Implementation of Activity Based Costing in the MPS

Report: 8
Date: 14 November 2002
By: Commissioner

Summary

The Home Office has indicated that it will require all police forces to provide Activity Based Costing (ABC) data as part of the annual data requirement for 2003/04. This report:

• Explains the drivers for implementing ABC in police forces
• Updates MPA Members on current work in this area; and
• Explains the implications for the MPS of implementing ABC next year.

A. Recommendation

The Committee is asked to note the contents of this update report.

B. Supporting information

Drivers for implementing ABC in police forces

1. Strong external drivers for developing activity based costing information arise from the requirements of government (Treasury, Home Office) to understand how the public sector uses its resources. In 1999, ACPO Chief Constables’ Council signed up to a common methodology for costing police and support staff activities, allowing comparisons to be made between forces – the National Police Activity Based Costing Model. However, implementation of ABC in most forces, including the MPS, has been slow. It is also worth noting that the work carried out under the ABC initiative would complement the existing reporting requirements of the Chartered Institute of Public Finance and Accountancy’s Best Value Accounting Code of Practice.

2. This year, the Home Office and Police Standards Unit have begun developing the Police Performance Assessment Framework (PPAF). This is intended to provide a model for measuring police performance in delivering policing 'outcomes', across the whole range of police business. The framework will assess performance against a series of 'domains':

• citizen focus
• reducing crime
• investigating crime
• promoting safety and security
• helping the public
• resource usage - activity based costing
• resource usage - organisational capability.

3. For each of these domains, performance indicators will be identified, with the PPAF becoming the framework against which all police performance is assessed, at force and basic command unit level, for example, incorporating and redefining the current BVPIs suite, and being compatible with BVACOP.

4. In particular, the relationship between resource use and performance is considered crucial within the framework. It is intended that the framework will form a basis for linking resource use and contextual information to impacts on policing outcomes and customer satisfaction. Ultimately the Home Office and Police Standards Unit would like the framework to act as a basis for identifying realistic outcomes from targeted funding. The Home Office has also set out its intention that the PPAF will be used in due course (possibly 2004-05) to review the police funding formula, linking funding to performance, efficiency and need.

5. As part of the 'first wave' of implementation of the PPAF, the Home Office is currently sponsoring work to identify performance indicators for use from April 2003 in the areas of citizen focus, reducing crime and investigating crime. To set this information in context, it is also intended that all forces will be required to provide ABC data to the Home Office, in line with the National Police ABC Model, from 2003-04.

6. In addition to the above, the Home Office is in negotiation with the Treasury regarding implementation of ABC. There is a possibility that forces that do not capture activity based costing information could in future have their efficiency targets increased from 2% to 5% per year.

7. As well as these external drivers for developing ABC data, there is also a need for this information locally. Managers at all levels require ABC information to help them understand the links between inputs and outputs, for example, to:

• Compare the performance of their teams/units and benchmark with other units
• Identify efficiency savings and good practice
• Allocate and bid for resources based on a demonstration of need
• Demonstrate efficient and effective performance to senior managers, partners, police authority and other stakeholders.

8. If the MPS fails to implement ABC, therefore, there will be criticism from the Home Office and Police Standards Unit and a risk to funding in future years.

The National Police ABC Model

9. The National Police ABC Model sets out:

• A common set of policing activities that should be costed
• Guidance on how costs should be apportioned (for example, how accommodation costs and pensions should be dealt with in the model)
• Guidance on how data should be collected for the model - a key issue for all police forces is how to capture information about how staff spend their time on different policing activities. In particular, because almost all forces do not have IT systems which capture this information routinely, the model recommends that activity analysis (AA) studies are used to capture BCU staff time against policing activities.

10. The model costs activities at force level and at basic command unit (BCU) level. In particular, the model is designed to show the contribution of HQ units (eg Special Operations (SO), Specialist Crime (SC), TP-Pan London units in the MPS) to the policing of individual BCUs.

Current work to develop ABC in the MPS

11. The MPS is already developing some ABC information:

• A programme of Activity Analysis studies of all SO and SC OCUs is taking place, to provide information about time spent by these units on national, international and capital city functions, and to provide resource information for local managers. This programme will be completed in the spring of 2003.
• Activity Analysis studies of 5 BOCUs are underway (October 2002) to learn lessons about data collection for simultaneous studies of units and to provide local managers with data that can be benchmarked.
• The Corporate Accounting Team within Finance Services is leading on the development of the ABC costing models. For this year, Corporate Accounting Team will use the activity analysis data collected for SO and SC units and BOCUs to build ABC models in line with the national model. Software has been purchased from a specialist ABC software supplier to support this and a pilot to cost data for one SO unit is already underway.

