delivering vfm & efficiency using rough-cut activity based ... and... · delivering vfm &...

© ValueAdding.com Ltd. 2007 1

Delivering VfM & EfficiencyDelivering VfM & Efficiencyusing Roughusing Rough--cutcut

Activity Based CostingActivity Based Costing

A practical approachValueAdding.com Ltd


AgendaAgenda

• Introductions

• The Context

– National Process Improvement Project & The Efficiency Agenda

– Process costs, the challenge

• The principles of Activity Based Costing

– Putting theory into practice – example case studies

• Value Add analysis and process improvement

• Building a Rough-cut ABC Model

– Benchmarking and Monitoring performance

– Generating conclusions and taking action

• Summary and Questions


The National Process Improvement Project & The National Process Improvement Project & The Efficiency AgendaThe Efficiency Agenda


• This course has been procured and subsidised by the LIFT SW partnership -the Regional Improvement & Efficiency Partnership (RIEP)

• It is one of a number of subsidised courses relating to skills development for Business Transformation

• Please study the LIFT SW handouts that your trainer gives you for details of further subsidised courses available

• Details are also available on the website http://www.swce.gov.uk

LIFT SW skills developmentLIFT SW skills development

http://www.swce.gov.uk


• LIFT SW offers a range of Business Transformation support opportunities:– Guidance & Case Studies– Training courses– Networks & Conferences– Advisory support

• See the ‘Support for Business Transformation’ leaflet

• Similar offerings are available for other themes such as Adult Services, Children’s Services, Procurement, Waste, Property Construction & Asset Management, etc.

• Details on the website

LIFT SW support for LIFT SW support for Business TransformationBusiness Transformation


• Comprehensive guidance on the transformation life-cycle and on how to manage and support change, with hyperlinks to best practice sources and case studies

• See leaflet

• Visit http://bip.rcoe.gov.uk

The Business Improvement Package (BIP)The Business Improvement Package (BIP)

http://bip.rcoe.gov.uk


• The BIP consists of 4 main components– Prepare For Change } The – Implement Change } ‘life cycle’– Manage Change – Support Change

• Rough-cut Activity Based Costing is applied when analysing the ‘as is’ and ‘to be’ positions in the early part of the BIP life-cycle.

• The BIP also contains research and case studies from NPIP (the National Process Improvement Project). The NPIP pathfinders all used Rough-cut ABC.

How does RoughHow does Rough--Cut ABC relate to the BIP?Cut ABC relate to the BIP?


Pathfinder projectsPathfinder projects

3

NPIP: the 8 bpi-led change-pathfindersreflecting range of business improvement ambition (vision for change)

Adult social care

Revs and bens

Child protection

Dem

ocracy & com

munity

(public protection)

Business support

(corporate) processes

(. HR

, Finance)

Waste m

anagement

Housing m

anagement

Infrastructure

(highways &

transport)

3 projects running across 9 London authorities looking at elements of social care activity (1 in child protection, 2 in adult care processes for common assessment & joint commissioning)

Work tailored for

District councils.

Cambridgeshire CC project to cost ‘shared services’ approach e.g. with other County in other region.

Group of 14 authorities in the North West GMEP/NWEGG

LB of Lewisham (Plus NPIP project admin.)

Chorley –process architecture/ organisational blueprint for district councils. Plus technical standards convergence piece.

Required common deliverables from pathfinders …..

Sedgefield Borough Council


Process costing has been around for many yearsProcess costing has been around for many years

• ABC was developed to give more accurate costing for service delivery in the private sector e.g – Cost of supporting “easy” customers vs “difficult” customers

• This led to questions such as “how can we reduce the cost of the process”?

• ABC used with BPR gives a quantification of the savings that could be made by process improvement– Business cases can be built– What-ifs can be done– “How well did we do?” can be answered


Efficiency Efficiency –– The contextThe context

Quotable quotes :developing efficiency savings in service delivery is dependent in large part on having detailed and robust information about the transactions that make up the service – resources, duration and quality

It is important to move towards identifying costs at the level of individual types of transaction and according to different methods for delivering it.

Efficiency gains in staff time and costs should be capable of direct calculation from transactional information rather than broad approximation.

In staffIn staff--intensive services such as Childrenintensive services such as Children’’s Services and Culture and Leisure, removing s Services and Culture and Leisure, removing nonnon--value added business processes can potentially free up an estimavalue added business processes can potentially free up an estimated 30% more ted 30% more staff time (2 hours a day)staff time (2 hours a day)


Broad Approximation is no longer good enoughBroad Approximation is no longer good enough

• The Building Control department budget is £420,000

• They complete work on 1,400 notices per year

– Is this at a cost of £300 to assess, inspect and decide upon each one?

• More information could be gained if we knew the following:

– How many notices are actually received?– How long does each one take to assess?– How many inspections are required?– How many decisions are appealed?

• Our BPR stands more chance of success when properly directed


Cashable and NonCashable and Non--cashablecashable

1. Reducing inputs (money, people, assets, etc) for the same outputs

2. Reducing prices (procurement, labour costs, etc) for the same outputs

3. Getting greater outputs or improved quality (extra service, productivity, etc) for the same inputs, or

4. Getting proportionately more outputs or improved quality in return for an increase in resources.

Gains are cashable where the resource is redeployed to other activity or the post deleted from the organisation but non-cashable where it remains in place but is able to deliver more and/or higher quality output


Both Cashable and NonBoth Cashable and Non--cashable gains can be derived in the same cashable gains can be derived in the same wayway

Efficiency = Total Process CostNumber of Process Outputs

Contact CentreYear 1Process Costs Calls Received Cost per call

£300,000 52,000 5.77£

Year 2Calls Received Cost per call Process Costs

36,400 5.77£ 210,000£

Introducing web based forms for the publicPredicted to reduce call volumes by 30%


Process Costs, the challengeProcess Costs, the challenge


VfM and Efficiency focuses on the cost of output of VfM and Efficiency focuses on the cost of output of the service as DELIVERED to its customersthe service as DELIVERED to its customers

Service isrequested

Service is planned

Service isdelivered

Built in opportunities for

DelayError

MiscommunicationCost


Calculating costs for processes that are cross Calculating costs for processes that are cross functional will be most difficultfunctional will be most difficult

• Most authorities know their departmental costs well, through their budgets– However the issue of cross charging internal services can

obscure true cost– The reality of cross functional process involvement is difficult

to address• Example: Contact Centres create a Front office/Back

office split of tasks that effectively disguises the overall cost of service delivery– The department that used to answer its calls with two part time

administrative staff is now charged a proportion of a brand new and fully costed Contact Centre


Costs must be gathered from staff who may be involved Costs must be gathered from staff who may be involved only partonly part--time in a particular servicetime in a particular service

£ £ £ £ £ £ £

£ process cost


The challenges areThe challenges are……

• Scoping and defining the process in question– Start and end– Identifying the customer’s requirements

• Gathering time based data for all relevant staff– Minutes taken to complete specific activities– Time involved as a percentage of their full day

• Collecting data about transactions and process outputs


The Principles of Activity Based CostingThe Principles of Activity Based Costing


We need to understand what a process really is in order We need to understand what a process really is in order to calculate its coststo calculate its costs

• Services are delivered by processes which are made up of a number of activities

Processes Processes Processes Processes Processes ProcessesProcesses Processes ProcessesProcesses Processes ProcessesProcesses Processes Processes

ServicesProcesses Processes Processes Processes Processes ProcessesProcesses Processes ProcessesProcesses Processes ProcessesProcesses Processes Processes

Services

Inspecting reported faultWriting reportFilling in time sheet

Road Inspection Process

Highways

Activities Activities Activities Activities Activities ActivitiesActivities Activities Activities Activities Activities ActivitiesActivities Activities Activities

ProcessesActivities Activities Activities Activities Activities ActivitiesActivities Activities Activities Activities Activities ActivitiesActivities Activities Activities

Processes

NVA VA SNVA VA NVA VA NVA NVA VA NVA VA SNVA VA NVA NVA VA SNVA VA NVA VA NVANVA VA NVA VA SNVA VA NVANVA VA SNVA VA NVA VA NVA

