which then can take up to six weeks to add them to a list of state surplus properties. That list is circulated first to local governments and school districts, which may respond with sealed bids for specific items. Items not purchased by local governments or schools then are offered to private vendors; if they do not sell at this point, they are placed in long-term storage. Three to four times a year, GSC holds public auctions of state surplus items. What doesn’t sell usually goes straight back to the warehouse until GSC tries again to sell it.

Financial Management. Texas has $158.5 billion invested in its Teacher and Employee Retirement Systems, the Permanent University Fund, the Permanent School Fund and the Permanent Health Fund as of August 31, 2000.[9] Texas carried $6.7 billion in outstanding bonded indebtedness as of September 1, 1999.[10]

Texas’s decentralized style of government is reflected in its financial management. Dozens of independent agencies are charged with one or more responsibilities related to the collection, expenditure, investment, or borrowing of state resources. This segregation of duties is a matter of evolution, not of strategy. Financial responsibilities and purposes flow from agencies’ need to administer individual programs. As a result, several agencies make investments; others monitor cash flows; still others run retirement funds or educational endowments—all with significant overlaps of authority. Similar observations may be made about the state’s borrowing processes.[11]

State Financial Accounting System. Texas state government operates on a cash basis for appropriation purposes and a modified accrual basis for reporting purposes. Because the Texas Constitution prohibits deficit spending, the Comptroller must certify to the Legislature the income the state can expect to receive over the next biennium, so that budget writers will have a limit on what they can appropriate. In general, cash-basis accounting is a “pay-as-you-go” system, recording payments and expenditures as they are actually made or received. The modified accrual approach does recognize future expenses, but is limited in how those expenses are spread out over time. The important thing to remember in all this is that neither method gives state budget planners the best information available on the true value or condition of what the state owns.

Soon, however, the state will be required to comply with new rules from the Governmental Accounting Standards Board (GASB). Beginning with the report for fiscal year 2002, the state’s annual financial reports will have the look and feel of corporate financial reports. For the first time, infrastructure like roads, bridges and dams will be accounted for in agency reports just as real property is. In addition, most real and personal property–office equipment, vehicles and the like–will be depreciated. These requirements will be met by every state agency, college, and university.

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GASB Standards: A New Direction for Government Financial Reporting
Starting in fiscal 2002, the state will change its accounting and financial reporting system to be much more like those employed by private firms. The new reporting model will require the state to use full accrual accounting rather than the current modified accrual accounting system, making the true costs of government services clearer, and easing comparisons to private service delivery.

The new reporting model was developed to make annual reports easier to understand and more useful to the people who use governmental financial information to make decisions.

Compliance with the new GASB statements will require governments to make a number of important changes. The most significant of these changes include:

•Infrastructure reporting. Traditionally, states have not been required to report general infrastructure such as roads, bridges, and dams in their financial statements. GASB requires general infrastructure assets to be capitalized.

•Depreciation accounting. Governments will be required under the new model to report depreciation expense for all assets, except land, which can’t be depreciated.

•Full accrual accounting. Data on governmental activities will be converted from a modified accural basis to a full accrual basis.

This system will provide better information for Texas taxpayers, and could have an important if subtle social effect—a reduction in taxpayer cynicism and suspicion about its government.

As much information as these GASB rule changes will provide, they won’t require the state to estimate the market value of its assets, only their historical cost. But that day will come, probably sooner rather than later. Our state government would be doing itself–and us–a service to take GASB a step further by beginning to evaluate the market value of all its assets.

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Federal Funds. Federal funds are Texas’ second-largest source of revenues, accounting for almost 30 percent of all state funding in fiscal 2000.[12] Accounting for these federal funds is performed almost exclusively by individual agencies that receive or distribute them, and the information these agencies publish concerning how the funds are spent varies widely.

Strategies for 21st Century Asset Management

The state must do more to enhance the value of every asset it owns, including real estate and other property as well as investments. To do this, Texas must plan for the acquisition, use, and disposal of state assets on a statewide, life-cycle basis.

Exemptions and loopholes exist in every aspect of the management of the state’s assets, so that much information about agencies’ activities is unclear even to their own managers. Moreover, Texas is not reaping the full benefit of the enormous purchasing power it would have if all state agencies, universities, colleges, local governments, and school districts were to negotiate supply contracts together.

