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II. Key Findings of the Texas 2000 ABC Pilot Project

The pilot project studied more than 300 state activities using ABC and ABM techniques, and identified over 200 opportunities for hard-dollar or productivity savings and improvements to services. Participating agencies fully support some of the recommendations and disagree with others. In some cases, agencies had begun implementing improvements before Mevatec identified them as recommendations. The recommendations generally fell within one or more of three general categories–technology and business process improvements, cost recovery, and competitive government. Selected experiences and findings are discussed in greater detail below.

Exhibit 2
Agency Resources Expended
Agency Number of
Activities
Reviewed
Number of
Employees
Participating
Number of
Staff Hours
Invested
Comptroller of Public Accounts 139 69 1,790
Cosmetology Commission 15 20 773
Department of Economic Development 24 9 340
Department of Transportation 24 19 746
General Services Commission 35 18 526
Water Development Board 19 9 764
Workforce Commission 49 25 1,500
Total 305 169 6,439

Technology Reduces Costs, Streamlines Processes, Improves Service
Organizations worldwide are investing billions of dollars in technology in the expectation of major payoffs in savings and productivity. And the investment appears sound. In 1998, for instance, U.S. businesses and nonprofit organizations saved around $15.2 billion in reduced or avoided costs by using the Internet for various purposes, such as transactions previously conducted in person, by mail or by phone, according to a recent report by Giga Information Group, a Cambridge, Mass. market research firm. Giga estimates that such savings will rise to about $600 billion by 2002.6

Internet-based applications allow state agencies to record information supplied by businesses and citizens automatically and make it available for use immediately. Governmental uses of the Internet can reduce non-value-added staff time while greatly improving customer service.

Still, the evidence that governmental technology investments result in significant savings is largely anecdotal. And while Congress and state legislatures are demanding more information to justify such investments, agencies typically lack the basic data needed to estimate any such savings–the real cost of their present activities and processes. Without knowing true present costs, estimates of potential savings from new technology are little more than guesswork.

ABC analyses often reveal that the technology used to perform an activity is outdated and results in significant costs that could be eliminated with newer technology. Government agencies, however, rarely have the resources to purchase state-of-the-art technology as it becomes available, and must continue performing business processes manually or with outdated technology. One ABC technique, the Return on Investment Analysis (ROI), can allow managers to project the point at which a technology investment will actually begin saving an agency money. Armed with such information, decision-makers can choose to continue existing business processes or to buy or contract for new technology.

Web-Based Technologies Reduce Errors, Processing Costs

Any governmental process involving paper forms that must be shuttled from place to place is prone to delays, errors and substantial costs for record archiving, data entry and transmittal, error resolution, and searches for misplaced documents.

The most significant potential savings identified by the ABC pilot project would result from moving paper-based functions to the Internet. Says Neal Holifield of the Texas Cosmetology Commission (TCC), "Information provided on the [agency] Web site or by e-mail response to messages from Web site visitors enables TCC to speed response time to inquiries, reduce mailing costs and improve the accuracy of information provided."7

Web-based data submission reduces or eliminates expenditures for data entry, while also eliminating the errors that occur when information from paper applications must be entered manually into existing computer systems. Systems that use electronic forms for data submission typically require error correction before a successful submission, thereby reducing if not completely eliminating data errors.

At the General Services Commission (GSC), many processes in the leasing services division rely on manually creating paper documentation that includes a great deal of contractual and regulatory guidance. This process is error-prone and time-consuming. Web-based documents for leasing services that are compatible with databases already used by other GSC departments would greatly improve the agency’s productivity.

The Texas Department of Economic Development (TDED) provides assistance to businesses wishing to locate in Texas. The agency’s Finance Office offers information on topics such as financial incentives available to qualified applicants. This communication between customers and the agency is individualized and labor-intensive. As an alternative, TDED could establish an interactive Internet-based program to query customers about the nature of their business and their informational needs, and generate the customized information they require.

