An ABC Guide to Costing
- Introduction
- The purpose of the guide
- What costing should cover and importance for managers
- What can be costed
- Preparing a costing - staff time
- Preparing a costing - Non-staff costs
- The Checklist
- Formal presentation of a costing
- More complex calculations
- Changes which require additional resources for staff training
- In conclusion
- Annex
1. Introduction
1. Costing changes to work processes has a major impact on organisational efficiency. Introducing change without costing its implications leads to poor quality performance, causing additional pressure for staff, as well as contributing to stress and low morale.
2. Change is constant within the CJS workplace and all change, however slight, has cost implications. All managers need to be aware of the various costs of change, particularly when embarking on new projects with other CJS partners, who themselves may also require clear advice on costing approaches.
2. The Purpose of the Guide
1. The aim of this Guide is to provide a basic costing toolkit covering -
- Instruction on the methodology to be used;
- Background information on the costing process;
- Information about your role in the costing process;
3. What should Costing cover?
1. Costing should always consider two specific areas of cost or saving, which are:
- Staff Costs/Savings.
- Non-Staff Costs/Savings.
Within CPS the majority of cost is accounted for through staff and the guide concentrates on this aspect.
2. Why is Costing important for managers?
Costing is required whenever a policy or operational change is proposed which could alter procedures and consequently staffing requirements. This is particularly important when funds available to managers within the Criminal Justice System are restricted and new partnerships and processes are being constructed.
With every change it is important to assess the potential costs and benefits of the proposal as early as possible in the planning stage. It is also important to know the current costs of an activity prior to any change being implemented – these are known as the "baseline" costs. Without these it is impossible to judge whether a change has delivered the benefits anticipated in the planning stage or business case.
4. What can be costed?
1. The simple answer is that everything, including things that have not yet occurred, can be costed. Costing of future proposals or options is regularly required by government and is sometimes called 'speculative' costing.
Although every costing should be done with care and honesty, you should always remember that a costing is always just a costing and cannot hope to achieve the accuracy of costing real or actual expenditure after the event. A costing should strive to be as helpful as possible but sometimes, much effort can be wasted on costing to achieve what is, at best, often spurious 'accuracy'.
5. Preparing A Costing
It is possible to undertake a basic costing without any technical work measurement or ABC expertise. By applying the cost per minute to the time required, an overall cost can quickly be established. Timings can be established either by reference to ABC data or by local staff estimates from practitioners as to the time required to complete a particular task.
If the costing need is greater or more complexities are involved, more information is needed to calculate costs. This information comprises -
- Staff Costs by Level
Local staff costs can be obtained by application to your local Area secretariat or Group Operations Centre (GOC) to provide information through the CPS Corporate Information System (CIS), or Area records. If you require more detailed information covering overhead costs in addition to salaries, you should contact HQ Finance to establish if the information is available and who holds it. A table of national average costs per minute per level (salaries only) is shown at Annex 1.
- Define the task worksteps
Every costing requires a set of simple work steps showing all the work needed to take account of the change. You may find drawing a process flowchart helps in defining any actions involved in the costing. Guidance on this aspect can be found in "A Guide to Process Improvement", available from the ABC Team.
- How often do we/ will we do the defined task?
To answer this question, you need the volume/ frequency of actions for each work step. Volume is simply how many times the process is undertaken or number of outputs achieved and frequency is related to how often an action within the process occurs. As an example, you might expect 5,000 cases to require completion of a particular form (volume) and that on average 2 forms per case will be issued (frequency).
- How long does it/ will it take?
You need the time, in minutes, to complete each work step. There are a variety of techniques that can be used to measure work. The simplest and quickest to apply are either direct observation or estimates by someone who is familiar with the task or who can accurately visualise it. These are covered below.
"Analytical Estimates" are simply estimates provided by experienced staff with some perception of the effort involved. There is nothing wrong whatsoever with estimates informed by real experience.
"Comparative Estimates" are made where the work steps to be measured are compared to a similar task where timings are already known.
"Direct Observation" timings should be taken on suitably experienced and proficient staff fully trained in the tasks being observed. It is often useful to time batches of work being completed by a member of staff as a more reliable average timing can be established, for example, a batch of cases being updated after court.
