Serious about gathering quality ABC information? Then ask yourself some serious questions about what to ask employees. Planning a strategy before you go fishing can have a dramatic effect on the accuracy of the input you receive.Garbage in, garbage out. Or, more positively put, quality in, quality out. That's especially true when it comes to one of the most fundamental activity-based costing (ABC) data gathering techniques — the interview. Misleading information from interviews can point you in the wrong direction and get your project off to a very bad start.
Choose the interviewer carefully. Don't allow department heads to interview their staff. "That's a recipe for disaster," says John A. Miller, a partner with Arthur Andersen LLP in Houston. "You don't want people reciting what they think their supervisor wants to hear." The interviewer to Miller, but it should be someone outside the department that's being interviewed. Choose someone who is perceived as trustworthy, has a good understanding of the ABC process, and is flexible enough to handle scheduling changes during the interview process.
To obtain the information you need from an interview, you must get people to open up and speak freely. For that to happen, you need to make ABC appealing to them from the outset. Tell your prospective interviewees what's in it for them. Educate them about how ABC can help them do their job faster and obtain better results. Show them ABC success stories. Visual aids can help you sell ABC. A video of the company president extolling the virtues of ABC is a good introduction, or a slide presentation that explains how ABC can benefit all kinds of workers.
"If you tell them you're here to cut costs and you want to know everything they do, it's not going to work," says Ron Bradley, director of ABC and performance measurement at Central and Southwest Corp., an electric company in Dallas. "Focus on maximizing their value to the company, on increasing their ability to bring more profits in the door."
Two Types of InterviewsABC interviews take two basic forms: one-on-one and group interviews with department personnel. The one-on-one format tends to work best at the managerial level to gather strategic information. The group interview is better suited for collecting more detailed information from people who actually do the work, to achieve goals such as operational improvement. Most ABC interviewers use both techniques, taking a "top-down" approach starting with managers and working down to staff members.
While the manager interview is usually conducted one-on-one, variations can also work. "We use two interviewers, one who talks and one who takes notes," says Sue Swertfeger, regional cost manager with Owens & Minor, a distributor of medical and surgical supplies in Richmond, Va. "If you have a consultant and someone from the company as interviewers, that's a good way to go until you have an ABC champion in the company who can do the interview." Before the interview, ask the department head to write down the department's activities and outputs, Swertfeger recommends. Write up a proposed list of activities for the manager to react to. "It gets them thinking, rather than giving them a blank piece of paper," says Bradley.
The manager interview provides preliminary information on resource allocation, activity outputs, performance measures and strategic decision-making. It may last only a few hours and cover a number of topics. The group interview, which may take up to two full days or three or four half-days, is more intensive. It supplements the manager interview by focusing on specific activities and on how people spend their time.
"Planning for the group interview is essential," says Miller. "Too often, there's not enough forethought. You need to select the right people for the group interview and the right set of deliverables." Miller recommends putting a "fence" around a portion of a cost structure and identifying the person or persons who would be best qualified to talk about that area, and who would have the time to talk.
You don't need to interview everyone to obtain good data. "Best-practice companies tend to identify a sample of people to interview who are representative of a larger group," says Miller. "A surprisingly small percentage will give you a good representative sample of the group overall."
How you ask questions can make a big difference in the quality of responses and in the attitude of the respondents. "For example, instead of saying 'Is that all you do?' ask 'What other activities do you perform?' " says Miller.
Group-based collection techniques are designed to move companies quickly from analysis to action. Rapid VisionSM, developed by Arthur Andersen, is a group interview process designed to speed up ABC information collection while enhancing team building and project support. The process is carried out as follows: First, collect ideas from group interview participants concerning the activities they perform. Depending on the type of business and scope of job responsibilities, the ideas may take the form of suggestions for improving work efficiency or simply address activity-related problems. Condense the ideas into one or two sentences and write them down on cards that are color-coded to categorize general topic areas. Each card contains one concept. Place all of the cards on a wall so interview participants can see all of the ideas at one time. The process is designed to stimulate group discussion about the information on the cards, which can be moved around so participants can view how the concepts represented relate to each other.
As you collect interview information, separate the non-value tasks, like opening the mail, from the value-added activities. Don't, however, tell interviewees anything they do is non-value. That tends to ruffle feathers. "ABC uses two terms I don't like: 'value added' and 'non-value added.' We use the terms 'mission' and 'non-mission,' " says Swertfeger. "Questions like 'What's causing you the biggest bottleneck?' and 'If you could get rid of one thing, what would you get rid of?' have worked well for us." Also ask what participants do that is not repetitive but may be done annually, like training or inventory, to make sure you're covering all the activities they perform, Swertfeger adds.
Smoothing the ProcessEven after receiving an education about ABC, some people may be suspicious of the process. They may feel you have a secret agenda. "People might equate cost improvement with lopping off heads, especially in light of all the downsizing that's gone on over the years," says Steve Leff, an ABC management specialist with Case Corp., a four-wheel construction equipment manufacturer in Racine, Wis. "We expected some amount of that attitude, but it wasn't as bad as we imagined."
The more you can prepare ahead of time for such reactions, the better equipped you'll be to handle these "job-loss" fears when they arise. Try to make the process their process. Let them discover on their own how ABC can help them. Encouraging group discussions about how they can use ABC can help strengthen their resolve and stimulate their input.
In dealing with resistance at the management level, what works for the group can work for the manager. "If a manager is reluctant to participate, you can overcome that resistance with repeat interactions," says Jim Scalise, a partner with KPMG Peat Marwick in Raleigh, N.C. "To avoid a vague response to questions like 'How do you spend your day?' you need to define a proposed list of activities ahead of time for them to respond to."
Show managers the full cost of doing an activity, whether it's payroll, square footage of workspace, computer usage, phone usage or supply usage, Bradley recommends. "That way, when a manager says 'I can only control what I budgeted,' you can point to unused square footage, for example, and show how to maximize that space and reduce square footage costs." Make sure the costs you come up with are not set in stone, Bradley adds, and try to make the costs the interviewee's costs — that is, costs they understand.
An interview provides information at a point in time. It would be advantageous to conduct regular interviews to determine if there is consistency in the data and improve its reliability. For instance, an interview conducted on a day when someone isn't feeling well may yield different results than interviewing that person on a day when he or she feels great. "How can you make sure the next day they'll answer the same way?" asks Scalise. "Data is only valuable from a comparative standpoint. You need frequency to gain reliability in the data."
When Leff initiated ABC at his company, he conducted periodic interviews, usually five per group and no more than an hour each in length. He found that over the course of the interviews, people tended to warm up. "ABC is new to most people, so many are thinking 'oh boy, here we go again, management's flavor of the month,' " says Leff. "But during the interviews you can see the learning going on. The first time they may not grasp it all, but during the second and third interviews the lights start to click on."
Ongoing interviewing, however, can be intrusive and inconvenient. A reporting form that participants can conveniently fill out and submit, such as a time sheet or activity sheet, can help. The reporting sheets should be limited to five, 10 or 15 of the most important activities or they can become unwieldy. Some companies put ABC reporting forms on their intranets.
Leff schedules an interview when there's a major change in the company or in a division. If no changes occur, he still schedules interviews every six months or annually to refresh the information on different divisions.
The ABC interview is a conversation, not a trial. So avoid a courtroom type of atmosphere. Remember that nothing is cast in concrete; information can be modified, added or deleted later. Don't make any final judgments during the interview. With these tips in mind, the interview can be one of your most effective data-gathering methods. And the better your data, the more effective your ABC program will be.