Update on implementation of Activity Based Costing (ABC) in the MPS

Report: 08
Date: 15 September 2003
By: Commissioner and Treasurer

Summary

The Home Office requires that all police forces provide Activity Based Costing (ABC) information to agreed definitions and standards as part of the annual data requirement for 2003-04. This paper updates MPA members on progress in implementing ABC in the MPS. The MPS is represented on the Home Office’s ABC Project Board together with the MPA Treasurer. This note also updates members on developments relating to the national implementation of ABC as part of the Policing Performance Assessment Framework (PPAF).

A. Recommendation

Members are asked to note the contents of this update report.

B. Supporting information

The requirement for Activity Based Costing

1. The Home Office requires that all police forces provide Activity Based Costing (ABC) information to agreed definitions and standards as part of the annual data requirement for 2003-04. This information will be used as part of the Policing Performance Assessment Framework (PPAF) currently being developed by the Home Office which in turn is likely to be used to review the police funding formula (possibly 2004-05). The MPS also recognises the value of ABC data for local use and is progressing implementation of ABC.

Implementation of ABC - data collection from BOCUs

2. Implementation of the full ABC model requires that activity analysis (AA) studies are carried out on all basic command units (BOCUS in the MPS). A paper for MPA COP in February this year set out the difficulties that this could cause (studies of all 32 BOCUs would have involved around 16,000 people on BOCUs alone).

3. With the support of the MPA, an agreement was reached with the Home Office that this year the MPS will carry out AA studies on only 8 BOCUs. The Home Office agreed to this approach on the basis that the MPS would seek ways of collecting data from all 32 BOCUs over the next 2-3 years, for example from duty planning systems. Work to investigate possible medium-long term solutions will be progressed in the MPS.

4. The Home Office also wishes us to use the data from the 8 sampled BOCUs to produce ABC models for all 32 BOCUs. The eight BOCUs were selected in consultation with Territorial Policing, with a view to getting a representative mix of BOCUs, as shown on the table at Appendix 1. The AA studies are planned for the Autumn of 2003 and are being progressed by the Internal Consultancy Group Activity Analysis Unit.

5. It should be noted that even with this special agreement the programme of AA studies for 2003-04 is likely to cover around 12,000 people, since studies are also needed for non-Borough operational command units (see paras 6-8 below).

Implementation of ABC - data collection from other operational command units (OCUs)

6. Implementation of the full ABC model also requires collection of information to apportion the costs of SO, Specialist Crime (SC) and TP Pan-London units according to (i) policing activity and (ii) which individual borough these activities supported.

7. For some units, existing management information can be used to apportion these costs. For other units, activity data are required (eg for those units where staff can carry out several of the high level activities set out in the ABC model). AA studies for a number of SO and SC units have been carried out over the last two years and this information will be used to inform the model. For other SO, SC and TP-Pan London OCUs, a programme of AA studies and other data collection has been agreed for 2003-04, led by the Activity Analysis Unit. The timetable for these studies is set out in Appendix 2.

Implementation of ABC - data collection from support departments

8. The model also requires that the costs of support departments (HR Directorate, Resources Directorate, Deputy Commissioner’s Command) be allocated to policing activities and to individual boroughs or force-level overheads. Corporate Accounting Team (Resources Directorate) has identified the necessary data for this part of the model, with the following progress being made towards the 03-04 model:

• The entire MPS ledger has been analysed into ABC cost categories
• Cost drivers for the apportionment of business support costs have been identified and cost driver data have been received from the relevant central units. The data are being entered into the relevant cost model templates.
• Data for major events (which will be costed separately) have also been received and are being entered onto the relevant cost model templates.

9. Any data collection for operational units within the DCC (eg part of the Diversity Directorate) will be addressed via activity analysis if necessary (ICG will progress this).

Implementation of ABC – development of cost models

10. 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.

11. Corporate Accounting Team is developing the cost models using B-Plan costing software. A revised version of this is due to be released in early September, taking into account changes to the ABC model for 2003-04. In the meantime, a set of data templates needed to populate the model on the new software has been received, for completion and loading onto the new software in November/December. All forces, including the MPS, have raised concerns about the strain on the resources of all the different software suppliers and their ability to provide adequate support during ABC implementation. The Home Office has recognised this and is seeking to work with suppliers to address this.

12. Users across the MPS will have access to cost models software, which is under development by Resources Directorate.

MPS plan for implementation of ABC

13. The Home Office is keen to ensure that ABC data are produced to an agreed standard to enable comparisons to be made between forces and basic command units. To this end, all forces were required to submit their proposals for ABC implementation to the Home Office in May 2003.

14. The Audit Commission has reviewed the submissions from each force and has awarded the MPS plan a rating of “Green: the submitted plan is compliant and consistent with the national guidance issued”. The Home Office will continue to seek reassurance from forces that implementation is on track. Within the MPS implementation of ABC will be overseen by a project board chaired by DAC Bryan.

15. A complete ABC return based on out-turn for 2003-04 will be submitted to the Home Office in June/July 2004, with data being audited from October 2004 onwards.

Home Office PPAF ABC Project Board - National Developments

16. A project board chaired by the Home Office oversees national implementation of activity based costing, as part of the development of the Policing Performance Assessment Framework (PPAF). The MPS is represented on this board and the MPA Treasurer Peter Martin represents the Association of Police Authorities. HMIC is also represented.