ActivitiesNVA VA SNVA VA NVA VA NVA NVA VA NVA VA SNVA VA NVA NVA VA SNVA VA NVA VA NVANVA VA NVA VA SNVA VA NVANVA VA SNVA VA NVA VA NVA

ActivitiesNVA VA SNVA VA NVA VA NVA NVA VA NVA VA SNVA VA NVA NVA VA SNVA VA NVA VA NVANVA VA NVA VA SNVA VA NVANVA VA SNVA VA NVA VA NVA

Activities


Each individual carries a Each individual carries a ““backback--packpack”” of costsof costs

People may work in one department but on several processes

Researching

30%

70%

InspectingRoads

GL costs

Cost of Road Inspection

Process

Other costs can be relateddirectly to a process

Cost of activities that arepart of the same process

wherever and by whoever they are performed

=

Adding people related coststo salaries gives the full

employment cost ofan employee


RR--c ABC models have two main outputsc ABC models have two main outputs

1. The total costs of processes

2. The unit cost of the output from a process

• Combining these with the costs of individual activities allows extensive analysis to be completed

• An analysis gives signposts for improvement and typically answers the following questions

• What potential exists for efficiency improvement?• What level of resource could be redeployed?• What is the business case for investment?


Unit Costs of output are the Process Costs divided by a Unit Costs of output are the Process Costs divided by a Cost DriverCost Driver

Customer focus

Efficiency Measure

Customer focus

Efficiency Measure

Cost of Road Inspection

Process

Number of inspectionsperformed

Number of inspectionsperformed

= Unit Cost per Output

Process Driver Driver Units Cost Unit CostAccident claims Accident claims 440 £ 65,577 £ 149.04 Reported defect Reported defects 2,832 £ 110,725 £ 39.10 Routine inspection Routine inspections 1,920 £ 73,589 £ 38.33


Two important principlesTwo important principles

1.Mountains, not Molehills

2.The 20% rule


Service delivery often comprises a number of sub Service delivery often comprises a number of sub processesprocesses

• Purchase process sub-processes– Purchase Requisition– Purchase Order– Payment

The effort required in each sub process is driven by different factors

• Purchase process Cost Drivers– PR – no. raised– PO – no. placed or no. of items ordered– Payment – no. of invoices received


The sub processes may not be recognised when you The sub processes may not be recognised when you startstart

Building Control - Process is making decisions on applications

Sub process 1 - Application initial assessment• 1,600 applications received• 100 withdrawn when further information given

Sub process 2 - Inspection process• Large site inspections• Drain or sewer inspections• Single dwelling extension inspections• Initial inspection• Final inspection

Sub process 3 – Making decisions• Reviewing data• Making a decision• Communicating with the applicant


Correct and consistent choice of cost drivers allows Correct and consistent choice of cost drivers allows accurate benchmarkingaccurate benchmarking

• Irrespective of the total process costs

Process Driver Driver Units Cost Unit CostReactive repairs Reported defects 2,800 £ 110,725 £ 39.10 Reactive repairs Reactive complaints 3,900 £ 67,226 £ 17.28

Process Driver Driver Units Cost Unit CostAdult Transport Total Adult Journeys 105,000 £ 497,886 £ 4.74 Childrens Transport Total Childrens Journeys 194,300 £ 1,923,766 £ 9.90

299,300 2,421,652£ 8.09£

Process Driver Driver Units Cost Unit CostAdult's transport Adult journeys total 122,100 £ 1,059,913 £ 8.68 Children's transport Child journeys total 141,500 £ 2,215,584 £ 15.66

263,600 3,275,497£ 12.43£


Value Add analysis and process improvementValue Add analysis and process improvement


The reality is you have two main choices to meet The reality is you have two main choices to meet efficiency targetsefficiency targets……

• Decrease your process costs, or

• Increase your process outputs

…Or a combination of both

Without reducing output quality

The key to achieving this is to identify those things which you do but that add no value for the customer


NonNon--Value Adding activities are Value Adding activities are ““WasteWaste””

Is it necessaryto the output of

the process?

Does it contributeto Customer

requirements?

ACTIVITY

Does it contribute to the

Council’s requirements?

Yes

VA

SNVA

NVA

Yes

No

No Yes

No

Is it necessaryto the output of

the process?


requirements?

ACTIVITY



Yes

VAVA

SNVASNVA

NVANVA

Yes

No

No Yes

No

Inspecting reported road faults

Writing report

Filling in time sheet


Total Process Costs are subTotal Process Costs are sub--divided to show the divided to show the NonNon--Value Added cost Value Added cost –– the focus for BPIthe focus for BPIProcess VA SNVA NVA Total CTax Account Maintenance £ 346,574 £ 182,931 £ 55,533 £ 585,039 CTax Annual Billing £ 62,305 £ 9,916 £ 72,221 CTax New Account Creation £ 6,132 £ 6,410 £ 12,543 CTax Payments Process £ 28,121 £ 23,799 £ 13,606 £ 65,526 CTax Recovery Process £ 104,151 £ 56,606 £ 4,221 £ 164,978 CTax Summons £ 83,532 £ 185,761 £ 6,794 £ 276,087

Is it necessaryto the output ofthe process?


requirements?

ACTIVITY



Yes

VA

SNVA

NVA

Yes

No

No Yes

No

Is it necessaryto the output ofthe process?


requirements?

ACTIVITY



Yes

VAVA

SNVASNVA

NVANVA

Yes

No

No Yes

No


Staff tend to understand the true level of Value Adding Staff tend to understand the true level of Value Adding activities in their existing processesactivities in their existing processes……

An EHS As Is

Process # Activities

# Hand offs

Hand Off ratio # VA # SNVA # NVA % VA % SNVA % NVA

Commercial and Food Complaints 103 21 4.9 13 25 65 13% 24% 63%Pest Control and Dog Warden 108 20 5.4 12 36 60 11% 33% 56%Noise Complaints 31 13 2.4 6 12 13 19% 39% 42%Taxi Driver Licensing 58 10 5.8 8 19 31 14% 33% 53%

13% 31% 56%

• Typically Public Sector organisations can describe 15% of their activities as Value Adding to their customers


We may now decide which process will give greater We may now decide which process will give greater returnsreturns

Mountain

Molehill


RoughRough--cut ABC of the Highways processes shows the cut ABC of the Highways processes shows the scope for efficiency gainsscope for efficiency gains

Mountain

Molehill


NonNon--Value Adding activities can be eliminated through Value Adding activities can be eliminated through Business Process RedesignBusiness Process Redesign

Agree the “As Is”

Define the “To Be”

Implement

Define Objectives1

2

3

4

ContinuousImprovement5

Agree the “As Is”

Define the “To Be”

Implement

Define Objectives1

Define Objectives1

2

3

4

ContinuousImprovement5


One Touch Processing

Right First Time

The principles for removing NVA areThe principles for removing NVA are……


There are some best practice tactics for removing NVAThere are some best practice tactics for removing NVA

1. Establish and agree with everyone the reasons why improvement is needed

2. Identify the customers of the process and within the value chain3. Understand and agree where the value is being added in the process

4. Move “Value Adding” activities close together, physically and organisationally, with as little activity in between as possible

5. Standardise procedures for people within the process6. Remove instances where the process loops back on itself due to errors, incomplete information

or processing delays7. Use separate processes for complex transactions and create a fast-track methodology for

simpler routine ones

8. Establish a regular, repeatable rhythm for the simpler transactions in each part of the process9. Balance the workload between people at different points in the process or working at different

times of day or month

10. Use highly visible measures to monitor the success of the process and to encourage ongoing improvement

Define the Objectives

Agree the As Is

Define the To Be

Implement

Continuous Improvement


New Process Models New Process Models –– 7 key tests7 key tests

Can we…

• … eliminate, combine or do activities at the same time?

• … capture all the necessary information at the start?

• … relocate any work inside or outside the process?

• … change the point at which we make decisions?

• … create a fast track for simple tasks?

