Activity Based Costing

Introduction

The Activity Based Costing Team within Business Improvement Division - 2006/7

This guide

This guide is an abridged version of the Guide to ABC in the CPS and provides a brief introduction to Activity Based Costing (ABC) and its uses within the CPS. Further information and more detailed explanations can be found in the full Guide.

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What is Activity based Costing?

Activity Based Costing (ABC) is an internationally recognised system in which staff timings and costs are produced by breaking down each activity into its constituent parts to determine the work effort required.

This enables staff costs to be attributed to all activities within an organisation and provide a measure of the amount of resource used to undertake a specific element of work.

This in turn provides invaluable data to support any planning, monitoring and control system, enabling managers to make better and more informed business decisions.

If you cannot measure a task, you cannot manage it or, more importantly, improve it.

We are all involved in costing activities every day of our lives although we may not always realise it. When we pay for goods in a shop, we are completing a complex costing transaction that helps the manufacturer pay wages, heating, lighting rent, VAT, taxation and so on. Another portion of the payment goes to the upkeep of the shop we bought the goods in to pay salaries and support their continuance in the market place. Further elements will cover profit and possibly some shareholder dividend.

Pricing is a complex business involving a large number of people but the bottom line is always that the sale price has to be greater than the price of production.

Anyone selling lower than the cost of production will rapidly go out of business. This is why manufacturers know the price of every single part of their production process.

In the same way, faced with a wages bill of tens of billions of pounds, Government should also know the true cost of its 'product' at every stage, so that it can truthfully demonstrate its efficiency around election time and prove that it is making best use of that most precious commodity - taxpayers money.

For CPS, ABC means in-depth measurement of the CPS/CJS processes and timings attributed to those processes to ensure equitable and fair resource distribution for all its business units.

Number of files handled * staff time = the cost of prosecution

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What is an Activity Based Cost in the CPS?

CPS is not alone in using ABC. Most government agencies, particularly the bigger ones, use some form of ABC measurement, as do major companies, manufacturers, insurance companies, banks, building societies, airlines, universities, and so on.

The techniques of ABC are used all over the world wherever there is a work process to be measured or a cost to be determined.

Activity Based Cost Management identifies the factors that drive costs in organisations. It also measures and analyses costs in a way that helps managers understand better what influences their core business. It also helps them to exert control in achieving objectives.

An activity cost is simply a measure of the amount of resource used to undertake a specific element of work.

The broad concept of activity costs within CPS is that the number of files handled, multiplied by staff time, is equal to the total cost of staff time spent on the CPS prosecution process. The system is built purely on staff time and excludes accommodation and other ancillary costs, eg Capital.

ABC does not replace performance indicators but illuminates them to make their messages more meaningful. Indicators on their own are rather like the controls in a car which tell you how many revs and what speed you are doing, but not if you are a good driver or are respecting the speed limit.

After all, the simple cost of a case can always be determined by dividing expenditure by caseload but this tells you nothing about the efficiency or quality of the product or how the organisation is running, only how much the case costs on average.

When you want this information, this is where ABC comes in.

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Roles and responsibilities

• The ABC Team provide timings for each of the various PI outcomes each year. These are forwarded to Area resources Branch
• Two sets of timings are provided - one set for National ABC models and a separate set for CPS London
• Each timing is split into staff levels D,C,B2,B1.A2,A1
• Separate information relating to the time spent travelling to and from Courts/Police premises for each CPS Area is also sent to Area Resources Branch each year

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Why are Performance Indicators important in ABC?

Although there are various techniques to measure and quantify work, an equally important element in the ABC system are Performance Indicators which act as Volume Counts, and tell us how many cases have been completed. Knowing how long or how much money a case takes to finalise is useful but unless we know how many of them we have done in the past or will do in future, the information has limited use. In the ABC system, timings have been measured for types of case that Areas routinely count as part of the standard Performance Indicators package. The counts relate to the different types of CASE OUTCOME in both magistrates' and Crown Courts. The table overleaf shows the various case outcomes which ABC uses and their relative costs.

Why is it important to accurately record all cases dealt with?

The key factor in determining an Area's ABC share is its caseload and case mix, and so it is very important that all staff members are properly trained and aware of the need to correctly finalise all cases. Failure to do so means a reduced ABC share and a likelihood of less staff budget for the Area in future years.

Failure to do this could have an adverse impact of the future resources for your Area!

How can we ensure that we correctly record our case finalisations?