"Simulation" is simply the act of recreating or completing the task under examination yourself and then timing it. Ideally a number of occurrences should be timed to gain a fair average. Alternatively, a colleague who is familiar with, for example, an IT system, can be asked to complete the task and timed.
3. How do I get all this to convert to a "staff year" equivalent with all the appropriate allowances?
You need a costing conversion formula which converts any answer in minutes to one that shows staff years or staff posts. Expressing your calculation in staff years is more meaningful and can then be readily converted to a cost by applying average annual salary costs, for each staff grade.
4. The CPS Costing Conversion Factor
The costing conversion factor is a mathematical formula produced and maintained by the ABC team which produces an answer in numbers of staff posts. It includes:
- a converter factor to translate minutes into staff years;
- an absence factor for all times when staff are absent from work
The current permanent cost CPS costing conversion factor is: 0.00001085
By way of illustration – 92,130 minutes of work per year in CPS equals 1 staff post after allowance is made for absence.
Differing hours worked in London (36 hour week) give a London-only factor of: 0.00001116
When costing overtime working, no conversion factor is required because overtime has no absence factor (think about it!).
5. Within any costing system provision has to be made for inevitable absences from the workplace due to annual leave or sickness, for example. If our basic timings indicate that a team of 4 staff are required to complete a set amount of work, it will mean that around 5 will be actually needed to cover for absences within the team over the working year.
6. I've now got all the information : how do I use it?
The basic calculation for all costing is:
Volume/Frequency x Time x Costing Conversion factor = Staff Years
Staff years x Average salary = Cost
For example, if the activity to be costed was "Issue witness form", where staff on average salaries of £12,000 issue 25,000 forms, and each form requires 5 minutes of staff effort, the calculation would be:
25,000 forms x 5 minutes x 0.00001085 = 1.36 staff years.
1.36 staff years x £12,000 = £16,320
You must always ensure that all timings are in minutes. Do not use days, half days or hours because, when you use the costing conversion factor, your answer will be incorrect.
This formula is also broadly suitable, or can be adapted for use by other CJS agencies, including the Police, Courts and Probation Service. If in any doubt please seek further advice from the ABC team who will be happy to help.
6. Preparing a Costing - Non-Staff Costs
1. Examples of non-staff costs are:
- Postage
- IT equipment
- Stationery
- Telephones
- Travel and Subsistence (T&S)
2. Whenever a costing is compiled showing a change in staffing levels, any possible change in these non-staff requirements must also be considered. You may also need to take into account other non-staff costs such as IT development or capital costs of equipment purchased before going ahead with a change. However, these costs are outside the remit of this guide, and you will need to contact the appropriate units within CPS HQ for further guidance on costs and whether it is appropriate to include them.
The following ideas may be useful for estimating the costs for each of the areas of non-staff costs/savings. If in doubt always consult the appropriate specialist team within CPS HQ who can advise on whether costs need to be included and to what extent.
3. Postage
Some proposals will involve either more or less post being issued from the office and postage costs – either first or second class should be included in the calculations. Do not forget to include the cost of a pre-paid envelope if included. The cost of using the DX Service should not be included.
4. Stationery
The cost of forms can be difficult to estimate because it is based on total usage within the Service and high usage bulk ordering can often reduce costs drastically. Also the cost of forms can vary from print run to print run depending on the quantities ordered and the timescales. Do not forget to include the cost of envelopes when issuing forms and letters (including the cost of the reply paid envelope, if enclosed).
5. Telephones
CPS telephony network services are contracted to a single external provider and advice should be sought from HQ Telephony Team within Business Information Systems Directorate if the costing involves significant changes regarding provision or use of telephony services.
6. Travel and Subsistence
There are few costings which need to include these particular items. However, they should be considered if necessary and data is easily available through local finance centres. In addition, an element may need to be included if, for example, training is being organised off-site.
7. The Checklist
1. Before presenting your costing, it is useful to ask yourself the following questions:
- Have all necessary worksteps been included and at the correct grade?
- Are work steps and procedures logical, efficient and accord with best practice?
- Are the volumes/frequencies correct - ie the best possible estimates?
- Has the most up-to-date information been taken into account within the costing?