The use of assets should be an element in every agency administrator’s budget, so that the cost of every program reflects the true value of every asset employed in that program from the beginning.

The reason for this recommendation is fairly simple: Texans deserve to know exactly how their government spends their tax dollars, and to see the clearest possible picture of the state’s finances we can provide. It’s a fundamental step that will further the basic goals of democracy by giving voters the tools they need to judge how state funds should be spent—and in many cases, whether they should be spent at all.

Use Internet Technologies to Improve Asset and Financial Management Practices

New technologies and management practices are producing revolutionary changes in the way organizations acquire, manage, and dispose of their assets. IBM, for instance, saved $70 million in 1998 by moving a good portion of its purchasing online. IBM’s ultimate goal is to move all of its purchasing transactions to the Internet, eliminating all need for invoices and faxes.[13]

A multiagency Texas Government to Business or TxG2B task force is designing and testing a completely electronic procurement process for the state. An early test of the new system was conducted in April and May 2000. Information from this project will be ready for the January 2001 meeting of the Legislature. The TxG2B effort, if successful, will be one of the more sophisticated state e-purchasing approaches in the country, one capable of saving the state hundreds of millions of dollars.

Surplus property could be identified and eliminated from government inventories with greatly improved efficiency through use of the Internet. The state’s investments and debt instruments could be bought and sold through online auctions, reducing their cost and improving interest yields.

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The Orange County Transit Authority’s Online Procurement System
Purchasing bus parts has become a much easier task for California’s Orange County Transit Authority (OCTA). OCTA now uses an online procurement system, CAMM NET, to post bid solicitations online in the morning, automatically notify vendors who have preregistered on OCTA’s online system, and receive dozens of responses by the afternoon.

OCTA’s employees no longer have to spend their time thumbing through phone directories to locate bus parts. Instead, an increasing number of businesses are coming to OCTA with near-instantaneous bid responses. Since April 1999, more than 2,650 vendors have registered with CAMM NET. Many bid solicitations routinely generate 25 to 30 responses.

OCTA has found that its costs are dropping. “The competition on procurements has increased quite dramatically,” said Neal Johnson, senior procurement officer at OCTA. “You can just about guarantee the lowest price when you can get that kind of competition.”

The authority also posts the winning bid for all vendors to see, so they can fine-tune their bidding in subsequent transactions.

The $180,000 system is expected to pay for itself in savings within a year.[14]

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ACTION:

Texas must improve its methods of dealing with surplus property. A significant amount of time—as much as 158 days—elapses between the identification of state surplus property and its subsequent disposal. The process is inefficient and costly to the state.

Texas should post all agency surplus property not claimed by other state agencies for sale on the Internet on the day it is declared surplus, complete with a color photograph and a description. Schools and local governments should have priority bidding rights for the first five or ten days the item is listed. If it is not sold in that time, the item then could be listed with an online auction site such as eBay or eSASA. The few dollars such listings would cost the state would be outweighed by the reduced need for warehouse storage. Items that do not sell in a month should be donated or thrown away. Such a scheme would allow the state to sell to buyers all over the world, not simply the specialists who regularly attend state auctions, and eliminate the need to hire auctioneers and lease auction spaces.

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Online Auctions for Treasury Time Deposits
In Winter 2000, the Comptroller’s office will conduct the first Internet auction of Treasury time deposits—relatively short-term investments of state funds made to earn interest while maintaining a degree of flexibility in state finances. The agency hired Muni Auction to build the application needed to host the auction.

Previously, time deposits were deposited in pre-approved banks on a monthly basis. The program was consistently oversubscribed, meaning that state depositories typically requested more funds than the state could make available. Auctioning the time deposits over the Internet allows more banks to bid—access is open to all banks who meet certain eligibility criteria—thereby creating more competition and increasing the state’s interest earnings.

During each Internet auction, banks can view the status of their bids on the Web and raise their bids in response to competitors. When Ohio instituted a similar system last year, it achieved a significant increase in its earnings. If Texas experiences similar results over time as Ohio’s, the new electronic marketplace should raise considerable additional money for the state each year.

