You can fund a department for years without knowing what a single service costs.
In the public sector the question is rarely profit. It is what each service costs and, where anyone can measure it, what value it returns for every euro spent. Yet most budgets fund inputs and departments, not the services citizens actually receive. The cost of a permit, a benefit, a clinic visit or an inspection is buried in headcount lines and overhead pools shared across everything. Time-driven costing assigns those costs to the services and the citizens that consume them, and the same method, run forwards, turns budgeting from an input exercise into an activity-based one.
Cost and Profitability Consulting · 150+ engagements since 2010 · TDABC
Public-sector efficiency is invisible until the cost of each service is fully assigned to the activities that deliver it. Budgets fund departments and inputs, not services, so leaders rarely know the true cost per service or per citizen served, or which shared services subsidise which. The framing is value for money, not profit. The statistics that hold across every sector apply: traditional costing spreads overhead by volume, so complex, low-volume work comes out cheaper than it is, and in the models we build a large minority of fully costed activities carry a cost out of line with the value they return. TDABC assigns staff time, facilities and shared-service cost to the public services that consume them, giving a true cost per service and per citizen. Run in reverse, the same model is activity-based budgeting: instead of asking what each department spent last year, it asks what the planned volume of services will actually cost. We do not publish a public-sector benchmark; the method, not an invented number, is what makes cost and value visible.
The budget funds inputs. The citizen receives services.
Budgets fund the inputs, and the service is what nobody prices
Money is allocated to departments, headcount and line items, not to the services citizens receive. So nobody can answer the basic question: what does it cost to deliver one permit, one benefit, one inspection, one clinic visit? Without that, efficiency and value for money cannot be measured.
Shared services hide cross-subsidy
Internal services (IT, facilities, HR, legal, finance) are consumed unevenly by departments but charged as a flat overhead or not charged at all. Some departments subsidise others, and no one can see who funds whom. Traditional costing spreads overhead by volume, so complex, low-volume work comes out cheaper than it is.
Capacity is paid for whether used or not
Staff time, offices, facilities and systems carry a cost when idle. The convention puts practical capacity at 80 to 85 percent of theoretical, and the cost of the unused slice is almost never measured. In the public sector this unused-capacity cost is pure inefficiency, with no revenue to offset it.
Efficiency is asserted long before anyone measures it
Without a true cost per service, "doing more with less" is a slogan, not a plan. You cannot improve what you cannot cost, and you cannot defend a budget you cannot break down by service.
FUND DEPARTMENTS, OR COST SERVICES?
Illustrative. Activity-based budgeting is TDABC in reverse: it builds the budget on what the planned volume of services will cost, not on last year's departmental spend.
Two parameters, and no survey to run.
A capacity cost rate per resource group (each grade of staff, facilities, each shared service) and time equations that describe how each public service, case or citizen consumes those resources. Run forwards, the model gives a true cost per service. Run in reverse, the same model is activity-based budgeting. The cost drivers that matter here are case volume and complexity, staff grade and time per case, facilities and systems intensity, shared-service consumption, and channel of delivery (counter, phone, online).
Service cost = staff time per case x staff capacity cost rate + facilities and space consumed per case + systems and IT consumption per case + shared-service cost consumed (HR, finance, legal, by activity) + share of central overhead by activity consumed Activity-based budget (TDABC in reverse): Service budget = planned case volume x cost per case summed across all services = a budget built on what services will cost, not last year's spend
Illustrative structure, not a measured benchmark. The reverse run is activity-based budgeting: planned volume times true cost per case.
Not profit. Value for money, and the cross-subsidy nobody can see.
In the public sector there is no profit, so the whale curve is read differently. The transversal evidence is structural: across sectors, traditional costing spreads overhead by volume, so complex, low-volume work comes out cheaper than it is, and in the models we build a large minority of fully costed activities carry a cost out of line with the value they deliver. Applied to government, that means a meaningful share of services cost far more, or far less, per unit of public value than anyone realises, and a meaningful share of cross-subsidy between departments and shared services is invisible until everything is fully costed. Read this way, the curve maps value for money, not margin. A true cost per service lets leaders see which services deliver high value at low cost, which are expensive relative to the value they return, and which internal services quietly subsidise others. That is the foundation for redirecting resource deliberately, for defending budgets line by service, and for proving efficiency rather than asserting it. A menu-based costing of shared services turns "overhead" into a priced catalogue, so departments see and own what they actually consume.