17. The project board has overseen revisions to the model and production of a revised manual of guidance for forces. National training requirements (for delivery by Centrex) are being identified and the network of regional practitioner groups to support ABC development in forces has been re-launched.

18. A review of software to support collection and development of activity based costing data has also been carried out, with the Home Office and project board representatives working to help ensure that software used by forces meets the needs of the model and is well supported.

19. The Project Board is also liaising with CIPFA to determine whether ABC data can be used to inform the Best Value Accounting Code of Practice (BVACOP – as a result of the Best Value legislation that came into force in April 2000, there is a statutory requirement to comply with this code when reporting externally on year-end accounts).

Home Office use of ABC data within PPAF

20. Stephen Rimmer, Director of Policing Policy at the Home Office, recently wrote to all forces and authorities updating them on a range of policing performance monitoring developments. It is intended that ABC data will be used to place an estimated cost on the outcomes being measured within PPAF. Via the PPAF ABC Project Board, we will continue to liaise with the Home Office to identify what this will mean in practice since outcome measures for some PPAF areas (domains) have still to be agreed. The Home Office has also indicated that the ABC data will help identify good practice in forces when used in conjunction with performance data and could be used to help ensure that efficiency targets are realistic.

21. The PPAF project board for the Organisational Capability Domain has proposed that the only PPAF measure of ‘financial capability’ for 2004-05 should be the delivery of ABC data. This proposal is still under debate: ABC implementation is at an early stage in almost all forces and there are significant concerns that this measure would not be a true reflection of financial capability. However, there is likely to be continuing interest from the Home Office and HMIC in each force’s ability to produce and use ABC data.

The police authority role in ABC

22. The APA recently ran a series of seminars around the country entitled ‘Knowing your ABC’, to which members and officers of police authorities were invited. The MPA Treasurer presented a police authority perspective on ABC at these events.

23. Whilst recognising current limitations with ABC and the need to consider the costs with other information, e.g. performance data, the presentation identified a number of potential uses for ABC in support of police authorities’ responsibilities. These covered:

• Resource management. In particular encouraging use by the force both at BCU and corporate level.
• Planning. Informing planning consideration and providing a link between budgets and plan priorities.
• Budgets. Providing supplementary information, supporting business cases for investment, identifying savings.
• Performance management. Monitoring delivery of plan priorities and keeping track of PPAF indicators.
• Effectiveness an efficiency. Informing best value and other efficiency reviews, facilitating identification of areas where costs should be minimised.
• Comparative performance. With performance data, facilitating intra and inter force comparisons and establishing benchmarks.
• Consultation and communication. Better information for the public, link to public priorities, opportunity to change public perception.
• Resource bids. Support use by Home Office to support business cases for increased resources for the police service as a whole.

24. The Authority should seek to develop its use of ABC in these ways as information comes on stream over the next twelve months.

Measure of frontline policing: a related initiative

25 The Home Office has been required to develop a measure of frontline policing to monitor a requirement within Public Sector Agreement 2 (PSA2):

“Improve the performance of all police forces, and significantly reduce the performance gap between the best and the worst performing forces; and significantly increase the proportion of time spent on frontline duties”

26. The Home Office will use activity analysis information collected during Activity Based Costing exercises for this measure, in order to avoid imposing any new data burden on police forces and authorities.

27. The MPS already has a measure of visibility and operational policing, the Operational Policing Measure (OPM), which uses information from the MPS’s duty planning system. This measure has been developed primarily to monitor the level of visible operational policing in the MPS. In particular it has been developed to support budget devolution where BOCUs and OCUs may wish to vary the mix of police and civil staff to increase visibility and increase the time spent by police officers on operational duties.

28. The MPS is liaising with Home Office staff to identify how the frontline policing measure will differ from the OPM. The outcome of this liaison will be included in a report to the MPA Planning, Performance and Review Committee in October 2003.

C. Equality and diversity implications

By providing an indication of cost to help set performance in context, ABC data may provide local managers with additional information on which to assess their compliance with the Race Relations Amendment Act and to assess equality of service provision.

D. Financial implications

1. There is a potential risk to MPA/MPS funding if activity based costing is not implemented in the MPS in 2003-04. This risk is not currently quantifiable.

2. Costs of conducting BOCU Activity Analysis studies were addressed in an earlier paper to MPA Co-ordination and Policing Committee (Feb 03). There have been no significant changes to these costs.

E. Background papers

• Implementation Of Activity Based Costing In The MPS - MPA Finance Committee Paper, 14 November 2002
• Operational Policing Measure - MPA Finance, Planning and Best Value Committee Paper, 29 May 2002
• Update On Implementation Of Activity Based Costing In The MPS: Data Collection From BOCUs – MPA Co-ordination and Policing Committee Paper, 17 February 2003.

F. Contact details

Report author: Helen Dean, Corporate Performance Group, MPS.

For more information contact:

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

Appendix 1

Activity analysis study timetable 2003-04

The timetable is subject to some change depending on the operational commitments of the units being studied.

The following 8 BOCUs will undergo AA studies in October /November 2003.

Appendix 2

The AA Study Programme for those TP-Pan London, SO and SCD OCUs for which AA studies are required this year is as follows:

*Merton BOCU will be studied at a different time to the other BOCUs due to introduction of a new shift system.

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