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Maximize the State’s Return on its Assets

Two major obstacles make it difficult for the state to increase its return on its assets. The first is a lack of the sort of consolidated information needed to make management decisions about the acquisition, maintenance, and disposal of state assets. As has already been seen, Texas has no realistic estimate for the total value of its lands and other fixed assets. The same is largely true of the state’s vehicle fleets. State agencies collect data on their vehicles using different methodologies and database systems. State expenditure codes lump fleet maintenance into the same accounting codes used for copier and building maintenance. The result: we don’t really know exactly what the state’s fleet is worth, or what condition it’s in. A state vehicle fleet management plan developed by the state’s Council on Competitive Government (CCG) should correct this problem.

A second obstacle is the simple fact that state agencies currently have no incentive to manage assets and dispose of surplus property efficiently. The value of such properties traditionally has been of little consequence in budgeting because such properties have been considered “free” for each agency’s use. Until recently, attempts to estimate the cost of Texas government ignored its substantial investments in real estate and buildings.

Capital Charges

In the 1990s, leaders in New Zealand’s government found that the nation’s agencies owned large tracts of land and many buildings that did not contribute to their performance. The capital cost of those assets, moreover, was not reflected in agency budgets. Reformers devised a method to assess a “capital charge” on all federal property used by government departments. Suddenly, the once-invisible costs of land and buildings became very real to agencies that found themselves charged for their use. Government departments found that they could no longer afford to keep expensive properties they didn’t need. The charges created a positive incentive to sell surplus assets.

A 1993 Price Waterhouse study on New Zealand’s capital charges noted:

[O]ur overall conclusion is that the capital charge regime has been very successful in making explicit to chief executives the costs of owning assets... There are sufficient examples of the way in which the charge has influenced behavior to state unequivocally that the concept has been successful and that it is important to continue the regime and where possible improve upon it.[15]

Champion Realty Corporation, a subsidiary of Champion International headquartered in Houston, implemented a capital charge system in 1996, when Champion was in the bottom quarter of its industry in terms of shareholder value.

Champion inventoried its five million acres of land, worth some $300 million, and assigned parcels of land to individual corporate divisions, which then were required to pay an annual charge of seven percent of the land’s value back to the company. Divisions quickly realized that they couldn’t hold properties that didn’t help them make a profit, so they either put the properties to better use or sold them. As a result, Champion went from an industry laggard to an industry leader in shareholder value, thanks in no small part to its land management practices.

“To maximize shareholder value, we had to be successful at breaking the psychology of ‘more is better,’” Dan Daniels, vice president for Champion Realty, told an e-Texas hearing. “The ‘more’ psychology goes the opposite way we need to go to be successful for our shareholders and investors.”[16]

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Better Asset Management through Public/Private Partnerships
Public/private partnerships are emerging as a new model for government efficiency. SERCO, a British firm that specializes in such partnerships, operates Hong Kong’s parking meters, three of the Federal Aviation Administration’s four air traffic control centers, and several government-funded construction projects around the globe.[17]

In a typical partnership arrangement, a local government will sell lease rights in a property to a company. In return, the company will build a jail, hospital, or airport on the site, and then lease it back to the government as a fully maintained facility via a 10-, 15-, or 30-year contract. Such arrangements allow the government (and its taxpayers) to enjoy the immediate benefits of a substantial capital investment while distributing its costs over a relatively long period. The private partner, in turn, makes a profit over the life of the lease.

Leaseback arrangements such as these can enable government to get the most impact from taxpayer dollars, provide citizens with necessary infrastructure, and reduce the need for bonds and other debt.

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ACTION:

This database should be housed at the General Land Office (GLO). All state agencies, quasi-agencies, colleges, and universities should be required to file property information by the first of every fiscal year. Such information should include all current information plus acquisition cost, method, year and source of funds, appraised value and date, residual value, estimated useful life, and codes for the acquisition, disposal, and transferal of the property. For buildings, all units of state government should conduct a survey of the condition of major system components of each building, estimating their useful life, residual value, and renovation and replacement costs, and enter this information in the state property database.

The GLO information should feed directly into the State Property Accounting (SPA) system currently residing within the Comptroller’s office, which then in turn would be responsible for feeding the information into the state’s Uniform Statewide Accounting System (USAS). Through USAS, the value and condition of each property then would become easily identifiable and accountable in each agency, college, or university budget.