• … justify the hand offs as needed and appropriate?

• … change the number of process options?


• Rough-cut ABC provides a consistent methodology for:– Showing costs of a service per unit delivered– Revealing the end-to-end cost of delivery– Providing an auditable framework– Measuring improvements achieved

• ABC is based on the actual costs of the organisation and the measurable outputs– The skill is the selection of the most appropriate output

measures

• ABC is capable of providing “what-if” scenarios for forward looking target setting and business case

ABC gives the value of NVA for removal by BPR and can ABC gives the value of NVA for removal by BPR and can hence form the basis for the business casehence form the basis for the business case


Putting theory into practice Putting theory into practice –– example case studiesexample case studies


District Council business case for District Council business case for ee--ProcurementProcurement

Activity Based Costing Case Study


We reviewed the PurchaseWe reviewed the Purchase--toto--Pay process across the Pay process across the CouncilCouncil

Scope

Review the Council’s existing ‘Purchase to Pay’ process (from requisition to final payment)

Objectives

To identify baseline costings for business caseTo recommend a standard/improved process for the CouncilTo identify potential efficiency gains (cashable or non-cashable)To transfer skills from Valueadding.com to members of the project team


We followed our standard methodologyWe followed our standard methodology

Plan ProjectTORProject SponsorProject TeamCommunication Plan

Interview Staff30 representatives Interviewed by

team

Map ProcessMaps already

available

Cost DriverData

E.g. The no. of purchase orders raised

General Ledger

Payroll and general ledger to value staff time

Build ModelFinance

Analyse Activity

Interview sheetsActivity analysis

for Model

Generate Conclusions


Items are purchased through various processes Items are purchased through various processes

Initiatoridentifies

need

Findsupplier& quote

Orderraised

on POP

GoodsReceived

Invoiceprocessed

Supplierpaid

RaisePur Req

Corporate Card Purchase and receiving goods and payment

Maverick spendor utilities etc


Each process incurs different annual costsEach process incurs different annual costs

Initiatoridentifies

need

Findsupplier& quote

Orderraised

on POP

GoodsReceived

Invoiceprocessed

Supplierpaid

RaisePur Req



£34k

£67k £43k £181k

£4k

Total£453k

per annum£124k

Processing costsNOT

Cost of items purchased


Initiatoridentifies

need

Findsupplier& quote

Orderraised

on POP

GoodsReceived

Invoiceprocessed

Supplierpaid

RaisePur Req


£22.71

£12.72 £21.00

Cost PER TRANSACTION varies widely between the 3 Cost PER TRANSACTION varies widely between the 3 processesprocesses

£35.89


£3.32


Initiatoridentifies

need

Findsupplier& quote

Orderraised

on POP

GoodsReceived

Invoiceprocessed

Supplierpaid

RaisePur Req


Corporate cardCorporate card costs costs ££3.323.32per transaction per transaction –– including paymentincluding payment


£3.32

£22.71

£12.72 £21.00£35.89


Initiatoridentifies

need

Findsupplier& quote

Orderraised

on POP

GoodsReceived

Invoiceprocessed

Supplierpaid

RaisePur Req


IT POP processingIT POP processing costs costs ££33.72 33.72 per trans. including per trans. including processing the invoice & paying the supplierprocessing the invoice & paying the supplier


£3.32

£22.71

£12.72 £21.00£35.89


Initiatoridentifies

need

Findsupplier& quote

Orderraised

on POP

GoodsReceived

Invoiceprocessed

Supplierpaid

RaisePur Req


£3.32

Paper basedPaper based costs costs ££56.43 56.43 transaction from requisition to payment of the invoicetransaction from requisition to payment of the invoice


£3.32

£22.71

£12.72 £21.00£35.89


Initiatoridentifies

need

Findsupplier& quote

Orderraised

on POP

GoodsReceived

Invoiceprocessed

Supplierpaid

RaisePur Req


£3.32

Quotation plus paper basedQuotation plus paper based costs costs ££92.32 92.32 per transactionper transaction


£3.32

£22.71

£12.72 £21.00£35.89


These numbers come from the time staff spend on These numbers come from the time staff spend on purchasing activitiespurchasing activities

Minutes taken by activity

0

20

40

60

80

100

120

140R

aisi

ng P

urch

ase

Req

uisi

tions

Pre

pare

Quo

tatio

nD

ocum

ents

Cre

atin

g V

endo

rA

ccou

nts

onA

ptos

Rai

sing

Pur

chas

eO

rder

Aut

horis

ing

Pur

chas

e O

rder

Acc

eptin

gD

eliv

erie

s of

Goo

ds

Pro

cess

ing

Invo

ices

Sch

edul

ing

Pay

men

t

Sca

nnin

g In

voic

es

Proc

essi

ng ti

me

in m

inut

es

Mins per activity


The challenge was to understand the cost reduction if The challenge was to understand the cost reduction if they move to an ethey move to an e--Marketplace solutionMarketplace solution


Initiatoridentifies

need

Findsupplier& quote

Orderraised

on POP

GoodsReceived

Invoiceprocessed

Supplierpaid

RaisePur Req


This provides the basis for the business case for This provides the basis for the business case for ee--Marketplace predicting a cost of Marketplace predicting a cost of ££11/transaction11/transaction


£3.32

e-Marketplace quotation, purchasing,receipting and invoice payment

£11

SAVING £81 / transaction

£22.71

£12.72 £21.00£35.89


City Council City Council Processing Benefits ClaimsProcessing Benefits Claims

Mapping Workshop followed by interviews


NonNon--productive time tends to sit in the back officeproductive time tends to sit in the back office……


Transaction costs vary according to the process routeTransaction costs vary according to the process route

• Claims from a “Passported” claimant are easier to processProcess Route Transaction

CostNVA Cost % NVA

Worst route 142.70£ 5.04£ 4%Rent Allowance NPB private landord via OSS 106.60£ 5.04£ 5%Rent Rebate NPB via community Officers 93.14£ 2.31£ 2%Owner Occ NPB via OSS 92.63£ 2.67£ 3%Rent Allowance NPB Private landlord via post 82.37£ 4.95£ 6%Rent Rebate NPB via post for Community officers 73.78£ 3.95£ 5%Owner Occ NPB via post 71.78£ 4.29£ 6%PB B@H via OSS 48.49£ 4.28£ 9%Rent Rebate PB via Community Officers 42.82£ 2.31£ 5%Owner Occ PB OSS 41.44£ 2.90£ 7%Rent Allowance PB private landord via OSS 37.16£ 3.57£ 10%Rent Allowance PB Private landlord via post 33.94£ 4.95£ 15%PB from HA 30.07£ 4.37£ 15%Rent Rebate PB via post for Community officers 25.67£ 4.19£ 16%Owner Occ PB via post 23.92£ 4.78£ 20%

Average Passported Route 88.94£ Average Non-Passported Route 33.57£


Borough Council maintaining the Borough Council maintaining the HighwaysHighways

Interviews followed by mapping


This Highways department is well managedThis Highways department is well managed

• Total costs of £1.6m p.a.

• Highways claims have reduced three years running– Both the number and cost to the council

But…

• The total number and cost is still too high

And…

• Against the external market the department often struggles to win work

• Can Activity Based Costing help?


