MPS development of police Activity Based Costing (ABC): 2004-05 audit progress, 2005-06 results, developments and use of data

Report: 7
Date: 23 November 2006
By: Acting Director of Resources on behalf of the 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 the Finance Committee with an update on progress on 2004/5 audit results; 2005/6 submission and progress including the high level costing results and development of use of data.

A. Recommendations

That Members note the contents of this report.

B. Supporting information

Audit Results for 2004/5

1. An update on recommendations from the 2004/5 audit report can be found at Appendix 1. The key points from the progress against these are:

2005/6 ABC Model

2. The 2005/6 ABC Model was submitted to the Home Office earlier than the required submission deadline of the 2 October.

3. The MPS ABC Lead worked closely with the Home Office this year, to clarify aspects of the Manual of Guidance that 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.

4. One specific item for review was the high level of Business Support and Sustaining costs within the MPS model at 32% or £964m, compared to our MSF in the 2004/5 model. Working closely with the National ABC Manager, we have been able to reclassify certain costs from Business Support to Operational Support, leaving 22% or £709m. The comparison by cost category between 2004/5 and 2005/6 can be found at Appendix 2.

5. Significant and rigorous validation was undertaken on the results to ensure the accuracy of the data.

Initial ABC results for 2005/6

6. The 2005/6 results can be found at Appendix 2. This shows the resources consumed by activity or incident as defined by the HO guidance compared by percentage to 2004/5. This data forms part of the ABC return to the HO from each force. The key items of interest include:

7. 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 2005/6 actual general ledger costs.

8. The model allocates the whole gross cost of the MPS to the list of Home Office activities. Costs shown therefore not only include the cost of time and resources directly used on an activity (eg 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.

9. MSF comparisons can also be found at Appendix 3 and these demonstrate that the MPS is in line with MSF but with lower than average sustaining and business support costs. This data has been provided by the MSF on a goodwill basis and thus cannot be reported in detail; however the reports provided do indicate that the models are comparable. The Home Office are expected to release a database of all Force data in due course.

10. The MPS recognised the events of 7 July 2005 as a Major Incident, in addition to a number of Special Events that are costed and dealt with.

11. 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 departments such as the kidnap unit.

12. 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.

Activity Analysis data for 2005/6

13. Early results were presented at the July Finance committee. Detailed results including Borough comparisons will be presented to members at a workshop in December 2006.

Links to other MPS strategic objectives

14. ABC is represented on both the Value for Money Steering Committee and on the MMP 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.

15. The MPS 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 for resource allocation purposes. This is currently under review, as is the exploration of further uses for the data within Business Planning. The potential for this use of data will be reported as part of the January 2007 review of the business/financial planning process to be presented to this Committee.

Overview of the MPS progress in use of data

16. 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.

17. Examples of ‘best practice’ nationally for ABC are very limited. The ABC Lead has requested the Home Office set up and Chair a working group with Forces to address this issue nationally, which they have agreed to do.

Strategic use of ABC data

18. The use of ABC as management information and a planning tool is being developed, however the progress since July Finance Committee is as follows:

• Inclusion within TP budget development in alignment with the Franchise Model [1]
• Development and distribution of central operational unit reports
• Inclusion within the Process Improvement Project, which is the Home Office pilot to trial operational police process mapping within three Forces

19. The Strategic Plan continues to be regularly reviewed by the Board and progress to this will be reported to Finance Committee spring 2007.

Wandsworth case study

20. In order to develop the use of ABC data within the MPS, work has taken place with a BOCU to look at the use of ABC data. Initial analysis presented data to the Wandsworth representatives comparing their results with those for some other OCUs, for example:

• comparisons of unit costs of dealing with different types of crime
• comparisons of unit costs per sanction detection for different types of crime
• comparisons of support for Wandsworth by other operational OCUs, compared with support given to other OCUs; and
• looking in more detail at underlying AA data and activities undertaken by different teams and squads on the BOCU.

21. As a result of initial discussions a session was held with performance leads from Wandsworth and some other BOCUs where this information together with other performance data was presented. The BOCU representatives discussed the information and some of the possible reasons behind differences in the data – for example, different team and squad structures and different terms of reference for these. They also discussed any difficulties in use of the data and made suggestions for how it could contribute to their local performance management processes.

22. Participants felt that the unit costs data together with AA data could provide further insight into local performance and where good practice might be found on other BOCUs. However, they had concerns regarding the age of some of the AA data and had suggestions for the format of the information. As a result work will take place between the ABC/AA teams and TP to present the latest data to the TP Command Team looking at ways to set the costed data in context with performance data.

Conclusion

23. Audit items from 2004/5 are mainly completed and outstanding items have been progressed well. The 2005/6 return demonstrates an improved data set, which aligns to Home Office force averages and demonstrates a sound consistency of data. The MPS will continue to work with the HO on the development of ABC.

Abbreviations

AA

Activity Analysis

ABC

Activity Based Costing

BOCU

Borough Operational Command Units

HO

Home Office

HR

Human Resources

IT

Information Technology

MMP

Met Modernisation Programme

MPA

Metropolitan Police Authority

MPS

Metropolitan Police Service

MSF

Most Similar Family

OCU

Operational Command Units

TP

Territorial Policing

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 paper 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. New investment in AA data collection took place last year to replace equipment at the end of its life with a more flexible system.

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
• MPS Development of Police Activity Based Costing (ABC) - 2004-05 Audit, 2005-06 Progress and Use of Data 20 July 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

Appendix 1

Audit Commission Recommendations 04/05 Audit – MPS Comments & Action Plan

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