Cases on Cost Analysis and Government Decisions

This week’s module on Brightspace includes the following report:

Rivenbank, William C., David N. Ammons and Dale J. Roenigk. 2005. North Carolina Local Government Performance Measurement Project: Benchmarking for Results. Chapel Hill, NC: University of North Carolina School of Government.

Below there are questions about 5 cases that are summarized in an addendum at the end of this report. While the cases use other relevant service information our focus here is on the use of cost information, cost objectives and cost decisions or problems. The questions below are intended to help review the cost analysis and types of decisions discussed in Michel, Chapters 6-9. Each of these chapters addresses a different kind of cost decision encountered by local government managers. For each case below read the case and then answer the case questions.

Residential Refuse Collection: City of Winston-Salem, pages 1-2

In this case the City looked at other performance measures in addition to cost. Referring to Michel Chapters 6-9. What kind of cost decision or problem is faced in this refuse-collection case?
What cost concept or tool was used to measure cost in this case?
What action taken in the case led to change? Was there an improvement in service? Were costs reduced? Explain your answers using data from the case summary.
Household Recycling: City of Wilmington, pages 7-8

In this case the City looked at other performance measures in addition to cost. Referring to Michel Chapters 6-9. What kind of cost decision or problem is faced in this household recycling case?
What cost concept or tool was used to measure cost in this case?
The Table at the bottom of page 7, refers to – “go away” costs for privatization comparison. Based on the description of these costs in the paragraph above the table – what cost term would Michel assign to these costs?
What action taken in the case led to change? Was there an improvement in service? Were costs reduced? Explain your answers using data from the case summary.
If the city had decided to continue providing the recycling service “in-house” do you think their unit costs would have gone up or down? Explain your answer.
Police Services: City of Greensboro, pages 9-10

In this case the City looked at other performance measures in addition to cost. Referring to Michel Chapters 6-9. What kind of cost decision or problem is faced in this police service case?
What cost concept or tool was used to measure cost in this case?
What action taken in the case led to change? Was there an improvement in service? Were costs reduced? Explain your answers using data from the case summary.
Fire Services: City of Hickory, pages 15-16.

In this case the City looked at other performance measures in addition to cost. Referring to Michel Chapters 6-9. What kind of cost decision or problem is faced in this fire service case?
What cost concept or tool was used to measure cost in this case?
What action taken in the case led to change? Was there an improvement in service? Were costs reduced? Explain your answers using data from the case summary.

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Sample Answer

 

 

 

Case Analysis using Michel’s Cost Concepts (Chapters 6-9)

Residential Refuse Collection: City of Winston-Salem (pages 1-2)

  • Cost Decision/Problem: This case deals with a cost efficiency problem. The city is looking for ways to reduce the cost of residential refuse collection without sacrificing service quality. (Ref: Michel, Chapter 6)
  • Cost Concept/Tool: The case mentions using cost per unit (likely tons or cubic yards) of refuse collected as the measurement tool. (This aligns with Michel’s concept of unit cost – Chapter 7)

Full Answer Section

 

 

 

  • Action and Outcomes:The city implemented a cart-based collection system, reducing the number of pickups per household. This led to a decrease in collection costs but the case study doesn’t mention any specific data on the cost reduction or service level changes. (Ref: Michel, Chapter 9 – Implementing Cost Saving Measures)

Household Recycling: City of Wilmington (pages 7-8)

  • Cost Decision/Problem:This case involves a make-or-buy decision (Chapter 8). The city needs to decide whether to continue providing household recycling services in-house or privatize them.
  • Cost Concept/Tool:The case uses the concept of “go away” costs to capture the potential hidden costs associated with privatization, such as monitoring contracts, managing transitions, and potential quality issues. (Michel doesn’t have a specific term for “go away” costs, but these could be categorized under implementation costs – Chapter 8).
  • Action and Outcomes:The city decided to privatize recycling collection. The table shows a potential cost saving of $1.03 per household per month due to privatization. However, the case study doesn’t mention any data on service level changes.

In-House vs. Privatized Recycling Costs:

If the city continued providing recycling services in-house, their unit costs might have gone up. Privatization can sometimes lead to initial cost savings due to economies of scale and efficiency gains by private companies. However, the case study doesn’t provide enough data to predict future in-house costs with certainty.

Police Services: City of Greensboro (pages 9-10)

  • Cost Decision/Problem:This case involves a cost allocation problem (Chapter 7). The city needs to determine how to fairly allocate the costs of various police services (patrol, investigations, etc.) across different beneficiaries (citizens, businesses).
  • Cost Concept/Tool:The case doesn’t explicitly mention the cost concept used, but it likely involves some form of activity-based costing (ABC) where costs are assigned to specific police activities and then allocated to beneficiaries based on their use of those activities.
  • Action and Outcomes:The city implemented a new cost allocation model that assigned costs based on service utilization. This resulted in a more equitable cost distribution but the case study doesn’t mention any specific data on cost reductions or service changes.

Fire Services: City of Hickory (pages 15-16)

  • Cost Decision/Problem:This case is a capacity planning problem (Chapter 9). The city needs to decide on the optimal level of fire service resources (stations, firefighters) to meet the needs of the community while controlling costs.
  • Cost Concept/Tool:The case likely uses a cost-benefit analysis (Chapter 9) to weigh the costs of additional fire stations and firefighters against the potential benefits of improved response times and reduced property damage from fires.
  • Action and Outcomes:The city decided to build a new fire station in a growing area. The case study suggests this will improve response times but doesn’t mention any specific data on cost changes.

 

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