- Are all sources of information quoted?
- Are there other sources of information that might be useful?
- Will the change have an impact on other areas of work, either within the Unit /Area or outside, besides the one considered in the costing?
- If estimates have been used, have reasons been offered for the use of the estimates and is the reasoning sound?
- Has the correct costing formula been used and are the timings correct?
- Will the change have a permanent impact on the level of resources or is it work which will need extra "one off" funding?
- If required, are all appropriate non-staff costs included and correctly calculated?
2. Get it checked!
It is a fact of life that no one is perfect and all of us are capable of making mistakes, particularly where figures are concerned. Always show your costing to as many interested parties as possible, and get someone else to rigorously check your calculations before they are published or used in a business case or resource bid.
8. Formal Presentation of a Costing
1. Costing, at whatever level, needs to be clear, concise and easily identifiable.
All costing should include the following:
- An easily understood title, including the name of the activity concerned
- A short and simple description of the change, including reasons for the change and whether it is a revised costing ie version number / date.
- As well as outlining the change, there needs to be additional information about the date the change is to be implemented from or whether the costing is speculative only.
- Details of the information used and the sources of that information, including volume figures and how they were calculated. If estimates have been used, there should be a clear explanation in support of the estimate.
- The staff and non-staff costs/savings in the respective financial year(s).
- A worksheet showing the work steps, volumes/frequencies, timings and the calculations to obtain the staff year totals and the non-staff costs – (ABC Team can assist with this).
- Clearly labeled version number and date if costing is amended or re-worked.
2. Costing calculations can be made using a calculator but the easiest and most efficient way is by the use of a computer spreadsheet. A floppy disc containing a basic costing spreadsheet format for both staff and non-staff costs is available on request from the ABC team.
9. More complex calculations
1. When a change is to be introduced, it is necessary to consider the likely impact on caseload as some changes may affect the numbers of cases dealt with. For instance, if a change is made to the prosecution procedure, more (or less) cases may result. Not only should the costing consider any anticipated increase/decrease in the total cases, it will also need to take account of changes to other activities that support the core process.
2. Costing A Change In Workload Volumes
Method 1
There are other factors to take into account when calculating an increase/decrease in caseloads, such as considering when any likely change will take place. If, for example, you expect an increase of 2,400 cases to gradually build up throughout the year, the way to calculate the resource requirements would be as follows:
| Date | Caseload | Time saved/gained | Formula | staff Years |
|---|---|---|---|---|
| April | 200 | x 250 mins x | 0.00001085 x 1/12 | = 0.0450 |
| May | 400 | x 250 mins x | 0.00001085 x 1/12 | = 0.0904 |
| June | 600 | x 250 mins x | 0.00001085 x 1/12 | = 0.1356 |
| July | 800 | x 250 mins x | 0.00001085 x 1/12 | = 0.1808 |
| Aug | 1000 | x 250 mins x | 0.00001085 x 1/12 | = 0.2260 |
| Sept | 1200 | x 250 mins x | 0.00001085 x 1/12 | = 0.2713 |
| Oct | 1400 | x 250 mins x | 0.00001069 x 1/12 | = 0.3165 |
| Nov | 1600 | x 250 mins x | 0.00001085 x 1/12 | = 0.3617 |
| Dec | 1800 | x 250 mins x | 0.00001085 x 1/12 | = 0.4069 |
| jan | 2000 | x 250 mins x | 0.00001085 x 1/12 | = 0.4521 |
| Feb | 2200 | x 250 mins x | 0.00001085 x 1/12 | = 0.4973 |
| March | 2400 | x 250 mins x | 0.00001085 x 1/12 | = 0.5425 |
12 Months
15,600 increases in cases
Total Staff Years = 3.53
As you can see, the resource requirements have been calculated month by month
till they build up to the total increase in load of 2,400 per month. This is known as a 'weighted average' costing.
Method 2
Another method of producing the resource requirements would be to add up Column 2 (cases) and divide by 12 (months) as follows:
(15600 cases x 250 minutes x 0.00001085) / 12 = 3.53 staff years
Compare the answers at 1 and 2 with the following calculation:
2400 x 250 minutes x 0.00001085 = 6.51 staff years.
