MPS development of police Activity Based Costing (ABC): 2004-05 results

Report: 06
Date: 19 January 2006
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 provides Finance Committee members with an overview of the 2004/5 results and plans for the use of these.

A. Recommendation

That members

1. Note the contents of this report;
2. Consider nominating a lead member for Activity Based Costing; and
3. Agree that a strategic ABC plan, together with a supporting action plan be brought to the committee at the earliest opportunity.

B. Supporting information

Overview of the Police National ABC Model

4. The Home Office (HO) requires that all police forces provide Activity Based Costing (ABC) information to agreed definitions and standards as part of the annual data requirement. The MPS also recognises the need for ABC data for local use to inform resourcing decisions.

5. Data for the 2004/5 financial year was returned to the HO in 2005 following implementation of a new technical solution to enable accurate processing and reporting of ABC data. A sound ABC model was developed in accordance with the HO methodology, which the ABC Team believes is an accurate reflection of ABC for the MPS, although the model will be further refined and developed into the future. The model is also currently subject to audit review.

6. To allow for benchmarking between forces, the national model is prescriptive in how ABC data is collected and analysed and sets out:

• A common set of policing activities that should be costed (e.g. dealing with burglary, patrol)
• Principles and guidance on how data should be collected for the model, in particular collection of activity data.
• Principles and rules for how costs should be apportioned across the model (for example, how accommodation costs and pensions should be dealt with).

7. The Police National ABC model works on the principles of applying the gross cost of a force to the policing activities that incur these costs. It provides costings of activities at MPS-wide level and also identifies the full costs spent on policing the geographical area covered by each Borough Operational Command Unit (BOCU). As part of this the model apportions the contribution of HQ OCUs and departments (e.g. Specialist Operations, Specialist Crime, Central Operations, Human Resources (HR), Finance, Deputy Commissioner’s Command) according to which activities and which BOCUs they have supported.

8. Data sources for the MPS model include:

• Detailed activity analysis (AA) data collected from a representative sample of BOCUs and OCUs each year (to show time spent on the different HO activity codes);
• Management information (for example to apportion the cost of some central OCUs such as the Traffic Criminal Justice Unit OCU across BOCUs)
• Cost driver information (for example to apportion the costs of Information Technology (IT) across the MPS)
• National Cost of Training Models provided by Hendon
• 2004/5 actual general ledger gross costs.

At Appendix 1 there is a summary overview of the elements of ABC.

Key points about the model

9. The model assumes that all forces exist to deliver operational policing and in particular covers those activities most relevant to BOCUs. The cost of each force is allocated against a common HO activity list contained in the National Manual of Guidance.

10. The activity analysis studies and ABC model look at what staff do, not why or how they do it. The model does not have a direct read across, therefore, to particular funding streams (e.g. counter terrorism, community policing). Also, benchmarking of information therefore requires detailed local knowledge of local processes.

11. Major Incident and Special Events are abstracted and dealt with separately from other costs to ensure that only ‘normal day to day policing’ costs are allocated to activities.

12. Generally, income is required to be excluded from the model. This means that any specific funding is not netted off against the specific costs and costs are shown gross, e.g. Transport for London, Palace of Westminster, BAA income.

ABC data 2004/5

13. Appendix 2 provides a full table of MPS level ABC data produced from the 2004/5 model. This shows the resources consumed by activity or incident as defined by the HO guidance. This data forms part of the ABC return to the HO from each force. The key items of interest include:

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

15. The model allocates the whole gross cost of the MPS to the list of sixty activities set out at Appendix 2. 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. Therefore, being a large force with a £3bn budget, even activities which attract a small percentage of resource can result in large cost figures under the model. Cost figures should only therefore be considered with this point in mind. However, the model does provide valuable information about the relative proportion of resource spent on the different activities shown at Appendix 2.

16. We do not yet have information with which to benchmark costs with other forces, also as this is our first year with robust information there is no reliable comparison year as yet. However, knowledge of the MPS and AA data comparisons with other forces suggest some points about the results.

17. Again, not surprisingly, the AA data behind the model suggests that the MPS spends a relatively higher proportion of time/resource on dealing with serious violence compared with other forces (which includes murder investigation and some complex major inquiries).

18. The MPS did not have any incidents that were deemed to fit within the Major Incident category as defined by the Guidance, as unfortunately the types of incident that smaller forces would consider to be ‘major’ such as murder or kidnap, are considered part of our core policing activities within the MPS. There were, however, a number of Special Events that are costed and dealt with by the MPS.