TDED also administers loan programs through a paper-driven process involving many individual forms and documents. The process for loan approvals requires multiple signatures at different stages, a cumbersome level of oversight that cannot be justified by the value it provides. The adoption of "electronic signature" technology, which could eliminate the need for much of this paperwork, would streamline the process considerably. TDED is examining opportunities to speed up and simplify the local approval process.

The Revenue Administration area of the Comptroller’s office includes four principal divisions responsible for tax and voucher processing, collection and allocation of tax revenue, and disbursements of tax refunds and unclaimed property. Each year, the agency processes a massive volume of state tax returns that must be sorted upon receipt. Fortunately, these returns are sorted by machine. Over the years, the Comptroller’s office has been able to use technology such as document scanning and imaging devices to further automate the process. According to the ABC study, in fiscal 1999 the agency processed 3.4 million returns at a cost of $11 each, compared to a similar function in the State of California that costs $20 per return.8

Even so, the ABC study revealed additional room for improvement. After the returns are sorted, for instance, employees must take them out of their envelopes and check them for missing data. Other employees then fix or adjust the returns as needed so that the data can be scanned or manually entered into the agency’s computer system. These steps are necessary because the information on tax returns often is incorrect or incomplete. Sometimes, agency personnel can fix the forms so that they may be entered into the computer automatically; many incomplete forms, however, must be reviewed manually after the data is entered into the computer. This review often requires a telephone call to a taxpayer to obtain additional information.

Continuing to enhance Internet filing of tax returns helps eliminate steps in a cumbersome business process. This could save millions of dollars annually (not including associated implementation costs), depending on the level of taxpayer participation. "With Web filing, all of the front-end processing is done at the point of entry by the taxpayer," explains the project manager in charge of the Comptroller’s WebFile project.9

Exhibit 3
Comptroller Tax Processing Activities
Before
Web-Based
Implementation
After
Web-Based Implementation with
100% Taxpayer Participation
  1. Set up New Accounts
Activities Eliminated
  1. Maintain Accounts
Activities Eliminated
  1. Receive & Deposit Payments
Activities Eliminated
  1. Edit & Sort Returns
Activities Eliminated
  1. Enter Return Data
Activities Eliminated
  1. Image & Store Data
Activities Eliminated
  1. Correct Taxpayer Accounts
Activities Eliminated
  1. Reconcile/Balance Funds & Accounts
  1. Reconcile/Balance Funds & Accounts
  1. Disburse /Allocate Funds
  1. Disburse /Allocate Funds
  1. Collect Delinquent Taxes
  1. Collect Delinquent Taxes
  1. Provide Taxpayer Assistance
  1. Provide Taxpayer Assistance

The Revenue Administration Division and the project consultants determined that tax-return filing involves 11 primary activities that consume about $36.5 million annually in state resources. If all taxpayers participated, Web-based filing would eliminate many of these activities entirely (Exhibit 3). While a number of years are likely to elapse before all taxpayers can file online, the ABC analysis clearly demonstrated a potential for greatly increased efficiency, making this a goal well worth pursuing.

Replace Call Centers with Self-Service Phone and Web-Based Systems

Replacing customer calls with self-service Web transactions typically cuts administrative costs by 90 percent or more. By moving 28 million customer service calls to a Web-based self-service environment, IBM claims to have saved $600 million in 1999.10

Similar opportunities were discovered during the ABC project. The Texas Department of Transportation’s (TxDOT’s) voucher processing employees personally answer vendor questions regarding the status of payments, often making several calls to complete each transaction. A Web-based system would allow contractors and vendors to access their accounts and view the status of their payments directly. While such a system obviously would entail implementation costs, it also would save taxpayers more than $240,000 per year.

Similarly, GSC receives about 19,500 phone calls per year regarding leasing and bid opportunities. A recorded telephone message program and a Web site answering frequently asked questions would reduce the number of hours employees must spend on the phone while enhancing customer service.