ACTION:

The state’s real estate management system does not enforce agency accountability for the ownership and use of state-owned property, or provide incentives for the highest and best use of these assets. Agencies that do use proper management practices and keep updated records on assets run the risk of having them sold without any gain to the agency; thus the present system creates a perverse incentive to maintain poor records.

The new GASB standards will require agencies and state institutions to report accurately on their holdings. Requiring all agencies to pay annual capital charges for their use of state-owned property, based on the property’s value, would introduce even greater accountability into the system and provide better incentives for the effective management of the state’s multi-billion-dollar investments.

ACTION:

The federal government allows states to depreciate the major components of their buildings separately. Doing so can accelerate the recovery of federal funds. Furthermore, accurate data on the expected life, residual value, and replacement costs of building heating and air-conditioning systems, elevators, and the like can support better budget forecasting for the future repair or replacement of such components. Beginning in fiscal 2003, agencies should begin collecting data on component systems in each building they own.[18] While GLO will be required to update its State Real Property Inventory system to accommodate the changes involved in the move to GASB standards, it also should make changes to allow for future reporting on major infrastructure systems in state-owned facilities.

Gathering data at the component level of each facility would be an extremely useful exercise. Major building systems could be placed on useful-life schedules more in line with their actual lives, and legislators and agency administrators would have a clear understanding of the maintenance needs at state facilities for the near and long terms. Over time, this knowledge would allow the state to obtain negotiated discounts for the installation, renovation, or repair of major building components in state facilities throughout Texas. Emergency and catastrophic failures would be reduced and savings realized. With hundreds of millions of dollars at stake, a savings potential of even a fraction of a percent could translate into substantial sums.

Improve the Management of State Assets

On tours of state facilities, we found warehouses packed with mothballed computers dating from long forgotten ages of the computer era, and old furniture that one would be hard-pressed to give away at a garage sale. Excessive stores of specific items were noted at various agencies, including a 17-year supply of Polaroid film, a 21-year supply of screw cap vials, and a 31-year supply of enema administration sets.[19]

We also observed widely varying practices in how agencies manage their warehouses and buildings. For example, only 10 percent of space in the Department of Human Services warehouses we examined were used to store supplies. About 90 percent of the space was taken up by surplus items, such as furniture and used computers. The Department of Health (TDH), on the other hand, seemed to take the opposite approach. Its warehouses contained almost no surplus items. TDH, however, has extensive inventories and performs shipping and receiving to most of its local offices from its central warehouses.

The private sector provides a number of useful models of more efficient asset management systems. One award-winning integrated financial system called TRELLIS, allows e-commerce, and traditional retail companies desiring to be an e-commerce business, to seamlessly integrate suppliers with retail operations. TRELLIS allowed its developer, Garden.com of Austin, to create a “virtual warehouse” of more than 20,000 gardening items supplied by more than 85 vendors, all ready to be shipped throughout the country. More than half of Garden.com’s customers ordered live plants and flowers that could not be stored in a central warehouse; TRELLIS allowed the company to ship such items directly from vendors’ fields and greenhouses to customers nationwide. Partnering with Federal Express, furthermore, allows the company’s customers to track their orders online in real time.

ACTION:

The stockpiling of supplies we witnessed on our tours of state warehouses flies directly in the face of the just-in-time delivery trend that has revolutionized private sector procurement, distribution, and inventory management. Just-in-time delivery of goods could allow the state to clean out and consolidate state warehouses, saving millions of dollars annually.

The state should inventory the items in its leased and owned warehouses and conduct a pilot study regarding the merging of warehouse space. GSC owns warehouses with a total capacity of more than 281,000 square feet. State government also leases 76 facilities throughout the state at a cost of $314,000 per month; Austin alone has 21 state-leased warehouse locations used by a variety of agencies at a cost of $177,000 per month.[20]

ACTION:

Texas currently leases almost 12 million square feet of office space for more than $110 million a year. The state’s process for procuring this space, however, is cumbersome for property owners, and bids are scarce. Moreover, GSC’s staff is overworked and undertrained for the task of evaluating these properties, and often fails to inspect them properly prior to lease. Such problems can result in unnecessarily high rents and unsatisfactory space. GSC’s Facilities Leasing Program should partner with a private real estate firm to aid in the acquisition of leased space.

Modernize the State’s Accounting and Financial Management Systems

As has been emphasized throughout this report, information is the hallmark of the new economy. How an organization accounts for its costs and liabilities and reports such information tells managers, employees, elected officials, and taxpayers a great deal about what the organization is doing and what they’re getting for their money.

