MPS development of Activity Based Costing: 2004/5 audit, 2005/6 progress and use of data

Report: 10
Date: 20 July 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 MPA Finance Committee members with an overview of the 2004/5 audit results and 2005/6 progress including development of use of data.

A. Recommendations

That

1. Members endorse the Strategic ABC Plan.
2. The MPS provides appropriate training for members on ABC.
3. A further report be brought to the MPA Finance Committee in October to:
   1. Report on 2005/6 ABC and AA results to BOCU level.
   2. Update on progress in implementing the Audit Commission’s recommendations from the audit of the 2004/5 ABC model.
   3. Update on other progress in delivering and using ABC.

B. Supporting information

Introduction

1. In January 2006 the MPS provided a report for MPA Finance Committee showing ABC results for 2004/5, and recommending that a strategic plan for the ongoing development and use of ABC data be provided to the MPA Finance Committee. The report also recommended the appointment of a lead member for ABC. This report:

• Provides the strategic plan for members to comment on and endorse.
• Updates members on the outcome of the Audit Commission’s audit of ABC data for 2004/5.
• Updates members on other progress with the development and use of ABC.

Strategic plan for development and use of ABC data

2. Within the MPS, development and use of ABC is overseen by a Strategic Board chaired by Commander Simon Foy (head of Performance Directorate). The Board includes operational and finance/performance representatives from across the MPS and also includes MPA member Dr Karim Murji (appointed as lead member for ABC) and Ken Hunt (MPA Treasurer).

3. A strategic plan (Appendix 1) has been developed covering the major areas of work involved in progressing ABC (eg data collection and model build, training and communication, use of data and links to national developments). The plan has been approved by the ABC Strategic Board and progress will be regularly reviewed. The MPA Finance Committee is asked to review and endorse this plan.

Audit results for 2004/5

4. The Audit Commission has audited the 2004/5 ABC models for all forces. A summary of the audit result for the 2004/5 model for the MPS can be found at Appendix 2, together with an update on recommendations from the 2003/4 audit and action plan for the 2004/5 audit report.

5. The key points from the 2004/5 audit report are:

• Overall Fair/Fair grading, with an Improving direction of travel.
• Significant progress at a corporate level was recognised, which needs to be replicated at Borough level.
• The costed model was assessed as good, which provides reassurance in the use of the data.
• The MPS and MPA need to develop both the use of data and a positive culture towards ABC.

6. It is recommended that the MPS update the MPA Finance Committee with progress in implementing the Audit Commission recommendations in October 06 (following production of the 2005/6 ABC model).

7. To assist members in their role of holding the MPS to account in relation to the development and use of ABC, it is also recommended that the MPS provides members with appropriate training and briefing in ABC.

Progress of 2005/6 ABC Model

8. Good progress is being made for building the 2005/6 ABC Model. Since technical issues for the model were largely resolved in the previous year, the ABC Team had been able to focus on earlier collection of data and thus allow more time to review the model once built. The MPS is on target to submit to the Home Office on the 31 August, as required.

9. The ABC Lead has worked closely with the Home Office this year to clarify aspects of the Manual of Guidance, which do not easily apply to the MPS model. This has ensured both the development of the model for 2005/6 and informed changes within the Manual of Guidance.

10. One specific item for review was the high level of Business Support and sustaining costs within the MPS model compared to our Most Similar Family (MSF). Working closely with the National ABC Manager, we have been able to reclassify certain costs from Business Support to Operational Support, although the Sustaining costs have largely remained unchanged. The MPS will work with the Home Office (HO) to review this area and develop a methodology to allow detailed comparison between Forces, as this is currently impossible from the ABC Models.

Initial activity analysis data for 2005/6

11. Some example Activity Analysis (AA) reports can be found at Appendix 3. At this time work is continuing to finalise the BOCU data for inclusion in the 2005/6 MPS ABC Model and the reports attached should therefore be taken only as being indicative of the final results, being based on the collated data for three BOCUs. The AA data for 2005/6 will be finalised before the end of July 2006 and reports based on the full data set will be reported to the MPA Finance Committee. (See paragraph 29 below).

12. The Home Office requires the AA data to be supplied annually in spreadsheet format, and to show MPS totals by high-level Home Office Incident and Activity categories. However, the number of individual data items collected during AA studies provides a much richer dataset in terms of the levels of ‘drill-down’ available, enabling information to be presented by rank, role, and location, to look at how time is expended on individual Incident or Activity types, and to demonstrate where activity peaks during the day.

13. The reports at Appendix 3 are typical of the types of report available to BOCU/OCU commanders when AA data is returned to participating BOCUs and OCUs via a bespoke software application. The software allows trained users to produce a wide range of reports which can be tailored to the needs of the OCU, and to answer specific questions.

14. In addition to its prime function of contributing to the construction of the MPS ABC Model, activity data has been (and is being) used to assist in a number of projects throughout the MPS where there is a need to obtain a detailed picture of how staff spend their time, such as:

• Realignment of SO12 and SO13 and creation of the Counter Terrorist Command.
• Exploration of the costs incurred by the MPS by virtue of its national, international and capital city responsibilities.
• The Workforce Modernisation Project’s study at Bexley BOCU on the use of police staff ‘statement takers’.
• Human Resources Progression and Selection – Exercise Design Team, using AA data to ensure that promotion exercises accurately reflect the types of work being undertaken by Senior Management Teams (SMTs).