Mail Sorting Technology Reduces Mail-Processing Costs

The pilot found opportunities to increase the use of automation in the Texas Workforce Commission’s (TWC’s) mailing processes. TWC handles enormous volumes of mail with inadequate mail-sorting technology. Each year, TWC receives or sends about 2.1 million pieces of mail, including unemployment tax remittances, quarterly reports and other reporting forms. TWC employees sort mail into batches for routing to the appropriate departments, credit employers for remittances, perform any necessary data entry, and film checks and documents for microfilm or microfiche archives. TWC spent about $1.8 million on these activities in 1999.12

The largest influx of mail coincides with quarterly reporting deadlines. Consequently, TWC may receive up to half a million pieces of mail during the latter weeks of April, July, October and January. The agency hires temporary help to process the increased mail volume. TWC, like many private employers, experiences a high turnover rate among its temporary employees, particularly in the area of data entry, which results in an increase in the number of errors and the need to reroute and rehandle items. At present, TWC maintains about 386,000 active employer accounts to which incoming revenues must be credited, and for which data must be entered, on a quarterly basis.

The need to ensure that new businesses understand and comply with the state’s reporting requirements further complicates TWC’s job. Although relevant information is available on the agency’s Web site, new employers frequently overlook it. All too often, new businesses submit documents with errors, requiring agency staff to contact them for corrections. In 1999, TWC spent $164,213 correcting submitted documents.13

TWC’s ABC/ABM study revealed that the agency’s paper processing costs could be reduced considerably by the use of imaging technology and/or currently available e-government technology that would allow citizens to submit information via the Internet.

Every transaction placed online cuts agency processing costs, and data submission via the Web substantially lowers the incidence of errors. Similarly, automated data storage systems and electronic imaging minimize physical storage problems (Exhibit 4).

Exhibit 4
TWC Mail Processing Activities
Before
Web-Based
Implementation

After
Web-Based & Imaging Technology Implementations
  1. Opening and sorting of mail
Activities Eliminated
  1. Late deliveries and damaged mail delays
Activities Eliminated
  1. Multiple handling & sorting of mail due to errors, incomplete submission
Activities Eliminated
  1. Manual data entry of reported information
Activities Eliminated
  1. Contacting customers to resolve errors
Activities Eliminated
  1. Data reporting via magnetic tapes & related handling
Activities Eliminated
  1. Many financial transactions processed manually
Activities Eliminated
  1. Microfilming & archival document processes
  1. Imaging technology stores information for electronic data sharing & retrieval
  1. Manual review & retrieval processes of microfilmed records
  1. Web-based submission of regulatory & financial data replaces manual data input
  1. Document storage requirements
  1. Electronic banking replaces paper transactions, data shared instantaneously

The consultants identified $4,832,025 in cost drivers in the four TWC divisions reviewed. Establishing solutions to make these processes more efficient would generate savings of $427,970 per year. To realize these savings, TWC believes that it may need to invest up to $1.3 million to purchase an imaging system that could serve the full agency well. Only a portion of this investment, however, would be attributable to the agency activities studied in the ABC pilot.

An imaging system to streamline data input and eliminate the need for microfilming and related archival processes would produce numerous process improvements. For example, electronic imaging eliminates library storage requirements and facilitates instant data retrieval. Furthermore, when imaging is complemented with Web-based data submission and database consolidation, the paper stream is greatly reduced, accommodating only those customers who still prefer paper-based reporting. Web-enabled data submission completely eliminates the problems associated with paper handling and manual data entry.

Document Imaging or Online Solutions Should Replace Microfilm

Some state agencies still use microfilm as their principal means of storing document information. In fiscal 1999, for example, TWC microfilmed more than 13.5 million documents for archival purposes. As a result, many of the agency’s current work processes are designed around this technology.14 Microfilm did eliminate the need for paper-jammed file cabinets, but today greater efficiencies are available through other technologies. To prepare documents for microfilming, employees must remove staples or paper clips and verify the information contained on the documents. In addition, they may need to archive, destroy or forward documents to other locations. These functions could be eliminated or minimized with currently available online technologies.