• Make all staff aware of the importance of recording case finalisations with regard to budgets/staff;
• Ensure that staff responsible for recording case finalisations are appropriately trained;
• Ensure that training needs are monitored with regard to case finalisations, especially when new procedures/policies mean that changes may occur;
• Regularly review your Area's system for ensuring that cases are finalised to reduce the risk of cases being overlooked;
• If co-located, ensure that you are not wholly reliant on Police staff for case finalisation accuracy;
• Keep case finalisations under review - identify trends or anomalies at an early stage, investigate and question.

Some common problem areas

• Pre Charge Decisions and Consultations
• Specified offences
• Other proceedings
• Guilty verdicts as opposed to Guilty pleas
• Late finalisation of Crown Court cases

Remember - as few as 30 missed Crown Court finalisations each year can equate to a B1 caseworker in your ABC profile!

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What case outcomes does ABC cost? - Table of Indicative costs per case

Indicative staff costs per defendant finalised

Magistrates' Court

Finalisation category	Cost Prosecutor	Cost DCW	Cost Admin	Cost Total
Guilty summary	26.27	8.00	12.56	46.83
Guilty either way	70.11	6.15	20.38	96.64
Discharged committal	204.72	5.47	60.36	270.55
Prosecution dropped	111.34	4.40	30.55	146.29
Write off	53.28	7.80	17.24	78.32
Other proceedings	25.86	9.16	10.15	45.17
Trial - summary	375.22	4.49	83.40	463.11
Trial - either way	422.55	3.40	79.68	505.64
Pre charge decision	32.06	0.01	2.91	34.98
Youth case (additional to PI above)	35.55	0	10.42	45.97
"Late guilty" (additional to PI above)	148.21	0	53.37	201.58

Crown Court

Finalisation category	Cost Lawyer	Cost Casework	Cost Admin	Cost Total
Timeons guilty	517.99	167.15	131.86	817.00
Late guilty	609.28	204.78	161.32	975.37
Not guilty contest	719.84	508.04	239.93	1467.81
Guilty not guilty contest	708.36	518.76	237.62	1464.74
Prosecution dropped	531.91	169.79	144.43	846.12
Write off	486.22	152.76	127.36	766.35
Appeals	90.28	59.38	50.17	199.82
Committal for sentence	60.96	52.37	52.10	165.42

NB - These are not "full economic" costs covering accommodation, overheads etc. Costs reflect Salary costs based on "minimum"costs (Average salary + ERNIC + Superannuation + any Pay additions/Recruitment & Retention + skills allowances) Source - Finance Directorate Dec 2005

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How does CPS use ABC?

ABC measurement was introduced primarily to address the need for a fair and equitable allocation of running cost budgets to Areas. In-balances of staff distribution were common knowledge within CPS with many believing that those who shouted loudest got most, with other areas being disadvantaged. Use of ABC data offered the opportunity to distribute funds within CPS based on need rather than precedent.

So, ABC, within the CPS, is used as a resource distribution system, rather than a resource determination system. This means that the core prosecution process on the majority of cases in CPS Areas is measured in ABC. However, the work in other parts of CPS outside Areas is not covered by ABC models.

In contrast, a proper resource determination system attempts to capture all activity and attribute costs to all activities/functions within an organisation. In this way the overall cost of an organisation meeting its objectives and obligations can be assessed but this will generally require more ABC personnel and a much greater level of maintenance or updating .

How does ABC distribution work?

In simple terms, an ABC staff profile is calculated for each Area. This staff profile is calculated by multiplying the ABC times to deal with different types of case by the number of those cases dealt with in each Area. The total time required tells us how many staff at different levels is needed (as we know how many minutes equals one member of staff). The number of staff is then converted into costs by applying the average salary costs in each Area. So for each Area we can calculate a total ABC cost based on its caseload and case mix.

Aggregating these results from all the CPS Areas provides a National ABC cost. We can then determine what proportion of the National ABC cost is appropriate to each Area based on its ABC share. At this stage each Area's ABC percentage share is applied to the actual funding available. For example, if Area A's ABC share of the National ABC is 5%, then it will receive 5% of the available funding.

This principle can also be applied when assessing the balance of staffing between different Business Units in Areas or if your Area is planning a restructuring exercise and seeks some indication of how to distribute existing staff.

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What does ABC cover and where is it used?

ABC currently focuses on the core prosecution process work undertaken in CPS Areas by both legal and administrative staff in levels A1 to D, excluding Area Secretariats. Designated Caseworker activity is included within the timings but Higher Courts Advocates are excluded as they are funded via other means at present. ABC does not cover work in National HQs, Business Support Centres, CPS Direct or the Central Casework Divisions dealing with Complex, Serious and Organised Crime (Casework Directorate).