15. Activity Analysis data is currently used by all forces in order to capture the detailed information required by the ABC model. (AA data is captured down to 15-minute intervals). The Home Office/ABC Technical Sub-group are beginning to explore how systems such as Airwave might be used to capture data on a continuous basis and how the ABC methodology may evolve into a process modelling approach.

16. Their work is at an early stage – while in the longer term they may recommend a move to this approach to data capture, this will be at the expense of the detail captured under the current ABC model.

Overview of the MPS progress in use of ABC data

17. The Home Office requires that all police forces provide ABC information to agreed definitions and standards as part of the annual data requirement. It is also required that Forces make best use of the data, although guidance for this is limited. The MPS has recognised the need to effectively use ABC and is developing this within the Service.

Best practice for use of data

18. The ABC Lead and ABC Team, have worked with many Forces to explore the use of data issue, but to date, there are very limited examples of ‘best practice’ from which the MPS can learn. The examples of uses to date have either been claimed by very small Forces or are entirely related solely to Activity Analysis. The ABC Lead has requested the Home Office set up a working group to address this issue nationally, which they have agreed to do. We are awaiting confirmation of the meeting date for this to be progressed.

Strategic use of ABC data and links to other strategic objectives

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

• Link to the Police Performance Assessment Framework (PPAF) performance.
• Supporting the Franchise Model [1]
• Direct Unit comparisons between Boroughs
• Develop use of ABC as a contextual measure for use in the Policing Plan, MMP 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

20. Currently, ABC is represented on both the Value for Money Steering Committee and on the Met Modernisation Programme (MMP) Programme Delivery Board, to ensure the value of ABC data within these strategic groups can be realised. The potential use of data within these key pieces of work is being explored.

21. The ABC Lead is also working with the Lead Accountant for Financial Planning to develop the recommendation from the Financial Framework review, which suggests that there is potential for ABC data to be used with the budget setting process. This is currently under review, as is the exploration of further uses for the data within Business Planning.

22. Some recent work has taken place to use the ABC system to support resource deployment within TP by profiling BOCU budgets across the functions covered by the Franchise Model.

23. As part of the development of the training plans for ABC the team will also consider how to ABC training can be linked to training for other strategic programmes (eg links to value for money programme activities).

Wandsworth case study

24. In order to develop the use of ABC data at a local level, it was decided that a case study approach would be the most appropriate. This allows the MPS to work closely with a borough to explore appropriate uses of the data and then to share this work with other boroughs. This would allow the focus required to find uses for the data, which best fit, the MPS.

25. The ABC Team is part-way through work with Wandsworth BOCU. This has involved analysis of ABC data and discussions with Wandsworth performance leads to:

• Compare unit costs of dealing with different types of crime
• Compare unit costs per sanction detection for different types of crime
• Use the ABC data to understand how resources contributed from other operational OCUs to Wandsworth compares to the contribution given to other OCUs
• Look at AA data at a more detailed level.

26. As a result of initial discussions we will be holding a session for performance leads from Wandsworth and some other BOCUs to meet to use the ABC, AA and performance data to share information and knowledge on how BOCUs are structured and organised to deliver performance.

27. While BOCUs vary in how they are organised, we hope to stimulate useful discussion between practitioners using the ABC, AA and performance data. This process should give us more information on:

• How best to provide BOCUs and OCUs with ABC and AA data, and what kind of support they will need in order to use and compare data.
• Ideas for further development of overview reports for ABC and AA data, incorporating some data into performance reports where appropriate.
• Ideally, some tangible examples of how using the ABC data in context with AA and performance data can support BOCUs in deciding how to use their resources to deliver performance.

Conclusion

28. 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.

29. The MPS, and Police Service as a whole, are at an early stage in making best use of ABC data and this is an area where further work is needed to fully understand how best to use ABC data to support resource deployment and improved service delivery. In this regard we will continue to provide regular updates to MPA Finance Committee and other Committees as required. In particular, it is recommended that a further update report be provided to the MPA Finance Committee in October presenting ABC and AA results for 2005/6 to BOCU level, where possible showing trends and comparisons with other forces.

Abbreviations

ABC

Activity Based Costing

MPA

Metropolitan Police Authority

MPS

Metropolitan Police Service

HO

Home Office

MSF

Most Similar Family

AA

Activity Analysis

BOCU

Borough Operational Command Units

OCU

Operational Command Units

MMP

Met Modernisation Programme

PPAF

Police Performance Assessment Framework

MTFP

Medium Term Financial Plan

SMT

Senior Management Teams

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 report to the 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 £400K). New investment in AA data collection took place last year to replace equipment at the end of its life with a more flexible system at a cost of approximately £40K.

E. Background papers

• MPS Development of Police Activity Based Costing (ABC): 2004-05 Results, 19 January 2006
• 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
• 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
• MPS Development of Police Activity Based Costing (ABC) - 2004-05 Results – MPA Finance Committee 19 January 2006

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

Send an e-mail linking to this page

Feedback