The initial objectives of the exercise were declared by The initial objectives of the exercise were declared by the managerthe manager

• Investigate the processes to determine how the number of accident claims might be further reduced

• Illustrate to Council HQ the effect of central recharges and initiate a discussion on how to reduce them


Planning the projectPlanning the project

• The main processes for study were agreed– Cyclical Repairs– Reactive Repairs– Accident Claims

• The scope for each process was determined

• Interviews were organised with 10 staff

• Staff employment costs were calculated using Salary, NI, Bonus etc

• General ledger and Central recharge costs were downloaded– The ABC model was reconciled to the General Ledger

• A workshop was arranged for process mapping


The cost drivers were agreed for each processThe cost drivers were agreed for each process

• Reactive Repairs

– The number of reactive repairs carried out• 3,890 per year

• Cyclical Repairs

– The number of street kilometres walked• 100,512 per year

• Accident Claims

– The number of accident claims processed in Highways• 267 last year


Following the staff interviews the model was builtFollowing the staff interviews the model was built

• This Council spends more on Cyclical repair inspections than on Reactive repair inspections

– £97k vs. £67k

Process VA SNVA NVA TotalAccident claims £ 9,619 £ 6,266 £ 15,885 Reactive repairs £ 34,203 £ 25,717 £ 7,305 £ 67,226 Cyclical repairs £ 84,987 £ 8,060 £ 4,607 £ 97,654 Other £ 2,622 £ 41,911 £ 44,533 Cyclical repairs work £ 239,106 £ 239,106 Reactive repairs work £ 239,106 £ 239,106 highways management £ 10,649 £ 63,514 £ 30,629 £ 104,791 utilitilities management £ 9,936 £ 14,584 £ 688 £ 25,208 work gangs - repairs £ 4,224 £ 4,224 Totals 627,607£ 114,497£ 95,630£ 837,734£

75% 14% 11% 100%


This compared favourably with another LA recently This compared favourably with another LA recently studiedstudied

• This council (A) spends spend 59% of their Inspection and Administration money on Cyclical or Routine repair inspections and 41% on Reactive inspections

• Council B spends 40% on Routine and 60% on Reactive

Council Process VA SNVA NVA Total% of

Inspection Cost

A Accident claims £ 9,619 £ 6,266 £ 15,885 A Reactive repairs inspections and administration £ 34,203 £ 25,717 £ 7,305 £ 67,226 41%A Cyclical repairs inspections and administration £ 84,987 £ 8,060 £ 4,607 £ 97,654 59%B Accident claims £ 15,160 £ 39,160 £ 11,257 £ 65,577 B Reported defect inspections and administration £ 13,020 £ 53,801 £ 43,905 £ 110,725 60%B Routine inspections and administration £ 13,950 £ 59,639 £ 73,589 40%


Is this why Council A has less Accident Claims?Is this why Council A has less Accident Claims?

• Management were asked whether there is a logical link between the amount of investment in routine, cyclical inspections and the amount of accident claims

“It seems that this is just like owning and maintaining a house, you should invest in inspection and repair now rather than wait for a fault to develop which will then cost you more money to put right, particularly if the problem results in other consequential damage”

Process Driver Driver Units Cost Unit CostAdministration of accident claims # Accident claims 267 £ 15,885 £ 59.49 Administration of accident claims # Accident claims 440 £ 65,577 £ 149.04


So, what can be done?So, what can be done?

• The management objective now is to identify how to deploy resources to the Cyclical Repairs Inspections and Administration process

– Despite their current level of spend on inspection, some repairs deemed necessary after Cyclical Inspections were in backlog

– The Council does not want the Cyclical to Reactive ratio to worsen

• The obvious process from which resource might be found is the Reactive Repairs Inspections and Administration process


ABC allowed the Council to calculate what resource ABC allowed the Council to calculate what resource might be requiredmight be required

• 296 cyclical repair routes are issued to Inspectors every year

• If the Council wanted to issue just one more inspection route per month an additional annual resource of £4,000 will be required

• An Inspector costs £25,000 per annum so this equates to 38 days of additional inspections per year– Just less than one full working day per week

• Where can they find this in the Reactive Repairs Inspections andAdministration process?– The next step was to build the process map for Reactive Repairs

Process Driver Driver Units Cost Unit CostCyclical repairs Inspection routes issued 296 £ 97,654 £ 329.91


The actions recommended from the study wereThe actions recommended from the study were……

1. Improve the use of the mobile PC units through training

2. The Call Centre should be trained in asking more detailed questions

3. One additional Inspector should be transferred to Cyclical Inspections

4. The number of repairs in backlog should become a KPI and communicated regularly


The business case for using the mobile PC units was The business case for using the mobile PC units was produced with Rproduced with R--c ABC and is compellingc ABC and is compelling• Currently half the inspections (1,945) are recorded on paper systems

• Using actual minutes taken, the cost of inspecting a reported defect can be reduced from:– £23.83 for paper process to £6.68 using the mobile PC– Up to £30,000 can be saved when the Inspectors use the units fully

Role Using Paper based systems Cost Role Using Mobile PC CostInspector Write up notes on site £ 3.26 Inspector Enter details to Mobile PC £ 4.34 Inspector Complete form in office £ 13.02 Inspector Transfer to Admin team £ 1.09 Admin Enter data to IT system £ 1.95 Inspector Print and review report £ 1.09 Inspector Transfer to Scheduler £ 1.09 Scheduler Print and review work sheet £ 1.56 Scheduler Print and review work sheet £ 1.56 Scheduler Transfer to Work teams £ 0.78 Scheduler Transfer to Work teams £ 0.78

23.83£ 6.68£

As Is To Be


Finally, the central recharge costs were added to the Finally, the central recharge costs were added to the modelmodel

• Recharges add 13% to the cost of Reactive repairs – The manager can now review the effect of this in work where the private

sector competes– Conversations with the Council HQ will now have real direction

• The Contact Centre adds 31% to the cost of Reactive Complaints – The manager can now discuss the reduction in recharge when his

programme of additional Cyclical inspections results in less defects and hence less calls from the public

Process Driver Driver UnitsUnit Cost without

Recharges

Full Unit Cost

Unit Cost increase

% increase

Accident claims accident claims 267 £ 59.49 £778.03 £718.54 Cyclical repairs kilometres walked 100512 £ 0.97 £ 1.08 £ 0.11 10%Reactive repairs Reactive complaints received 3890 £ 17.28 £ 25.17 £ 7.89 31%

Reactive repairs work Reactive repairs jobs completed

3890 £ 61.47 £ 70.71 £ 9.24 13%


The best bitThe best bit……

• From start to finish the model took only 8 weeks to build

– Staff were interviewed– The ABC model was built– A process map was drawn– Recommendations were made

• The Council utilised a team of 2 staff on a part time basis

– Each team member spent 2 days per week on the work

• Highways staff were involved in:

– A one hour ABC interview (10 staff)– A half day mapping workshop (3 staff)– Data collection (1 staff for a half day)


Reprise 1Reprise 1…… Use RUse R--c ABC to find the Mountains of costc ABC to find the Mountains of cost

• One manager of council Venues and Facilities told us that his staff require a cost code to be filled in on application forms when meeting rooms are booked– Without this the costs cannot be recharged

• Surprisingly, many applications arrive without the cost code– Venues staff chase applicants for the code

• Non-Value Adding activity!

• This manager identified that chasing the cost code “costs” the department 36 days per year!

• The rest of the group wanted to know how much it would cost to develop an E-form with a mandatory field?


Reprise 2Reprise 2…… Apply the 20% rule to decisionsApply the 20% rule to decisions

• If the process costs are 20% out this level of NVA still presents a business case for change

• If the unit costs are 20% out this unit cost still represents anexpensive transaction

Process VA SNVA NVA TotalCtax Account Maintenance £ 346,574 £ 182,931 £ 55,533 £ 585,039 CTax Annual Billing £ 62,305 £ 9,916 £ 72,221 Ctax New Account Creation £ 6,132 £ 6,410 £ 12,543 CTax Payments Process £ 28,121 £ 23,799 £ 13,606 £ 65,526 CTax Recovery Process £ 104,151 £ 56,606 £ 4,221 £ 164,978 CTax Summons £ 83,532 £ 185,761 £ 6,794 £ 276,087

Process Driver Driver Units Cost Unit CostCtax Account Maintenance Ctax Adjusted Bills / NOEs 48486 £ 585,039 £ 12.07 CTax Annual Billing Ctax Annual Bills 123714 £ 72,221 £ 0.58 Ctax New Account Creation Ctax First Bills 22156 £ 12,543 £ 0.57 CTax Payments Process Ctax Bill payments 1049851 £ 65,526 £ 0.06 CTax Recovery Process Ctax Reminders / FNs 42151 £ 164,978 £ 3.91 CTax Summons Ctax Summons Accounts 9847 £ 276,087 £ 28.04


Building a RoughBuilding a Rough--cut ABC Modelcut ABC Model


Outline Steps for building an ABC ModelOutline Steps for building an ABC Model

Plan Project

Process mapping workshop

R-c ABC interviews with staff

Collect Driver data

Assemble General Ledger

Build Model Generate Conclusions

Few processes

R-c ABC interviews with staff

Process mapping workshop

Many processes


Plan the ProjectPlan the Project


So what does a So what does a ““modelmodel”” look likelook like…………and what needs planning?and what needs planning?

