Activity Based Costings
Annex 3 - How the CPS ABC model is developed
Additional note to Chart showing key stages in building an ABC cost in the Guide
Introduction
The foundation of activity cost modelling in CPS is in-depth analysis of the business processes and timings attributed to those processes. The analysis for CPS is undertaken by a team from Business Improvement Division who have developed a series of timings covering the core business of processing Area casework. Baseline data for the model is regularly gathered from a sample of Business Units and timings are updated each year in September to align with the resource allocation programme. Timings submitted in September inform resource allocation for the following financial year.
The ABC team uses experienced seconded staff, both legal and administrative, to ensure that timings reflect current procedures and practice. The integrity of the data is the key element in retaining the accuracy of timings and their value as a management tool which is why all timings are continuously reviewed and updated to reflect changes in procedures and working practices.
CPS Activity Costings are derived from 3 sources of information -
- Timing activities involved in the prosecution process;
- Applying workload volumes from caseload outcome data (PIs) and;
- Payroll costs for each staff level involved in the prosecution process.
In simple terms, to determine the cost of review on a certain type of case, we might calculate that -
- A lawyer takes an average 15 minutes to review each case of that type:
- There are 1000 cases to review each year and;
- The lawyer has an average payroll cost of 50p per minute.
The activity cost of reviewing the total caseload is therefore;
15 mins x 1000 cases x 50p per minute = £7,500
The same principle is applied in calculating activity costs for all case types across different staff levels within CPS Business Units.
Activity Cost models
ABC models are prepared on the Corporate Information System (CIS) quarterly, using total payroll budget figures for the current financial year. These activity costs models are designed to show for each CPS Business Unit and geographical Area:
- Amount of time expressed in minutes and consequential staffing profile required to carry out the work;
- Comparison between the time and staff required and the actual staff in post;
- Payroll costs of the staff required to carry out the work; and
- Comparison between the payroll costs required to carry out the work and the amount of money currently devoted to payroll costs.
Payroll Expenditure data
In order to establish a baseline in activity time terms, it is necessary to know how staff resources are deployed on activities at present. This information is often referred to as the 'did take' time and translated into 'did take' posts. However precise data on how much time staff actually spend on individual activities is not available. This would require some form of continuous time recording or logging by operational staff.
However, information about the overall actual costs of staff employed in Business Units is available. These 'did take' costs are derived from the FARMS accounting system. The specific figures used are those in the summary level Account Block headed 'Total Staff Costs'. By its very nature, only a total 'did take' payroll costs figure is available for each Business Unit. It is not possible to disaggregate the total 'did take' payroll costs figure by grade or by case outcome.
'Did take' payroll costs figures used in activity costs modelling relate to a whole financial year. Business Unit payroll figures are only available on the activity costs system from 1 April 1996. Therefore the earliest available actual data relates to the 1996-97 financial year and a financial data set relating to this period, and every subsequent year, has been prepared.
Models prepared at any time of the year, apart from the financial year end, use total payroll budget figures for the current fianncial year for each Business Unit, drawn from the FARMS system without any adjustment.
Care, therefore, needs to be taken when interpreting these models because Business Unit figures do not take into account for example:
- Costs of common services activities brigaded in Area HQs or specific Business Units; and
- Impacts of anticipated budget adjustments that are likely to take place later in the year.
Models prepared at other times of the year that rely on budget figures use the payroll figures recorded on FARMS without any adjustment.
Average annual payroll costs by grade
Using annual payroll costs enables the time required to complete each activity to be translated into monetary terms, thus facilitating budgetary planning, costing and management. Costs of activities by grade can also be established. Although activity timings are built as national averages, payroll costs for each staff grade are determined on a Business Unit specific basis.
CPS activity cost models produce figures relating to the number of posts required in each grade to deal with the caseload handled in each Business Unit. These figures are otherwise described as the ABC staff profile or 'should take' posts and have two uses, which are:
- Compared directly with the numbers of staff, and staff substitutes, actually in post in Business Units; and
- Converted into a monetary 'should take' cost to allow comparison with the actual payroll expenditure of a Business Unit.
For the latter purpose the average annual payroll costs by grade for individual Branch Business Units are used. This information is derived directly from payroll records and takes the following payroll costs into account:
- Basic pay
- London Allowances
- Other Allowances
- Miscellaneous payments
- ERNIC
- Overtime Allowances
- ASLC (Superannuation)
The calculation includes payments of Saturday Allowances to lawyers, sickness costs incurred at Business Unit level, excess fares and payments to part-time staff. It does not include payments for overtime, payments to staff leaving the Service made during their last month of service, or payments made to staff allocated to the CMP (central pool). It does not therefore include staff on half or no pay. All these items are excluded because they would distort the averages. If a Business Unit does not actually employ staff in a particular grade but the 'should take' times indicate that it earns posts in this grade, the Area average cost for the grade is used to calculate the 'should take' costs of these posts. Calculation can be adjusted to produce average costs per grade which either include or exclude casual staff. In practice however there is very little difference between the two sets of data.
Fixed posts
Currently each Area is allocated 1*A2 fixed posts for modelling purposes.
Summary
It is important that the three elements of time, volume and payroll in the activity cost equation are as accurate as possible. The old adage applies that any system is only as good as the quality of information fed into it. The benefit of accurate timings can be devalued if data in the PI system about case outcomes is inaccurate or incomplete.
Travel time is added to each activity time for those grades where travel to court or police premises is appropriate. An absence factor is then applied and the total time, in minutes, is converted into a staffing requirement (see earlier Chart in main part of the Guide).
Application of payroll costs for each staff grade involved in the timing then provided an activity cost for the process.
In summary Activity Costs comprise -
- ACTIVITY TIMINGS multiplied by case outcome volumes to provide the TOTAL TIME required;
- TOTAL TIME required converted to staff-years to provide TOTAL STAFF required;
- TOTAL STAFF required multiplied by payroll costs to provide TOTAL COSTS.