In this context, there are several major problems with the state’s accounting and financial management systems. First, they fail to provide decision-makers with all the cost information needed to make important management decisions, such as whether to keep a service in-house or outsource it to the private sector. By ignoring the cost of the deterioration of capital assets, moreover, the state’s budgeting methods distort decision-making and contribute to underinvestment in infrastructure maintenance. Finally, in contrast to best practices in the private sector, the state’s asset information systems are not interlinked and are not web-enabled, resulting in tremendous inefficiencies.

Two accounting reforms will go a long way towards fixing the first problem. The new GASB reporting model will require the state to use full accrual accounting rather than its more-or-less cash-based accounting, making the true costs of government services easier to establish, and comparisons with private service delivery more accurate. In addition, the new standards will require Texas to report the value of general infrastructure such as roads, bridges, and dams in its financial statements, and to report the depreciation of government assets over time.

Activity-Based Costing. The second reform is “activity-based costing” (ABC), a methodology that assigns costs to activities and outputs based on their consumption of resources. It helps organizations to pinpoint how much it costs to produce each output. Such cost data is vital to accurate decision-making.

An ABC study of GSC’s capital maintenance function, for example, revealed a number of savings opportunities. GSC’s administration building, for instance, is located in Austin’s Capitol Complex, while its parts warehouse was located about seven miles to the east. By management estimates, GSC’s plumbers, painters, and carpenters logged more than 80,000 miles driving between the two locations in 1999. Including salaries for drivers, gasoline, and indirect and administrative costs, the ABC study found that the state could save more than $85,000 a year simply by moving the warehouse to the GSC building’s basement. GSC has since taken this step.

In another example, the Iowa Department of General Services was able to use ABC to achieve significant savings. The department’s successes included a decision to outsource most 35mm film duplication processes because market rates proved to be some $6 per roll less expensive.[21]

Integrated Financial Systems. While no state government has yet instituted an automated financial system that completely integrates budgeting, accounting, purchasing, and inventory, such a system is an obvious evolutionary step that would allow Texas government to realize significant efficiencies.

The state’s procurement, inventory, accounting, budgeting, and surplus property systems should be linked to provide a basis for better purchasing decisions. Such integration would capture a substantial amount of useful information about purchasing behaviors, system constraints, delivery times, and vendor performance, leaving state agencies much better equipped to calculate the actual cost, in time and money, of the assets they use to perform their jobs. This information could be included in the agencies’ biennial Legislative Appropriations Requests submitted to the Legislature, allowing lawmakers to be better informed when deciding on matters of state policy.

As an added benefit, a systems integration of this nature would eliminate the need for expensive annual physical inventories of state property. Instead, agencies could conduct wall-to-wall inventories only once every three or four years, and perform statistical sampling in the intervening years to maintain system integrity.

Integrated budgeting, accounting, procurement, and inventory systems would allow an entry in any one system to feed information to others. Soon, a Texas state agency should be able to place a request to purchase office supplies on the state’s procurement Web site, allowing any manufacturer or vendor to respond with a bid. Other manufacturers and vendors, seeing the bid, could respond with lower offers until the state obtains the best possible market rate.

The purchase contract would have a just-in-time delivery clause to send the supplies to any office in the state, reducing the need to warehouse or ship the supplies at state expense. The agency’s purchase order would be registered on that agency’s property inventory and budget systems, GSC’s procurement system, the Legislative Budget Board’s records, and the Comptroller’s appropriation control systems. These data could be used to identify agency purchasing patterns, facilitating not only future negotiations with vendors, but future budgets and appropriations as well. Ultimately, the integrated system would have predictive capabilities leading to continual improvements in management.

ACTION:

Activity-based costing is a proven, effective tool for identifying the true costs of performing a service or producing a product. Activity-based management (ABM) consists of continuous improvement and monitoring of costs identified through ABC. Texas could realize additional savings through further implementation of ABC/ABM. Areas where the state should focus ABC/ABM efforts include cost-recovery and projects relating to outsourcing, reengineering, and managed competition.

e-Texas is an initiative of Carole Keeton Rylander, Texas Comptroller of Public Accounts
Post Office Box 13528, Capitol Station
Austin, Texas

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