• Example - finding the cost of our purchasing transactions

• We first need the people cost with their backpack


The resulting The resulting ““modelmodel”” can be as simple as a can be as simple as a spreadsheetspreadsheet……


The resulting The resulting ““modelmodel”” can be as simple as a can be as simple as a spreadsheetspreadsheet……

It can become a little more complicated with VA analysis and other factors that we may want to include


Plan what you want out of itPlan what you want out of it

• Clear management objectives ensure the data gathering is correctly focussed – Too little detail or too much?

• What is the process scope to be reviewed? – E-procurement? Or just Purchase to Pay? – Consumables only or yearly contracts?

• What action is planned to be taken once we know the detail?– Implementation of process changes?– Report to Members?– File under Gershon?

• How long should the project take? When is change needed?

• Who do we need to involve to ensure success?


Can you work out what the likely result is?Can you work out what the likely result is?

• Putting 2 plus 2 into a calculator and reading the answer 40 does not mean that the answer is correct

• How many people will be in the model?

• What is the likely model total cost?

• Estimate any total process cost?

• What seems sensible?


Attempt a Attempt a ““What ifWhat if…”…”

Social Care• Estimate the potential unit cost

– Referrals urgent - £300 each

– Referrals non-urgent - £400 each

– If this were the answer what would you recommend the Service should do?

– Ask why should the cost of urgent and non urgent referrals be different?

• Non-urgent ones are subject to change and therefore incur additionalactivity time and effort from the staff compared to urgent ones which go straight through the process


Knowing what you want is the best starting pointKnowing what you want is the best starting point

• What are we trying to achieve?

• How will we achieve it?

Corporate

Service

Process

Goals


Determine the model structure at the outsetDetermine the model structure at the outset

• Knowing what your model will look like helps focus on the information needed to build it– this ties in with the project objectives– e.g. will you include a “standard” ICT cost in a backpack or will

you interview ICT staff to see where their efforts are most directed and apportion costs?

• It is better to obtain the bulk of the information in one round of interviews, rather than piecemeal, so plan...– Can you sketch a process map of what you expect?– What specific information do you require?– What do you suspect the cost drivers are?– Where will you find the data you need?


Choose your review period carefully...beware the Choose your review period carefully...beware the wobbly!wobbly!

• You will need “matching” financial and driver data:– Accounts– General Ledger– Transaction Quantities – People’s activities– Personnel lists– Salary details

• You need to be certain that there were no abnormal factors:– seasonality– department reorganisation– staff turnover– exceptional demands or transactions

Transactions

J F M A M J J A S O N D

Financial year

Election


Interviews are conducted with employeesInterviews are conducted with employees…………so you need to plan who to seeso you need to plan who to see

• Interviews are conducted with employees delivering the service and representative of their department or work group

• Employee’s activities may need to be collected by

– customer, sector or service type– process or sub-process


Interviews are conducted with employeesInterviews are conducted with employees…………so you need to plan change management at the outsetso you need to plan change management at the outset

At the very least we need to answer the 4 questions staff ask:

• Why do we need to change?

• Why this way?

• What makes us think we will succeed?

• What’s in it for me?


Identifying stakeholders at the outset is importantIdentifying stakeholders at the outset is important

• For each group of stakeholders

– Identify the amount of awareness/buy-in/support/commitment you will need from them

– Assess their current level of commitment

– Plan potential events/communications/tactics to bring them up to your required level


CSC Commitment Scorecard - by stakeholder

Stakeholder group None Aware of changes

Understand the benefits Bought-In Committed &

supportiveProgramme Sponsor

CSC ChampionsTUPE staff

UnionsCouncillors ???

COTSMT

Line ManagementModernisation staff

E & L staffEducation staff

Housing staff - centralHousing staff - NHO & AHOsRevs & Bens client side staffRevs & Bens Liberata staff

Social Services staffStrategic Services staff

Residents (incl tenants)Tenants

KeyTarget commitment level

Current commitment levelWhere current meets target

Level of Commitment


Communication is paramountCommunication is paramount

• All areas of the organisation must be aware of the project– Why it is being undertaken– What will be the outcome– Who is conducting it– Who will be involved– Who will see the results

• Management need to be as straightforward as possible– Pre-empting sensitive issues is far better than damage limitation– Consistent messages must be given by everyone involved in the

projectOSE

BPR objectives

Quicker Response

More Accurate Info

Central data base


Process MappingProcess Mapping


Understand the process in detailUnderstand the process in detail

Housing Register includingHomeless and Transfer requests

1Customer visitsCanterbury toadvise homeless

to CS

2Customer advisesCS of change incircumstances

3Customer advisesCS of a need for aHousing Transfer

4Customer asks tobe put on Housing

Register

6Should this bepassed to

Housing Needsimmediately?

7CS looks onAcademy for

existing HousingRegisterapplication

12Is it a changeof address?

13CS give tocustomer tocomplete

14CS advises proof

required

5Customer

enquires as toexistingapplication

Yes15

Do they havethe requiredevidence withthem?

Yes

16Await form and

relevantdocumentation tobe handed in

No17

CS takesphotocopies andpasses to Housing

Needs

18Does the

customer needextra advice?

19CS asks HSO tosee customer

20HSO informscustomer ofimplications ofchange of

circumstances ontheir application

21HSO updatessystem

Yes

23advises to call inif situationchanges

24End of process

26Is situationurgent andpriority need?

25HSO interviewscustomer

27Inform customerthat they are not inpriority need

28HSO gives

Housing Advice asregards to

different options

29HSO refers toHAO for

immediate action

No

30HSO producesformal letter andgives to customer

A

31HSO creates andupdates decisionin Homelessmodule onAcademy

No

33CS gives

customer HousingNeeds Register

form

34Await return of

form

35Evidence handedinto reception

36Housing NeedRegister formhanded in atreception

37Housing Need

Register receivedvia post

38Evidence received

via post

40CS log evidenceinto post databaseon Academy andlink to ‘active’application

41Receptionvalidates forsigned and

completed thenissues a receipt

42CS pass to

Housing AdviceCo-coordinator viapigeon hole

43HSO checksAcademy for

previous / existingapplications

45Update Academywith any changesand link newinformation toexisting

44Is there

existing activeapplication?

Yes

46HSO logs

application onAcademy

Can get evidence beforeapplication is received

HSO can visit customers toassist completing the form,

e.g. the blind

47HSO assessesinformation givenand the completed

form

48Is furtherinformationrequired?

49HSO calls thecustomer for

further information

Yes

96Update Academywith letter

produced withBanding afterreviews

50HSO makes

assessment usingguide and

allocates Band

51Letter generatedfrom Academyconfirmingbanding tocustomer

Weekly run of about 50 / 60

52Is the file andinvestigationcomplete?

53File is filed andcustomer is

correctly Bandedon waiting list

54End of Process

Yes

No

55HSO puts Register

form anddocuments in fileand passes to

HAO

56HAO checks forreasons customerseeking Council

Housing

No

57Disrepair Problem

58Possible MajorOvercrowding

59Medical Reason

60HomelessnessA

83HAO interviewscustomer andassesses priority

84Is customer apriority?

86Does customer

needtemporary

accommodation tonight?

85Does thecustomerappeal?

87HAO organisestemporary

accommodation

88HAO updatesAcademy withactions

72Is enoughinformationprovided?

73HAO contactscustomer forfurther info.