In this example, you are assuming that the full increase in caseload will happen immediately and the resource requirements are those needed to deal with the full increase for the complete year which is the reason that the resource requirements are so much higher than those at 1 and 2.
3. It is extremely important to reflect accurately when and at what rate the increase in case load occurs to avoid putting in too many resources before they are needed.
4. Net Present Value (NPV) adjustments
You may also need to consider the impact of your costing over a period of months, or more often, years. This is especially important when constructing a business case to support a proposed change. For example, after completing a costing showing a saving of £50,000 per year, you may wish to demonstrate a net saving in costs over a 5 year period.
5. In these cases you need to include the fact that inflation in the form of wage increases and other costs will mean that £50,000 in present day costs will not be worth £50,000 in the years that follow. To take account of this, costing calculations covering a period of years should include a “Net Present Value” (NPV) adjustment. This basically reduces the value of the savings in succeeding years. Detailed information on the appropriate NPV adjustment to make can be obtained from HQ Finance and Accounts Directorate.
6. The following table illustrates how potential savings of £50,000 per year over a 5 year period are adjusted using a Net Present Value adjustment. This example assumes a NPV reduction of 5% per year, which is applied cumulatively year on year. The effect of this reduction means that the projected 5 year savings of £250,000 in total are reduced to £227,000.
|
2005/6 |
2006/7 |
2007/8 |
2008/9 |
2009/10 |
TOTAL £ |
Cost Benefits (savings) |
50,000 |
50,000 |
50,000 |
50,000 |
50,000 |
250,000 |
NPV Discount rate (5.00%) |
1.00 |
0.95 |
0.91 |
0.86 |
0.82 |
|
NPV |
50,000 |
47,500 |
45,500 |
43,000 |
41,000 |
227,000 |
Cumulative NPV |
50,000 |
97,500 |
143,000 |
186,000 |
227,000 |
|
7. As an alternative you may calculate that in year 1 there are no savings achievable and that, in fact there are increased costs of £25,000 associated with the change. The table would then show net savings /benefits of £152,000 over the 5 year period.
|
2005/6 |
2006/7 |
2007/8 |
2008/9 |
2009/10 |
TOTAL £ |
Cost Benefits (savings) |
-25,000 |
50,000 |
50,000 |
50,000 |
50,000 |
175,000 |
NPV Discount rate (5.00%) |
1.00 |
0.95 |
0.91 |
0.86 |
0.82 |
|
NPV |
-25,000 |
47,500 |
45,500 |
43,000 |
41,000 |
152,000 |
Cumulative NPV |
-25,000 |
22,500 |
68,000 |
111,000 |
152,000 |
|
8. Phased costs/benefits
A further point to consider when calculating the costs or benefits of a change relates to how soon they can be applied. For example, you may determine that a new procedure will reduce costs nationally by £1 million each year, or £250,000 per quarter. However, roll-out of the new procedure will be phased in over a 12 month period and it will only be at that point that full savings will be realised. The benefits or savings can be profiled as follows –
Quarterly period |
Total National Savings £ |
% of sites "rolled out" |
Net savings per quarter £ |
Cumulative savings £ |
YEAR 1 |
|
|
|
|
Quarter 1 |
£250,000 |
10 |
£25,000 |
£25,000 |
Quarter 2 |
£250,000 |
30 |
£75,000 |
£100,000 |
Quarter 3 |
£250,000 |
60 |
£150,000 |
£250,000 |
Quarter 4 |
£250,000 |
80 |
£200,000 |
£450,000 |
YEAR 2 |
|
|
|
|
Quarter 1 |
£250,000 |
100 |
£250,000 |
|
Thus, in the roll-out period the actual benefits or savings will be £450,000. From Year 2 with full roll-out the anticipated savings of £250,00 per quarter can be applied.
10. Changes Which Require Additional Resources To Allow For Staff Training
1. Most procedural changes will not require additional resources for staff training because allowances are already made in the costing conversion factor to take account of the time staff take to read and assimilate new instructions, circulars and guidance. However, occasionally a change is costed which has additional significant training requirements.
2. This involves quantifying the training need, who will deliver the training and how long it will take. Work steps relating to the training should then be added to those relating to the processing of the work and an overall total staff year requirements figure produced.