Moreover, it deals only with payroll costs incurred by the Service and does not currently encompass prosecution costs ie counsel fees, other general administrative or capital expenditure. Also ABC does not cover what is called "non baseline" funding which is provided to the CPS from other CPS sources for specific purposes or projects.

ABC modeling allows for comparison to be made between calculated costs and the actual time and cost required to carry out the CPS caseload. It also produces a profile of the staff required by level for each Unit or Area. Existing staff-in-post figures, including agency staff paid locally or lawyer-agents can be set against this profile for management information purposes.

In addition, ABC data is used by the Home Office in their influential 'Costs and Flows' and 'HEDRA' models to inform the Home Secretary and Government in general, of the true impact of legislative changes on the cost of the criminal justice system.

It also provides support to many initiatives within and beyond the bounds of CPS, particularly in terms of business cases and benefits realisation for many of the CPS change projects eg Compass, No Witness No Justice, Charging and the Disclosure Project. Members of the team also work closely with Policy colleagues in assessing impacts of new procedures arising from policy change.

In the past, ABC has included costing aspects of the "Levene", "Narey", "Glidewell" and "Auld" reports and the development of new approaches to Information Technology within CPS. ABC data has also informed joint approaches to closer working with the Police, especially on Charging, and "Glidewell", including information back to the Police about the cost impacts of poor quality Police files on themselves and CPS.

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How does ABC measure work elements?

The following chart shows the key stages in building an Activity Cost.

1. Define the process to be measured Fix start and finish points



2. Determine appropriate volume count(s) For CPS equals - No. of defendants finalised



3. Flowchart the whole process as simply and clearly as possible



4. Break the work down into small elements or tasks



5. Allocate each element or task to a specific staff grade/level



6. Time each element or task



7. Analyse files or records to find out how often different activities occur, eg Hearings or Correspondence



8. Apply ALLOWANCES for Personal time, interruptions and management of staff



9. Produces an ACTIVITY TIME



10. Multiply this by the number of cases to find the total time required for the caseload



11. Allow time for absence for sickness, Annual Leave and training



12. Add in time for travel to Court and police stations



13. Provides TOTAL NUMBER OF STAFF POSTS BY GRADE



14. Apply AVERAGE SALARY COSTS



15. The final product - ACTIVITY COSTS

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To sum up

ABC provides CPS with a number of benefits:

• More equitable distribution of running cost resources/budgets to the 42 CPS Areas, based on their relative caseload and case type.
• More open, transparent (and speedy) system for allocating resources to a large number of stakeholders.
• Meaningful performance management information for managers at all levels within the organisation, and beyond.
• Accurate operational costing on all aspects of CPS performance, and costing support for any "what-if" scenarios, or policy changes.
• Contributes on assurances to government and other bodies on CPS cost efficiency.
• Accurate costing of new proposals for CPS and support for business cases/benefits realisation work on all major change initiative projects and programmes.
• Identification and subsequent costing of immutable local factors that impact on the overall cost of prosecution.
• Identification and advice on the avoidance of inefficiencies within the CPS prosecution process.
• Essential information to other agencies (ABC is a leading contributor to CJS planning models) about the cost of common areas of concern - important in the Criminal Justice System where performance is often dependent upon other Agencies.

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Further information/contacts

More detailed information on ABC is available in the Guide to ABC on this website.

Further information regarding Activity Based Costings and Timings, can also be obtained from the ABC team who can be contacted at on the following numbers:

Andy Beard
ABC Teamleader
Room 14.12
Colmore Gate
Birmingham
B3 2QA
Tel: 0121 262 1120
Mob: 07901 856258

or

Jackie Bosworth
ABC Team
Room 14.12
Colmore Gate
Birmingham
B3 2QA
Tel: 0121 262 1121
Mob: 07984 906894

or

Shaun Morris
ABC Team
Room 14.12
Colmore Gate
Birmingham
B3 2QA
Tel: 0121 262 1127
Mob: 07867 584438

or

Paul Martin
ABC Change Manager
Room 211
United House
York
YO1 9PQ
Tel: 01904 545663
Mob: 07901 856259

The ABC team is happy to deal at any time with queries on any aspect of timings, workflows, allowances and absence factor. Further information on measurement methods and techniques used can also be provided.

Enquiries on Resource models, the Corporate Information System, budgets and ABC modelling may be addressed in the first instance to:

Activity Costs

Richard Cole
Area Resources
CPS HQ
United House
York
YO1 9PQ
Tel: 01904-545598

or

Julie Brookes
Area Resources
CPS HQ
United House
York
YO1 9PQ
Tel: 01904-545595

If your question concerns the distribution/allocation of resources to Areas, direct your query to Richard Cole. If external, e-address for all the above is; name.name@cps.gsi.gov.uk

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