19. 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 groups as the kidnap unit.

20. There is a great degree of granularity to the MPS model in comparison to that that may be found in other forces as a reflection of the organisational and, therefore, general ledger structure.

21. ABC data has the potential to be a useful management information tool in defining the relationship between cost and performance, and a link between performance and efficiency.

22. A full ABC pack and a detailed schedule of HO activity/incident codes has been made available for your information in the MPA members room.

Development of ABC 2005/6

23. A Strategic ABC Board has been set up to monitor the progress of ABC implementation 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 Commander Simon Foy (Performance Directorate).

24. The data are available at MPS and BOCU level and there will no doubt be much interest in the reports produced. The Strategic ABC Board will consult with managers across the MPS on the best ways to disseminate this. This will include:

• Development of reports for local managers to help them benchmark their data, using performance information to help set this in context.
• Exploitation of the ABC data and its use as a management tool within the Service.
• Continued training and awareness of ABC and AA data for a variety of potential users of the information.

25. The MPS will also actively engage with the HO in their development of efficiency measures that will use ABC data as part of the Policing Performance Assessment Framework (PPAF).

26. 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 HO our drive towards delivering ambitious efficiency gains.

Strategic use of ABC data

27. ABC has a significant potential both as a management information and planning tool. It is intended that the MPS will use ABC in the following ways:

• Link to PPAF performance
• Direct Unit comparisons between Boroughs
• Develop use of ABC as a contextual measure for use in the Policing Plan, Met Modernisation Programme and Medium Term Financial Plan (MTFP)
• Use of ABC data at a local level e.g. unit costs to provide a basis for efficiency planning calculations

Engagement with the MPA

28. Following a meeting with the Chairs of the MPA Finance Committee and Performance Planning and Review Committee, it is proposed that the MPA will identify an ABC Lead member in addition to the existing role of the Treasurer to both monitor and support ABC. It was agreed that there would be a joined up approach in dealing with the HO on ABC issues, such as a response to audit and reviews of the model.

29. Both MPA representatives will also attend the Strategic ABC Group.

30. The Treasurer comments that it is vital for the authority to have a vision for what it wants to achieve in relation to ABC and has long-term sustainable plans in place to achieve these objectives. Paragraph 27 above sets out in general terms an approach to the use of ABC. However, members need to have a transparent and robust framework for accountability for ABC, particularly in being able to scrutinise MPS activity based costing compliance and in holding the MPS to account for the operation and improvement of key processes. It is preferable that a strategic plan is quickly brought back from the Strategic ABC Group to members, which also sets out supporting detailed action plans, timescales and officer responsibilities. This would ensure at the minimum that the Authority will actively participate in monitoring the delivery of ABC and the use of activity data, that ABC becomes part of regular performance monitoring and that ABC informs policy development and helps in assessing policy impact.

31. A key part of the benefits of ABC is the improved link between cost and performance. Early work is starting to show the benefits at BOCU level of how ABC and overall performance assessment can be clearly and robustly linked. It is hoped to bring this developing work back to members at a future meeting. This will be part of a piece of work which ensures that in the longer term members’ decisions are informed by key messages from ABC on how resources are used.

Conclusion

32. The MPS and MPA will continue to work with the HO 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.

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 HO and Treasury.

2. Costs of conducting BOCU Activity Analysis studies were addressed in an earlier report to MPA Co-ordination and Policing Committee (February 2003). There have been no significant changes to these costs which cover a small Activity Analysis unit of five people and ABC costing team of four (approximately £400,000).

E. Background papers

• Implementation Of Activity Based Costing In The MPS - MPA Finance Committee Report, 14 November 2002
• Operational Policing Measure - MPA Finance, Planning and Best Value Committee Report, 29 May 2002
• Update On Implementation Of Activity Based Costing In The MPS: Data Collection From BOCUs – MPA Co-ordination and Policing Committee Report, 17 February 2003
• Update on Implementation of Activity Based Costing (ABC) in the MPS – MPA Finance Committee 15 September 2003
• Update on ABC implementation in the MPS - MPA Finance Committee 15 September 2004
• Audit Commission’s “Police - Activity Based Costing (ABC) Review 2004” – MPA Finance Committee 7 April 2005
• MPS Development of Police Activity Based Costing (ABC) – MPA Finance Committee 15 December 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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