MPS update on Activity Based Costing (ABC) 2007/08 results

Report: 07
Date: 22 January 2009
By: Director of Resources on behalf of the Commissioner

Summary

Since 2003/04, the Home Office has required that all police forces provide Activity Based Costing (ABC) information to agreed definitions and standards as part of the annual data requirement.

This report provides the Committee with an update on the 2007/08 ABC submission, highlighting key areas of MPS expenditure and also provides an update regarding the future of Activity Analysis and ABC.

A. Recommendations

That members note the contents of this report.

B. Supporting information

2007/08 ABC Model

1. The 2007/08 Activity Based Costing (ABC) Model was submitted to the Home Office (HO) in mid December.

2. Significant and rigorous validation was undertaken on the results to ensure the accuracy of the data.

3. The ABC model is produced in accordance the Home Office manual of guidance and analyses the cost of specifically defined activities or incidents. All 43 forces are required to complete similar returns which details expenditure down to Basic Command Unit (BCU) level.

ABC Results for 2007/08

4. A summary of the 2007/08 results for the MPS can be found in Appendix 1. The top ten key activities / incidents have been extracted see Table 1. These top activities consumed approximately 58% of the MPS resources for 2007/08

Table 1 – Top ten Activities/Incidents

5. Please note that these are the total ABC costs of the listed activities / incidents in accordance with the HO methodology, which is based on Activity Analysis (AA) surveys, management information, and the 2007/08 actual costs held on the general ledger.

6. The model allocates the whole gross cost of the MPS to the list of HO activities. Costs shown therefore not only include the cost of time and resources directly used on an activity (e.g. cars, IT), but also include an element for the costs of support departments (HR, Finance, etc) and other overheads as well. Therefore, being a large force with over £3bn budget, even activities that attract a small percentage of resource can result in large cost figures under the model. However, the model can provide valuable information about the relative proportion of resource spent on the different activities.

7. The ABC model recognises that Major Incidents and Special Events are likely to affect the overall costs within each force, particularly at a BCU level. The model therefore identifies these costs, which are included within a separate HO ABC template. This will include events such as Notting Hill Carnival, major sporting and ceremonial events.

8. The MPS has a significant number of specialist support OCUs relative to other forces because of volume, greater degree of complexity and serious crime in London, which necessitates such departments such as the kidnap unit. The cost of these units are allocated to individual boroughs based on use of resource and then allocated to activities and incidents in accordance with either management data or AA.

9. Appendix 2 provides a further summary of the MPS 2007/08 ABC Annual Data return, analysing costs by PPAF (Policing Performance Assessment Framework) domain and cost category.

10. A more detailed Management Report providing useful information regarding the cost per crime type within each borough, and across the service as a whole, will be lodged in the members library.

Developments with ABC

11. Whilst ABC has the potential to be a useful management tool, very few police forces have been able to successfully use the results to drive improved performance. This view was also supported by ‘The Review of Policing’ report written by Sir Ronnie Flanagan where two recommendations were made in relation to ABC:

• The Home Office should urgently examine its requirement for each force to undertake Activity Based Costing with a view to this requirement being replaced with an alternative which costs less, is easier to use and has greater impact on productivity.’
•  ‘The Home Office should support the HMIC, the Audit Commission, forces and police authorities in developing a statistical profile for each force, similar to those used successfully in local government and the health service, which would include comparable high level data on staff numbers, objective costs and key management ratios. Prototypes of these profiles should be prepared by autumn this year, with final versions available by autumn 2009.’

12. The HO accepted these recommendations in the Green Paper, ‘From the Neighbourhood to the National: Policing our Communities Together’. However, since then no guidance has been issued by the HO as to whether ABC returns will be required for 2008/09 and beyond.

13. An alternative costing model, Policing Objective Analysis (POA), is currently being developed by West Midlands Police with the assistance of a number of other forces including the MPS. This is purely an analysis of functional policing costs and support functions. As yet, this has not been adopted by the HO as an alternative to ABC, however, ACPO Cabinet endorsed the implementation of POA for the Service from 2009/10, at its meeting on the 10 December 2008.

14. It is anticipated that the HO will not require ABC returns beyond 2008/09, and from 2009/10, data will be provided in the new Policing Objective Analysis format.
Conclusion

15. Although generally the ABC data is relatively consistent, the costing methodology (full absorption costing) based on a 2 week activity survey will inevitably produce slightly variable data particularly as the MPS only survey boroughs on average every three years. The Flanagan report has recognised these issues and as a consequence the MPS are now actively developing objective analysis with a number of other forces, which will provide more transparency to functional costs.

16. Information regarding the development of POA was reported to members of the Finance and Resources Committee on the 18 December 2008 ‘MPA Update on Activity Based Costing’. Data for the MPS in the new POA format will be provided to the Finance and Resources Committee early in 2009, based on the 2007/08 outturn.

Abbreviations

AA

 Activity Analysis

ABC

 Activity Based Costing

ACPO

 Association of Chief Police Officers

ADR

 Annual Data Return

BCU

 Basic Command Unit

CIPFA

Chartered Institute of Public Finance and Accountancy

HO

 Home Office

OCU

Operational Command Unit

POA

 Policing Objective Analysis

PPAF

 Policing Performance Assessment Framework

C. Race and equality impact

There are no race or equality impacts.

D. Financial implications

1. The ABC data is currently used by the HO within the National Police funding formula. The HO has confirmed it can use existing data to inform its grant allocation for the current CSR period, and therefore ABC will not be required for 2009/10 and beyond.

2. The MPS will save approximately £10k per annum in software support, maintenance changes and consultancy, if the statutory ABC requirement ceases from next year.

E. Background papers

•  MPS Development of Police Activity Based Costing (ABC): Costing Model Developments – MPA Finance Committee, 18 October 2007.
•  MPS Development of Police Activity Based Costing (ABC): 2006/07 Results, 19 November 2007.
•  MPS Update on Activity Based Costing (ABC) – MPA Finance and Resources Committee, December 2008.

F. Contact details

Report author(s): Simon Hart, Acting Director of Finance Services, MPS

For more information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

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