74Can HAOmake a

decision oninformationprovided

75HAO applies

reviewed Band toapplicant

76HAO makes reportand sends tomedical panel

77Panel informsHAO of decision

78HAO writes tocustomer withoutcome and

updates Academy

79Does customerprovide moreinformation

80HAO refers caseto medical panel

81Medical panel

reviews case andadvises HAO

82HAO writes tocustomer withoutcome and

updates Academy

62Is repair majoror minor?

63HAO advisescustomer no

priority, advises ofother agencies for

help

64Housing standardsteam visits andascertains level

65Housing

Standards Officeradvises HAO ofany priority

67HAO ascertainsthe level of

overcrowding viainterview anddocuments

68Is it Major orMinor

overcrowding?

69Is it StatutoryMajor?

71Band 3 given

70Band 2 given

A

Major

Minor

66HAO updatesAcademy withfindings

Customer onHousing Registerwith correct Band

Yes

MAJOR

MINOR

No

No

Yes

Yes

No

No

Yes

Yes

NoNo

Yes

Yes

No

30 Cases per month

89CS looks atapplication onAcademy

90CS advisescustomer

CS is Customer Service both phonesand Reception,HSO is housing Advice Support OfficerHAO is Housing Advice Officer

8Customer visitsDistrict Offices toadvise Homeless

Yes

22CS questioncustomer as to

basiceligibility?

Only question if over 25 andsingle

9Receptionist

advises customerto call HSO fromdirect phone

89Does customerwish to go onHousingRegister?

No

93Reception givecustomer HousingNeeds Register

form

Yes

11CS asks HSO tospeak withcustomer

91HSO speaks withcustomer eitherover telephone orover counter

92Does HSOneed tointerviewcustomer?

Yes

No

Can CSresolve query?Yes

94HSO sees

customer overcounter

No95

HSO resolvesquery

Yes

39CS log evidenceinto post databaseon Academy andlink to ‘active’application

Very rarely

61Decision made on

Homelessapplication andcustomer advised

• End to end– What is included– What is excluded

• What actually happens?– Workarounds– Issue resolution

• Who does what? When? How long?


A workshop has many benefits at this pointA workshop has many benefits at this point

• Good opportunity to talk to staff who might be involved

• Dispels the myths of the project and reduces “fear”

• Gives staff a chance to get involved

• Good chance to book appointments to see people– Ask them to bring diaries

• Allows staff to see the end to end process

• Creates time to draw up an “Activity Directory”


An Activity Directory aids understanding in interviewsAn Activity Directory aids understanding in interviews

Activity – Admin Process (Adults) Process (Children) Attribute

Chasing & correcting info Y Y N Dealing with requests Y Y V Making requests Y Y S Allocating places Y Y V Risk assessments Y Y S Dealing with problems (allocation) Y Y N Obtaining quotes N Y N Processing invoices N Y S Chasing & correcting invoices N Y N Processing journals N Y S Day to day problems Y Y N Other Y Y N


Good process maps contain dataGood process maps contain data

• Each decision point is an opportunity to quantify

You should seek information on•hand-offs•delays•references•logs•forms


……and will ultimately reflect the activity dataand will ultimately reflect the activity data

• The level of detail for the map needs to be sufficient to analyse into VA and NVA

• The activity descriptions on the map and in the ABC model should be consistent

Add detailsto customer

record

Search forcustomer

record

Add detailsLook up

customer record

Is recordthere?

Yes – 65%

No – 35%


Interviewing staffInterviewing staff


You will gather a lot of information in the course of this You will gather a lot of information in the course of this project so you need to record itproject so you need to record it

Establish a “Slop Sheet” or “Issues Log” at the outset– record out-of-department communications/flows

– use as a team aide-de-memoir or notice board

– note any “by-the-way” items for later feedback to managementSlop Sheet

Bens form goes to Med Officer– what does she do with it?

Many errors on the 321 form


The data gathering phase has different attributes The data gathering phase has different attributes from that of model building from that of model building

• Interviewers need to be– respected– good listeners– non-partisan– enquiring and inquisitive– non-threatening

• It is rarely good to use personnel from the finance area– the connotations tend to be “another cost saving exercise”– their skill sets tend to be focused towards hard data manipulation– they need to be heavily involved later in the project

• There needs to be a clear leader for this phase of the ABC project– the project needs to be owned– departmental managers may need to be won over


Skilful interviewing is the core of the ABC process Skilful interviewing is the core of the ABC process

• Setting the scene and tone for ABC interviews is essential for good data gathering

– it is courteous to tell people why you are probing their daily habits, even if they “got the email”

– the signals sent out by the interviewer will always affect the interviewee

A good “bedside” manner


Be open about your reasons for seeing peopleBe open about your reasons for seeing people

• Confirm the objectives of your work– Emphasise the importance of “As Is” not “Should Be”– This is not a “time and motion study”

• Try not to be too formal

• Ask the interviewee to verify the end result


Ask Ask ““openopen”” questions to uncover realityquestions to uncover reality

• Who– else does the same job?– do you receive / hand work to?

• What– activities do you do?– paperwork do you receive and create?

• Where– does the work go to/come from?– do you go to look up answers?

• Why– do you do that?– do you do it that way?

• How– does work arrive/leave you?– often/frequently?

• When– do you have to do it by?– are the peaks and troughs?

Do not be critical

Check for understanding

Resist the temptation to offer “a better way”

Make a note of the 6 wisemen at the bottomof your notes page


Ask Ask ““closedclosed”” questions to clarify and questions to clarify and ‘‘pin downpin down’’

• Is the reject level 10% or 15%?

• Do you process these forms every day?

• Can you confirm that the number of letters you send out is 50 per day on average?

• What is the exact target you are aiming for?

• My understanding, from what you say, is that out of every 25 applicants there is only 1 who is successful. Is this correct?

• Are you saying that there are 43 full time equivalents working here?

Do not be aggressive or confrontational

Don’t sound judgemental

This is not anInterrogation!


Good questioning techniques will produce quicker Good questioning techniques will produce quicker resultsresults

Using a notepad has several benefits•easy to carry and use•pages kept chronologically•reverse page can be used for time info

and process mapping•face page for interview notes

Do not be aggressive or confrontational

Don’t sound judgemental

This is not an interrogation!


Process versus The Daily RoutineProcess versus The Daily Routine

• Process

– Sequence of events– Many people do not know the end to end process

• The Daily Routine

– Lots of processes– Need to assign activities to processes


One to one interviewing is good for ABC and process One to one interviewing is good for ABC and process mappingmapping

• Best done at the individual’s workplace– Identify those who can represent a wider area

• Observe the environment in which the process is taking place

• Sit and ask no questions for a while

• How many times is the process interrupted?

• Ask what each new trigger is and why it happens

• Estimate how many times it happens– Check your estimates back with the person or department

• Start the data collection activities here

• May take 15 minutes per person, …..or 1 hour or more


Remember that time is the essence of ABCRemember that time is the essence of ABC

• Estimates of time spent doing things will be the basis of the cost

• Establish the hours normally worked

• Check for weekly/monthly/annual tasks

• Reconcile the times given with the working week

• Fill in any gaps

• Be open with your note taking

Go Home

Get ready to go home

Recover from lunch

LunchGet ready for lunchCoffee break

Open the mail

Settle in to work You will need information on•main activities by process•customer related activities•or service related activities•driver data


Exercise Exercise –– what percentage of their time is spent on what percentage of their time is spent on each activity?each activity?

1. I start my day opening the mail for an hour or maybe a bit more2. My main job is processing the 321 forms – they take about 15 minutes

each – we each get about 40 a week3. And then I’d say about a quarter of my time is spent on customers who

are chasing their forms4. We have weekly team meetings that normally take around 3 hours by the

time we have reviewed the overdue list5. Once a month I have to do the department report for the SMT – that

takes me at least a day6. The other thing that takes a lot of my time is giving advice to customers

before they fill in the 321 – it varies from week to week, but I’d say it averages about 7 or 8 hours a week

7. And then of course there are the emails – I get at least 30 a day8. I can’t think of anything else


Exercise Exercise –– what percentage of their time is spent on what percentage of their time is spent on each activity?each activity?

