MPS development of police - Activity Based Costing (ABC)

Report: 07
Date: 15 December 2005
By: Commissioner

Summary

Since 2003/4, 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 updates the Committee on the MPS’s implementation for 2004/5, providing an overview of the results submitted and further plans for ABC development this year.

A. Recommendation

1. Members are asked to note the contents of this report and note that there will be a further report following the meeting with the Strategic ABC Board and the Chairs of the MPA Finance and Planning, Performance & Review Committees which is due to take place in early January.

B. Supporting information

The requirement to provide police ABC data

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.

2. The ABC model uses a wide range of data including activity analysis (AA), management information and cost centre data to apportion the whole costs of a force against a range of policing activities. Activity analysis data collected as part of the ABC model is also required to inform the Frontline Policing Measure which monitors Public Service Agreement (PSA) 2.

3. In addition, the Home Office is currently researching how to incorporate ABC data into the Policing Performance Assessment Framework (PPAF) which in turn is likely to be used to inform a review of the funding formula in future years. The MPS also recognises the need for ABC data for local use to inform resourcing decisions.

Update on the 2004/5 ABC project

4. The ABC model was first run for the 2003/4 financial year, presenting considerable challenges to many forces. For the MPS there were particular issues because of the scale and complexity of the ABC model developed. A number of lessons were learned across the whole process and for 2004/5 a range of improvements has been made resulting in a much more robust ABC process and data set.

5. The ABC Team was developed with the addition of an experienced ABC Lead/Practitioner within Strategic Finance.

6. A Strategic ABC Board has been set up to monitor the progress of ABC within the Service and to drive the development and use of the data. The MPA Treasurer is a member of this board which is chaired by Cdr Simon Foy (Performance Directorate). Other members include representatives of those departments responsible for the main delivery of the model (e.g. Finance, Performance Directorate) and those representing potential users of the resulting information - managers from different business groups.

7. A new technical solution was successfully implemented to enable accurate processing and reporting of ABC data. The solution provided the following:

• Ability to manage the size and complexity of the MPS model
• Reasonable processing times and accuracy of costing
• Capacity to develop broader management reporting to maximise the potential use of the data, for example to develop reports for OCUs as well as for BOCUs.

8. A sound ABC model was developed in accordance with the Home Office methodology. It is accepted that whilst this model is believed to be an accurate reflection of ABC for the MPS, it will be refined and developed into the future.

9. Additional resource was provided to BOCUs during the period of their activity analysis studies to help manage the collection and quality checking of AA cards and to improve the timeliness of production of the AA data.

10. The 2004/5 ABC return was made to the Home Office within the agreed deadline in August 05. It should be noted that many forces experienced difficulties in meeting the deadline.

11. The ABC return is currently under review by the Home Office and will then be subject to external audit under the direction of the Audit Commission (to begin in December 2005).

12. Internal ABC reports on the costs of activities performed by the Service have been developed and shared with members of the Strategic ABC Board. The reports provide useful information on the cost of the activities performed by the Service and distribution of these will be managed by the Strategic ABC Board.

13. Training and awareness of ABC has been provided by the team to a variety of staff.

14. The Service has made a notable contribution to the national development of ABC, through both representation on development groups and the design and provision of training to new practitioners nationally.

ABC data

15. The ABC data shows the resources consumed by activity or incident as defined by the HO guidance. This data forms part of the ABC return to the Home Office from each force. The key items of interest include:

16. Please note that these are the total ABC costs of the listed activities and incidents in accordance with the Home Office methodology. These are based on Activity Analysis surveys, management information and the 2004/5 actual general ledger costs.

17. The model allocates the whole cost of the MPS to a list of 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 too. Cost figures should only therefore be considered with this point in mind. They will also be subject to an Audit Commission audit beginning later this month. However, the model provides valuable information about the relative proportion of resource spent on the different activities within the Home Office list.

18. The data are available at MPS and BOCU level and there will no doubt be much interest in reports produced. The Strategic ABC Board will consult with managers across the MPS on the best ways to disseminate this information to ensure that it is properly understood. In addition, to ensure that views of members are taken into account, a more detailed briefing for the chairs of the MPA Finance and Planning, Performance & Review Committees will take place in early January.

19. Effective use of ABC data in tandem with other data will allow us to set performance in context and benchmark between BOCUs and with other forces. Developing and using costing data will support the MPS in demonstrating to the Home Office our drive towards delivering ambitious efficiency gains.

Development of ABC 2005/6

20. The Strategic ABC Board will drive the direction of ABC within the MPS. The key areas for development for 2005/6 onwards include:

• Further development for the exploitation of the ABC data and its use as a management tool within the Service
• Development and refinement of the ABC model, to ensure best quality data is used to build the model
• Increase awareness of ABC and the benefits of the data, including the use of the Intranet and training sessions
• To widen the Activity Analysis surveys to ensure data is available for all Boroughs over a three year rolling programme. (The national model requires forces to carry out AA studies on all their BCUs each year. Because of the size of the MPS, the Home Office has so far allowed the MPS to carry out surveys of a selection of BOCUs rather than all 32).
  Home Office use of ABC data within PPAF

21. The Police Standards Unit is consulting within the Home Office (policy units, Economic Research and Analysis Unit, HMIC) on how best to reflect efficiency / cost-effectiveness issues within police performance assessments. This work will consider the role of ABC data and/or activity analysis data. The earliest such measures could be introduced as statutory performance indicators in PPAF is 2007/8 though earlier (non-statutory) introduction might be possible in 2006/7.

22. Both the MPA (Ken Hunt – the MPA Treasurer) and MPS (Helen Dean on behalf of Commander Foy) and are represented on the Home Office ABC Project Board. Close liaison with the Home Office will take place as new PPAF measures are developed to understand implications for the MPS and to ensure that any significant differences between similar forces are understood.

Conclusion

23. The MPS and MPA will continue to work with the Home Office on the development of ABC. Over the last year the quality of the ABC model and the systems in place to capture and process the data have improved significantly. This offers the MPS opportunities to exploit ABC data internally to benchmark performance and provide insight into resource use. There is likely to be significant interest in this data from stakeholders. This work will be overseen by the MPS Strategic ABC Board and a more detailed briefing for the chairs of the MPA Finance Committee and MPA Planning Performance and Review Committee will take place in January.

C. Race and equality impact

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. It is important to ensure that the ABC model is implemented effectively in the MPS and accurately reflects MPS activity since the ABC data is already being used within the national police funding formula and grant settlement negotiations between the Home Office and Treasury.

2. Costs of conducting BOCU Activity Analysis studies were addressed in an earlier paper to the Co-ordination and Policing Committee (February 2003). There have been no significant changes to these costs which cover a small activity analysis unit of four people and ABC costing team of four.

E. Background papers

• Implementation of Activity Based Costing in the MPS - Finance Committee paper, 14 November 2002
• Operational policing measure - Finance, Planning and Best Value Committee Paper, 29 May 2002
• Update on implementation of Activity Based Costing in the MPS: Data collection from BOCUs – Co-ordination and Policing Committee Paper, 17 February 2003
• Update on implementation of Activity Based Costing (ABC) in the MPS – Finance Committee 15 September 2003
• Update on ABC implementation in the MPS - Finance Committee 23 September 2004
• Audit Commission’s “Police - Activity Based Costing (ABC) Review 2004” 7 April 2005

F. Contact details

Report author: Rachel Musson, Strategic Finance and Helen Dean, Performance Directorate, MPS.

For more information contact:

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

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