3. If you have to cost a change which may have training implications, you need to seek advice from HQ Leadership and Learning about the best way that the training could be delivered and the likely duration of any training. All major change projects within CPS should consider Learning and Development implications including costs as part of the standard project management methodology.
4. The key factors to consider are:
- Time or cost to develop training materials
- Associated printing, video production, IT costs in preparing training materials
- Trainer time in delivering courses
- Trainee time spent on courses
- Costs of any back-filling for staff away on training eg Agents, Agency staff
- Associated travel and subsistence, or conference booking costs.
5. For major changes Leadership and Learning and/or the appropriate National project teams will normally determine training requirements and costs. However, for smaller local change projects you should consult your Group Learning Partner in the first instance for estimates of likely training need and costs.
6. As an example, if one Training Officer per Area was to deliver 2 days training to 20 staff per Area and each needed 5 days to research and produce the training package, assuming a normal working day of 444 minutes, the work steps would be:
Preparation
Training Officers 42 * Research and production = 5 days * 444 (minutes per day)
* 0.00001085 = 1.01 staff year at Training Officer pay scale
Training delivery
Training officers 42 * 2 days training = 42*2*444 (minutes per day) = 37296 minutes
* 0.00001085 = 0.40 staff year at Training Officer pay scale
Trainees 42 * 20 staff * 2 days = 42*20*2*444 (minutes per day) = 745,920 minutes
*0.00001085 = 8.09 staff years at appropriate staff level
Costs would equate to 1.41 training officer posts and 8.09 trainee posts plus any additions for agents/agency back-filling cover, travel and subsistence etc.
11. In Conclusion
1. Costing the process is an essential part of good management. If you do not cost a process, you will have difficulty managing it, and unless you manage a process, you cannot improve it. The manufacturer who sells his product at less than the cost of production goes out-of-business, as will any manager who ignores the cost of their core processes.
2. Costing also enables us to assess potential efficiency benefits of new initiatives or change proposals, as well as determine where we currently are ( the “baseline” ) prior to any change being introduced. This is an essential requirement in times when funds are limited and changes are subject to “cost / benefit” analysis.
3. The information within this guide should allow you to confidently approach the costing of any task or process. In broad terms, we also believe that it can be used or easily adapted by any other member of the Criminal Justice System for general costing, using the information we have defined for the Crown Prosecution Service as an indicator.
4. For any further advice or assistance contact
Andy Beard
ABC Programme Manager
Room 14.12
Colmore Gate
Birmingham
B3 2QA
Tel: 0121 262 1120
Mob: 07901 856258
Email: Andy Beard
or
Leanna Lane
ABC Advisor
Room 14.12
Colmore Gate
Birmingham
B3 2QA
Tel: 0121 262 1121
Mob: 07824 372176
Email: Leanna Lane
or
Shaun Morris
ABC Advisor
Room 14.12
Colmore Gate
Birmingham
B3 2QA
Tel: 0121 262 1127
Mob: 07867 584438
Email: Shaun Morris
This report links to the ABC Guide and ABC Guide to Process Improvement which are available from the ABC team or on the CPS website.
Annex
1. CPS Staff costs per minute
| NATIONAL STAFF COSTS 2008/9 | ||
| Source : Corporate Information system - Activity Costings module - Salary data set Sept 2008 | ||
| Days per Year | 207.5 | |
| Minutes per year | 92,130 | |
| Pay Bands | Average salary £ | Cost per minute £ |
| Lawyer | ||
| Band E / PCA / SCA | £88,910 | £0.97 |
| Band D | £75,275 | £0.82 |
| Band CA / SCP / CP | £60,002 | £0.65 |
| Administrative | ||
| Band E | £83,651 | £0.91 |
| Band D | £65,335 | £0.71 |
| Band B3 | £44,300 | £0.48 |
| Band B2 | £36,460 | £0.40 |
| Band B1 | £29,893 | £0.32 |
| Band A2 | £22,349 | £0.24 |
| Band A1 | £19,467 | £0.21 |
NB - costs above cover gross salary costs including ERNIC and superannuation payments. There are no other overheads built into the rates quoted, such as accommodation costs, contract/equipment costs or other corporate services.