12. While this work allows the MPS to learn lessons about developing and using ABC data, further work will be required to implement the full National Police ABC Model in line with the Home Office's requirements.

Implementation of the National Police ABC Model in the MPS

13. Implementation of the full national model would therefore require that data is collected for the whole of the MPS, including:

• Three week activity analysis studies of all 32 BOCUs during 2003-04, to inform apportionment of BOCU costs against policing activities.
• Management information to apportion the costs of SO, Specialist Crime and TP Pan-London units according to (i) policing activity and (ii) which individual borough these activities supported.
• Information to apportion the costs of support units (Deputy Commissioner's Command, HR Directorate, Resources Directorate) to policing activities and to individual boroughs or force-level overheads.

14. Implementation also requires:

• Development of the full cost model for the MPS using ABC software.
• A means of making AA and ABC data available to local managers, with support to help them use this for their own benefit by purchasing further software reporting tools.

15. Work is underway in the MPS to identify how the data might be gathered and to scope the resource implications of implementing the full ABC model in 2003-04. This work is being carried out by the Corporate Accounting Team, Activity Analysis Unit and Internal Consultancy Group working together and steered by a project board chaired by Steve House, DAC Strategic Development. However, implementation does already raise some issues for the MPS as discussed below.

International, national and capital city costs

16. For both the MPA and Home Office, the MPS needs to be able to show the costs of delivering national, international and capital city functions. The national model does not at present permit the direct inclusion of these functions, as they should not be apportioned down to BCU level. This issue has been raised with the Home Office and the MPS will ensure that information on the costs of these functions is available to interested parties:

• Corporate Accounting Team will ensure that information on SO and SC national, international and capital city costs is readily available for both internal and external interested parties as a result of the activity analysis and costing of SO and SC OCUs.
• Some estimates of the non-SO and SC costs of these functions are made by other parts of corporate finance, together with costs of major public events which involve more than 500 officers (for example the Queen Mother's funeral, where Pan-London TP units and borough staff play a major role). As part of scoping for implementation of the full national model, the MPS will consider whether and how these estimates might be improved.

Data collection for the model

17. The MPS is committed to implementing ABC. However, there are concerns about the impact that carrying out Activity Analysis studies of all 32 BOCUs every year could have on the MPS. Lessons will be learned from the current studies for five BOCUs. With current IT systems not able to capture information about BOCU staff time as required by the national model, AA studies are likely to be required for 2003-04. However, the MPS will look for alternatives to AA studies for the medium term, for example through adjustments to the operational policing measure or via the introduction of the new duty management system. These issues are being raised with the Home Office.

18. With 32 BOCUs, apportionment of the costs of operational head-quarters units (SO, SC, TP-Pan London) to individual boroughs could also pose problems. The model does allow, though, for this to be done on the basis of the "best available information" (for example, it could be appropriate to allocate the time of murder investigation teams on the basis of where murders are committed).

Resources to develop ABC

19. Scoping work will result in an assessment of resources needed to implement the full national model in the MPS, including implications for the Activity Analysis Unit and Corporate Accounting Team. Police Forces, including the MPS, have also raised concerns with the Home Office regarding a lack of ABC software that is accredited to comply with the national model. The main software supplier is a small company currently lacking in depth in terms of the number of technical consultants with an in-depth knowledge of the ABC software and National Police ABC model at their disposal. The lack of accredited software is considered to be a significant risk to implementation for all forces.

20. DAC House will continue to liaise with the Home Office on these matters and will update the MPA on progress.

C. Equality and diversity implications

ABC data and the PPAF performance indicators may provide local managers with additional information on which to assess their compliance with the Race Relations Amendment Act in terms of monitoring of performance outcomes.

D. Financial implications

1. As outlined above, there is a potential risk to MPA/MPS funding if activity based costing is not implemented in the MPS in 2003-04, in line with the National Police Activity Based Costing Model. This risk is not currently quantifiable.

2. There will be resource implications for implementing ABC: these are currently being scoped.

E. Background papers

None.

F. Contact details

Report author: Helen Dean, Internal Consultancy Group

For more information contact:

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

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