1. I start my day opening the mail for an hour or maybe a bit more2. My main job is processing the 321 forms – they take about 15 minutes

each – we each get about 40 a week3. And then I’d say about a quarter of my time is spent on customers who

are chasing their forms4. We have weekly team meetings that normally take around 3 hours by the

time we have reviewed the overdue list5. Once a month I have to do the department report for the SMT – that

takes me at least a day6. The other thing that takes a lot of my time is giving advice to customers

before they fill in the 321 – it varies from week to week, but I’d say it averages about 7 or 8 hours a week

7. And then of course there are the emails – I get at least 30 a day8. I can’t think of anything else

5 hours/wk = 12%

40*0.25 = 10hrs/wk = 25%

25%

3hrs/wk = 8%

1 day/month = 1/20 = 5%

7-8 hrs/wk = 20%

______________95%


Staff can also collect data for youStaff can also collect data for you

• Timesheets• Records of minutes taken• Activity Analysis

– Tick box every 15 minutes

Activity

Period Answering the phone

Entering data

Filing records

Attending to visitors

09:30 X09:45 X10:00 X10:15 X10:30 X10:45 X11:00 X


SelfSelf--interviews on the Internetinterviews on the Internet


Cost DriversCost Drivers


Understanding the Cost Driver of a process is Understanding the Cost Driver of a process is fundamental to using ABC effectivelyfundamental to using ABC effectively

Rule of Two• If I double this parameter will I need to double the

resources to continue the process?• If I halve it, will the resource requirement be halved?

Rule of Two• If I double this parameter will I need to double the

resources to continue the process?• If I halve it, will the resource requirement be halved?

What takes time in doing the washing up?

Washing up by hand# of items to be washed

≡ # courses X # people X # items

Dishwasher# of machine loads


Cost Drivers are often elusiveCost Drivers are often elusive……

During interviews ask the questions…• What factor causes this activity?

– If that factor doubles, would it double your workload?– If it halved would it halve your workload?

• Is there any measurement of that factor?– Where is it?– Is it easy to get?

• If not, is there any close substitute for it?– Can we derive it?


Driver data is not always to be found in the IT systemDriver data is not always to be found in the IT system

• Often driver data will have to be derived from a sample count– Lines of data– Spreadsheets– Pieces of paper

• When you get it, make a note of where and how...for next time– Later work out how to automate its collection

• Sensibility checks are needed frequently


General Ledger General Ledger and Financial Dataand Financial Data


Now for number Now for number nurdlingnurdling……

• You have gathered the activity time data

• You now need to get the financial data to associate with it

At this stage we need to involve the financial wizards, to ensure that the numbers can be supported…

…especially when challenged by operational managers, later on.


Data from IT systems usually saves time and effortData from IT systems usually saves time and effort

• Finance departments produce budgets or outturns on a spreadsheet– The General Ledger is best obtained this way

• Payroll details are time consuming to manually input and can be imported automatically from a spreadsheet

• Transaction data must often be manipulated once downloaded raw to a spreadsheet

CSC

AMSPurchasing& ledgers

Network

AccountsRepairs system

Repairs

CostingsTechnical


General Ledger data will need some gentle massagingGeneral Ledger data will need some gentle massaging

• The objective is to first separate the people-related costs– These need to be subdivided into

• Salary related• Headcount related elements• Specific to individuals/posts

• Other GL accounts need to be examined for their relationship to specific services or customers– At the end of the day there may be 10% that cannot be sorted

• Re-inventing the wheel wastes time...evaluate existing overhead allocations which are usually fine for rent, heat, light etc


From…

To…

ACT SUB DET Subj Account Minor NARRATIVEORIG 06/07 INFL OUTEST TOV CCADJ ADJ

REVEST 06/07

672 E1 1 E11 421 4475 Admin, Prof & Clerical 179,500 5,100 184,600 11,000 -24,000 171,600672 E1 1 E11 421 4475 Vacancy provision savings -1,500 0 -1,500 -1,500672 E1 95 E195 424 4469 Nat. Ins. 8,900 300 9,200 -2000 7,200672 E1 96 E196 427 4489 Superan-L.G. 6,300 200 6,500 -3000 3,500672 X9 5 X95 445 4916 Ex-Gratiapayments(Staff) 200 0 200 200672 X9 15 X915 445 4889 Early Retirement Lump sum 0 0 0 0672 X9 23 X923 445 4902 Shortexternalcourses-Fees 300 0 300 300672 24 80 2480 470 5415 Car Allws-Ess Urs Lump Sum 200 0 200 200672 24 83 2483 470 5418 Car Allws-Authorised Users 1,000 0 1,000 1,000672 30 1 301 436 5469 Equip & Furn-Acquisitions 300 0 300 300672 41 50 4150 414 4250 Protectiveclothing-Staff 1,100 0 1,100 1,100672 42 1 421 456 5094 Printing & Stationery 100 0 100 100672 44 15 4415 416 4270 Feature Net Line Rentals 400 0 400 400672 44 20 4420 416 4270 Computer Equip-Acquisition 1,200 0 1,200 1,200672 44 41 4441 416 4298 Computer Software Licences 0 0 0 0672 46 70 4670 441 4821 Subscriptions 6,100 0 6,100 6,100672 48 1 481 438 4714 Land Registration Charges 1,000 0 1,000 1,000672 48 4 484 438 5531 Search Fees 200 0 200 200672 48 45 4845 438 4753 Inflationprovision 0 0 0 0672 70 1 701 410 4156 Admin Bldgs 16,300 0 16,300 400 16,700672 70 11 7011 410 4161 Telephones 300 0 300 300672 70 22 7022 410 4165 Legal-Litigation 0 0 0 0672 70 29 7029 410 5628 Legal - Court & Community 37,200 0 37,200 37,200

NARRATIVE Amount CategoryAdmin, Prof & Clerical 763,800 SalaryVacancy provision savings -6,700 IgnoreOvertime 9,000 SalaryFirstaidallowance 200 SalaryNat. Ins. 59,000 Pro RataSuperan-L.G. 80,100 Pro RataAdvertising-Staff 1,100 CapitaMedicalfees 600 CapitaShortexternalcourses-Fees 1,500 CapitaIsdivision-Standby 4,200 DirectGeneral-Buildings 0 IgnoreTravelling Expenses-Staff 600 CapitaCar Allws-Ess Urs Mileage 500 CapitaCar Allws-Casual Users 200 CapitaCar Allws-Authorised Users 200 CapitaCarallws-Publictransrate 100 CapitaDept Car Parking Permits 1,000 CapitaEquip & Furn-Acquisitions 1,400 CapitaOffice Machinery & Equipment 0 CapitaPhotocopiers 2,100 CapitaH.B.Reviews 10,900 DirectProtectiveclothing-Staff 100 Capita

Sum of AmountCategory TotalCapita 177000Direct 797300Ignore -6600Pro Rata 139100Salary 773000Grand Total 1879800

To…


Salary data is extremely sensitive and must be guarded Salary data is extremely sensitive and must be guarded carefullycarefully

An Activity Based Costing model contains salary data both implicitly and explicitly– decide and agree who will have access to the model– REMEMBER that these figures include the “backpack” of costs

and so appear larger than the actual salary

Not every organisation is willing to divulge its salary data– if this is the case, try to agree a generic salary by department or

by functional area (75% of grade band is a good starting point)– as a last resort use a pro rated flat salary across all staff - this

fails to give the resolution of using correct salaries

You earn how much?!Sensitive SalSensitive Sal


Building the ModelBuilding the Model


Putting Putting allall the interview data into a model early is the interview data into a model early is useful to highlight disparitiesuseful to highlight disparities

• The quicker you have rough cut output, the quicker you can resolve anomalies– this can often be done with just the

salary data• Use the personnel list to ensure that

every employee has been covered by interview or association

• Reconcile the totals with the GL– mismatches occur with

• wage increases• joiners and leavers• trainees• secondees• temporary staff• agency staff

• GL data can be added later


Now is the time to look at the results for Now is the time to look at the results for sesennssiibibilitlityy

