Understanding Service Transaction Costs: Developing a Framework for e‐Government Change
Paul Jackson Department of Accounting, Finance and Economics, Oxford Brookes University, UK pjackson @ brookes. ac. uk
Abstract: This paper discusses the development of the UK’ s‘ Cost Architecture Framework’ and its use by local authorities to support decision‐making about e‐Government channel migration and process redesign. It starts by describing the need among UK local authorities for a more robust and consistent approach to identifying the cost of service transactions and the potential benefits of moving to online channels. The paper then discusses how ideas from Activity‐Based Costing( ABC) were incorporated into an approach, the Cost Architecture Framework, to help meet this need. This is followed by a discussion of how these ideas have since evolved into an online tool used by members of the local government community. The paper shows how, through the involvement of a range of stakeholders, the techniques of ABC have become part of an‘ improvement ecosystem’ bound up with process redesign and e‐Government related change. This has enabled process analysts and improvement practitioners to build the business case for change, as well as to benchmark the cost and quality of services transactions across different local authorities. The paper also shows how frameworks to support e‐Governmentrelated change can evolve through the interaction of management techniques, user needs and stakeholder participants.
Keywords: transaction cost, channel migration, activity‐based costing, process change
1. Introduction
The migration of customers to online channels is a key part of the e‐Government agenda. In building the case for change, an understanding of the relative costs of channels( web, face‐to‐face, telephone, etc.) is clearly important. Doing this robustly and transparently can be problematical, however. For instance, the fulfilment of a service may involve more than just what goes on at the web‘ front‐end’.
The full cost of a service will also reflect not just resources that are directly used( such as labour and technology), but also an apportionment of indirect costs( namely, overheads). Making cost comparisons across organisations – for example, to support analysis for shared service provision – adds additional weight to the need for clear and consistent principles.
This paper looks at how one approach to this challenge – the“ Cost Architecture Framework” – was developed within the UK local government community. It examines how ideas from Activity‐Based Costing( ABC) were adapted and employed for use by local authorities to support collaborative working and service benchmarking in relation to the costs of government channels.
The paper begins by reviewing the background to ABC. It then looks at the evolution of Cost Architecture Framework. This is examined over three key phases, leading to the production of Department of Communities( CLG) guidance( CLG 2008) and the development of an online tool to support the collation and sharing of cost data.
Having described this work, the paper then discusses ABC as part of an improvement ecosystem, arguing that its application in the instances described need to be understood as part of an evolving and integrated set of improvement methods, particularly bound up with processed‐based analysis and change. Because these methods have often been construed as‘ lean’( see, for example, Womack and Jones 1996; Radnor and Walley 2008; Bagley and Lewis 2008), a critique is then supplied that draws on ideas from the lean accounting literature. Implications for public sector practitioners are then provided.
2. Activity‐based costing( and management)
Activity‐Based Costing( ABC) was first developed to overcome shortcomings in traditional approaches to allocating costs to products and services( Friedman and Lyne 1995). As Cooper and Kaplan( 1988) observed, the use of labour hours as the proxy for apportioning indirect costs was becoming increasingly irrelevant where direct labour was consuming an ever smaller proportion of product and service costs. The distortions created meant that managers were poorly served when making decisions about product prices and strategies,
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