Imaging technology, for example, can be used to scan documents and store their data electronically. As already noted, allowing forms to be completed online can save even more in time and resources.

Wireless Recording of Daily Transactions Saves Time and Effort

When a government office in the Capitol area needs the services of GSC’s maintenance personnel, they place a phone call to the agency, whose administrative personnel manually enter the request for service in a log. The person taking the call radios or pages a technician who manually completes a work request form and begins the work. When the work is completed, the technician enters more information back at the office and sends the information to a supervisor. The supervisor reviews and approves the information and forwards it to administrative personnel, who enter some of the data on a manual time sheet. From there, it is forwarded to another administrative worker who notes the labor hours in a database.

The ABC study found that providing technicians with hand-held wireless devices for entering and receiving information could streamline this business process significantly. With such technology, the person receiving the request would enter it once into a system that would transmit it to the technician’s wireless unit. The technician would need only to enter the results of the work into his or her unit; upon supervisory approval, the information would be loaded into all relevant automated systems.

Exhibit 5 contrasts the work steps needed in GSC’s current work-order process with the process made possible by handheld wireless units.

Exhibit 5
GSC Work Order Activities
Before
Use of Hand-Held Wireless Devices
After
Use of Hand-Held Wireless Devices
  1. Answer phone call and enter request for service into log
Activities Eliminated
  1. Radio or page technician
Activities Eliminated
  1. Technician writes a work request form
Activities Eliminated
  1. Technician enters more information at office
Activities Eliminated
  1. Sends work order form to supervisor
Activities Eliminated
  1. Supervisor sends form to administrative personnel
Activities Eliminated
  1. Information entered on a paper time sheet
Activities Eliminated
  1. Sheet passed to another employee who enters labor hours into a database
  1. Answer phone call and enter into system
  1. Technician completes work
  1. Technician receives work request through hand held device
  1. Technician re-writes work order from hand written notes
  1. Technician completes work and closes out service order with held device
  1. Administration enters information into system
  1. Technician downloads device at end of day

Synchronized Databases Eliminate Data Entry and Improve Data Quality

The Texas Water Development Board (TWDB) stores a significant amount of information used by its divisions in a number of different databases and formats. These systems evolved over time and, as in many other agencies, similar information is stored in more than one database. Data that should be shared is not always available through a central database and personnel may need to access several data sources to obtain the information they need.

The TDED Finance Office is converting multiple database systems to a single consolidated system to assist the agency in preparing and distributing various reports. Consolidating these databases will allow better information sharing and speed information retrieval.

Exhibit 6
Summary:
Government Activities That Can Be Eliminated or
Streamlined through
Technological Applications
  • Manual data entry
  • Error correction
  • Paper forms handling
  • Manual record archiving
  • Call centers providing basic information
  • Physical handling of documents for microfilming
  • Outdated mail sorting procedures

ABC Can Help Agencies Achieve Full Cost Recovery
A crucial component of managerial decision-making is–or should be–an accurate picture of the true cost of the product or service.

The Legislature has required TxDOT’s map sales division to provide maps for other agencies and the public upon request. To determine the cost of this service, agency employees and the consultant team divided map sales into five activities and performed an ABC study on each. The employees found a considerable discrepancy between the costs of producing the maps and the revenues derived from their sale.

Moreover, the department discovered that it discarded between 67 and 87 percent of certain types of maps because they became dated. In effect, TxDOT was investing $176,000 in materials and staffing resources each year in maps that were being thrown away. The agency was printing large quantities of such maps because the print shops they used set minimum order quantities as a condition of the work. TxDOT now is devising solutions that will allow them to print the quantity of maps they need on demand. Some workshop participants also speculated that industrious entrepreneurs might be purchasing maps at TxDOT’s modest price and reselling them for more. After calculating the costs of their maps, including the personnel costs dedicated to their production and the department’s overhead expenses, TxDOT determined it should price the maps at a level that would allow the agency to recover its true costs.