• Check large and small numbers– is one of your categories smaller than is sensible for

separation

• Look for surprising results– putting 50% of the CEO’s time to “problem solving” could

distort the cost of time spent by admin staff

• Make any amendments at this stage, before others see it and jump to wrong conclusions


abcwork2:1

A Day in the Life of…Highways Reactive Repairs

70 Notices from Utilities

12 inspection reports on reported faults

2 inspections referred to mgt

£787 paid in claim settlements

6 Small WO’s closed - 70% in 7 days

1 Team Leader2 Inspectors3 Administrators2 Support Officers1 Risk & Insurance officer1 IT Systems AdministratorContractorsContractors

£1,935,000 outstanding claims value35 overdue 28-day orders on Contractors888 outstanding inspections

8 routine inspections required only 4 carried out - averageoverdue days 347 per road

1 defect reported from Neighbourhood Offices

1 wireless and 2 telephone defect reports from Street Wardens

2-3 new accident claims

10-12 calls to the BSU 30% repeat reports

10-15 calls transferred from Call Centre to BSU

1 call to Risk & Insurance needing transferring

16 new works orders to Contractors

£2,000 paid to Contractors

2 orders varied to include more work

60% of emergency works post inspected

Average claim amount £2,400

9 Emergency WO’s closed - 90% in 24hrs

2 defects not fixed by Contractors in time

1-2 calls from Members

11 new defects found from routine insp

3 Small W Os raised from routine insp

1 Emergency WO raised from routine

1 gully order to Contractors

1 defect to TWA identified

Sketching a daySketching a day--inin--thethe--life of diagram may also help life of diagram may also help validationvalidation


GL data can be input at the department levelGL data can be input at the department level

• Or, other GL costs may be best entered as “dummy employees”, in order to assign them to processes in a more accurate way

Sum of AmountCategory TotalCapita 177000Direct 797300Ignore -6600Pro Rata 139100Salary 773000Grand Total 1879800


Using the outputUsing the output


You now know the time taken for each activity by You now know the time taken for each activity by process, with its attribute, and its costprocess, with its attribute, and its cost

• This is the structure on which decisions may be based in the future– its final sensitivity to the

accuracy of the data should now be checked


Results can be displayed in a variety of waysResults can be displayed in a variety of ways

Directorate Total Payslip Costs

Total Corrections

Cost

Payroll & System Advice

System Development

Corporate/ Management Total Cost Charged

Out

Chief Execs 9,489£ 1,677£ 7,507£ 845£ 9,556£ 31,172£ 6,620£ Social Services 14,831£ 4,417£ 8,307£ 845£ 9,556£ 39,102£ 8,980£ Finance 4,782£ 274£ 1,314£ 845£ 9,556£ 17,918£ 1,530£ Education 9,745£ 3,802£ 6,242£ 845£ 9,556£ 31,654£ 33,910£ Environmental 7,420£ 1,075£ 3,309£ 845£ 9,556£ 23,352£ 4,660£ Housing 8,322£ 1,391£ 1,963£ 845£ 9,556£ 23,224£ 4,580£ Schools 51,040£ 39,178£ 14,198£ 845£ 9,556£ 120,843£ 171,700£ Total 105,629£ 51,815£ 42,840£ 7,606£ 86,000£ 331,860£ 266,860£


Pictures can often be more persuasive than dataPictures can often be more persuasive than data……

£-

£50,000

£100,000

£150,000

£200,000

£250,000

£300,000

£350,000

£400,000

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NVASNVAVA

321 Form Handling Process


Create a data model from your findings that is the most Create a data model from your findings that is the most appropriate for your needsappropriate for your needs

• Improve understanding of the findings by:

• Allowing “drill downs”• Cutting the cake several ways• Modelling different potential solutions

• Assess the behaviours that will accompany any particular measure e.g.

• Cost driver reduction• Efficiency gain


• A major entertainments group applies to open a new night club• What costs will the authority incur in providing EH Services during the first year?

• What should the authority charge the night club in terms for licence application fees and other services?

• A major entertainments group applies to open a new night club• What costs will the authority incur in providing EH Services during the first year?

• What should the authority charge the night club in terms for licence application fees and other services?

Activity Process Cost Driver Frequency Unit Cost Total CostPurchasing the land to build Land Charges 1 2.15£ 2.15£ Giving advice to the planning board Planning applications 1 45.66£ 45.66£ Inspecting the food preparation areas Food Safety Premises 2 198.05£ 396.10£ Issuing the local business licence Public Entertainment licence 1 292.53£ 292.53£ Following up noise complaints Noise Control 3 125.07£ 375.21£ Dealing with pests Pest Control 1 41.64£ 41.64£ Total costs in the first year 1,153.29£

You can now start to use the data from the modelYou can now start to use the data from the model

• Using Excel is often best for analysing and manipulating the data from the model


““What if?What if?”” scenarios are possiblescenarios are possible……

• What does it cost us to take a non council tax payer to court compared to our charge of £58?


Elimination of NVA using BPR/BPM can now be used to Elimination of NVA using BPR/BPM can now be used to predict the saving and the process map shows its effectpredict the saving and the process map shows its effect

File theupdated

paperwork

Inspectroad

Checkspaperwork

records

Faultalreadylogged?

No – 65%

Yes – 35%£9,414

£753

£14,181


The benefit of RThe benefit of R--c ABC is the ability to make reasoned c ABC is the ability to make reasoned decisionsdecisions

• What would you do next?

Process Driver Driver Units Cost Unit CostCtax Account Maintenance Ctax Adjusted Bills / NOEs 48486 £585,038.69 £12.07CTax Annual Billing Ctax Annual Bills 123714 £72,221.15 £0.58Ctax New Account Creation Ctax First Bills 22156 £12,542.84 £0.57CTax Payments Process Ctax Bill payments 1049851 £65,525.97 £0.06CTax Recovery Process Ctax Reminders / FNs 42151 £164,978.16 £3.91CTax Summons Ctax Summons Accounts 9847 £276,087.28 £28.04NNDR Account Maintenance NNDR Adjusted Bills 0 £113,580.76 Nil units!NNDR Annual Billing NNDR Annual Bills 8461 £1,611.56 £0.19NNDR New Accounts NNDR First Bills 2035 £20,019.16 £9.84NNDR Recovery Process NNDR Reminders 4104 £30,689.81 £7.48NNDR Summons NNDR Summons 2021 £62,214.60 £30.78

£1,404,509.95


Summary and QuestionsSummary and Questions


Plan your approach at the outsetPlan your approach at the outset

• Planning– Desired outputs– Model structure

• Interview key staff– Develop high level process map– Quantify inputs & outputs– Quantify VA & NVA

• Extract financial data from General Ledger

• Create model

• Analyse model– Sanity check

• Identify improvement opportunities– Outline business case for investment

• Recommendations for BPR projects


Different skills are required for the different elements of Different skills are required for the different elements of the Rthe R--c ABC exercisec ABC exercise

Form theCost Review

Team

AgreeObjectives for

Costings

DefineServicetypes

TakeGeneral Ledger

data

DefineService

Routings

Interviewpeople deliv--ering service

CalculatePeople

Cost/Service

Match salariesto people

Split outNon-people

Costs

AllocateNon-people

costs to Service

InterviewIndirectPeople

CalculateABC CostsBy Service

Reconcile GLPeople costs

to salaries

Identify &evaluate

Cost Drivers

ABCService

Cost

AllocatePeople

costs to Service

ConfirmPeople by

Department

Numeracy &financial

skills

People &communic-ation skills

Analyticalskills

Teamactivities


Develop and follow a route mapDevelop and follow a route map

• Teamwork is critical• Planning and timing are important

– Workshops– Interviews– Completion date


Following a structure gives the best resultsFollowing a structure gives the best results

• Define what you want from the exercise• Outline your expected findings• Choose your review period• List your data requirements• Specify your interview candidates• Communicate to everyone• Interview, map and analyse as you go along• Keep a “slop sheet”• Get your analysis out fast• Challenge extreme results• Revisit dubious data sources


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