Contents
1. The reasons for the cost analysis 1
2. The strengths and weaknesses of ABC 2 2.1 Strengths of ABC 2 2.2 Weaknesses of ABC 3
3. Comments of giving opportunity to municipal employees to reduce costs 4
4. Calculation of union’s bids 5 4.1 Unit Cost 5 4.2 Quantity 7 4.3 Total Bid 9
5. The problem and advice for management 10

The reasons for the cost analysis

The Indianapolis government decides to privatize some of its public services. Although not all the government services are suitable for private sectors (such as police), for many services, competitive market powers can make them do things more efficiently and cost-saving than public sectors. Therefore privatizing government services is a good tool for the improvement of public service.
A cost analysis is necessary before the privatizing process. Before the reformation, the government did not have a specific cost system based on different activities so nothing can be measured. For a particular government service, the managers cannot measure its cost.
The lack of cost data can lead to serious problems. One is no plans. As the managers do not have historical data, they cannot make any development or maintenance plans. They just follow the same things they did last year and require a fixed amount of greater budget. As a consequence, they have been using the old plans which were from many years ago. If government has no clear plans for future development, it cannot privatize any services. For example, it is impossible to determine the allocation of funds among different road maintenance activities without cost data. The government does not know which service should be chosen to be privatized.
Another significant purpose of the cost system is to provide the basis for the union’s bid so that the city workers can have chances to compete with private sectors. The union has