GSC obtained useful information regarding cost recovery through an ABC study of its business machine repair (BMR) functions. GSC was charging agencies for service calls at a rate of $50 per hour, significantly less than the average rate charged in the private sector. When costs were assigned to all BMR activities, GSC found that it costs the agency more than $1,602,000 to offer BMR services each year. GSC’s annual revenues from the $50 fee, by contrast, amounted to less than $1,435,000. As a result, GSC raised its BMR rates to $65 per hour–still $10 per hour less than the average industry rate.

Additional issues pertaining to the BMR function raised in ABM workshops suggest a need for further study to determine whether the state as a whole could obtain BMR services at a lower overall cost. These opportunities are discussed in greater detail in the next section of this report.

ABC/ABM Analysis Reveals Opportunities for Private-Sector Competition

One of the main reasons other governments have embraced ABC is to compare the costs of in-house services with those available elsewhere in the public or private marketplace. ABC not only aids policymakers in making apples-to-apples comparisons between public and private-sector costs, but also has been used effectively by in-house units to obtain the information they need to cut their own costs.

ABC analyses demonstrated that each of the three services studied at GSC–capitol maintenance, leasing and business machine repair–are candidates for public-private competition or outright outsourcing.

GSC’s BMR division, for instance, repairs state office equipment and sells parts. Required by law to operate on a cost-recovery basis, BMR has been challenged seriously by a decline in its volume of customers, a factor significantly affecting its costs per repair. Many state agencies have entered into warranty, leasing and service agreements for equipment such as computers and copiers, reducing the need for GSC’s services. Others have hired workers to perform their own repairs, a decision that may or may not be cost-effective; in the absence of reliable total cost information, it’s impossible to tell whether consolidating BMR functions within GSC would reduce statewide costs.

At present, BMR service technicians average 4.4 service calls per day, compared to an industry average of six. ABM workshop participants noted that this low level of service also could be due in part to the amount of mandatory training required for state employees on topics important for public servants, but not necessarily relevant to the core business of repairing machines. In any case, the low number of calls per day limits the division’s efficiency.

The ABM workshop also found that the BMR division employs many manual, paper-based processes for service requests and work-order transactions. Moreover, the private sector may be able to offer the state a better deal on parts. Currently, GSC buys parts from a vendor, stocks them and charges its customer agencies an additional 15 percent. Since the original parts vendor is certainly making a profit on the parts, the state essentially is paying for two price markups. The ABC/ABM workshops indicated that it costs GSC $88,000 to purchase parts and nearly $790,600 per year to stock inventory parts. With a private repair contract, the state might be able to avoid stocking parts altogether and to negotiate a better overall cost for parts.

Additional study to determine the full costs of all BMR services maintained by various state agencies would be needed to determine whether these functions could be outsourced at a lower cost.

Another potential opportunity for competitive analysis concerns GSC’s leasing operations. GSC has 15 employees responsible for soliciting bids for leases and executing and administering lease contracts and maintenance arrangements for the state. In addition to administering 1,300 leases, GSC responds to about 19,500 phone calls and general inquiries concerning leases each year. At present, the state leases almost 12 million square feet of office space for more than $110 million a year.

ABC/ABM analysis revealed several opportunities for improving leasing operations and reducing costs. The analysis demonstrated that GSC simply cannot discharge its current responsibilities effectively with existing processes. For instance, the agency’s staff lacks the resources it would need to inspect all leased properties before they are occupied. In addition, the state finds it difficult to attract bids from property owners wishing to lease properties to the state, in part because of cumbersome state contracting processes. These problems can result in unnecessarily high rents for unsatisfactory space.

Significant savings might be realized by partnering, at no extra cost, with private real estate firms to acquire leased space. Such partnerships could reduce the costs involved in finding reasonably priced lease properties, and result in more favorable leases.