SERVICES, RANKED BY VALUE FOR MONEY
Transversal cost-distortion lens, translated to value for money, not profit. Not a public-sector benchmark; the agnostic shape used to map cost relative to value and the cross-subsidy between services.
The data exists. The activity-based design does not.
Public-sector bodies typically score lowest on Cost Allocation, shared and central cost spread by headcount or flat overhead rather than by activity consumed, and on cost-and-value visibility, results seen at department or budget-line level, never per service or per citizen. Strategic Decision Support is weak because budget and service decisions are made without a true cost per service. The data usually exists in HR, finance and case-management systems; the missing capability is TDABC Process Design, turning services into time equations so the budget can be built activity-based. The seven dimensions are read qualitatively here, with no invented sector score.
When AI answers the citizen, what does a service actually cost now?
AI changes public-sector cost on the citizen-facing side and the administrative side. AI-handled citizen services absorb a large share of contact and case-triage, and administrative automation reshapes back-office cost. Demand-forecasting AI helps plan service volumes, which is exactly what activity-based budgeting needs as an input. The bodies that benefit are the ones that already know their true cost per service, so they can redirect resource and rebuild the budget as the cost base shifts, rather than cut blind. This is a question of value for money and decision quality, not a regulatory countdown.
Two ways into the sector's cost.
Frequently asked questions
- How do you calculate the true cost of a public service?
- Load staff time per case, facilities, systems and the shared-service and central cost each service actually consumes, using time equations. A departmental budget line cannot tell you what one service or one citizen costs.
- What is activity-based budgeting?
- ABB is TDABC run in reverse: instead of starting from last year's departmental spend, you take the planned volume of each service and multiply by its true cost per case, building a budget on what services will actually cost.
- How does menu-based costing help with shared services?
- It turns internal services (IT, HR, facilities, legal) into a priced catalogue, so departments see and own what they consume instead of carrying a flat, invisible overhead. Cross-subsidy becomes visible and deliberate.
- Do you have a public-sector benchmark?
- No. We do not publish sector figures we cannot stand behind. We apply transversal evidence (cost distortion, cross-subsidy, capacity costing) and the TDABC and ABB methods to your own data, framed as value for money rather than profit.
See what each service costs and the value it returns.
ProfitAudit 360 builds the true cost per service and per citizen on a TDABC base, and turns it into an activity-based budget. Or take the Profit Check first: 10 minutes, no data upload, and it points to where your shared cost and cross-subsidy are most likely hidden.
- Fee
- Fixed, agreed before we start
- Duration
- 3 to 5 weeks
- Your time
- 2 to 4 hours in total
- Access
- No ERP access, no lock-in
Proof
A distributor in New Zealand. €1.335M of cost-to-serve made visible, then halved, and 830 loss-making customers brought down to 295.
Read the case study →Who you would be talking to
Miguel Guimarães, Founding Partner
Cost and profitability practitioner for 25+ years. Presented the Damco cost-to-serve case at Managing for Profit (Amsterdam RAI, December 2009), on the same programme as Robert S. Kaplan.
Call +351 910 313 731
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Reviewed by
Miguel Guimarães
Founding Partner, Cost and Profitability Consulting
More than 150 Time-Driven ABC engagements across 11 sectors since 2010, working within the Kaplan and Anderson framework.
About the author →Published
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- 1Time-driven activity-based costing: ABC made simple and scalable
- 2Whale Curve: Definition, How to Build One, Live Simulator
- 3Cost-to-Serve Analysis
- 4Cost-Volume-Profit (CVP) and Break-Even Analysis
- 5TDABC vs ABC: same goal, very different effort
- 6How to calculate cost to serve, step by step
- 7Make-or-Buy and Relevant Costs
- 8Transfer Pricing for Internal Profitability
- 9Pocket Price Waterfall and Price Realization
- 10How to Build a TDABC Model