Paul Jackson
spreadsheet‐based calculator and supporting manual were developed to allow councils to calculate their costs using these principles and methods. This was released in April 2009, following testing by five councils, including a district, country and unitary authority, and was superseded in 2010 by a Web‐based version, the‘ online service costs calculator’( known as the‘ calculator’). It now has more than 40 local authority users.
The calculator provides an electronic means by which councils can enter data in order to compute the costs of their processes, transactions and end‐to‐end services. It also allows for‘ before’ and‘ after’ calculations( for example, by comparing‘ as is’ and‘ to be’ process designs) as well as identifying the cost of using alternative delivery channels. In addition, it allows authorities to benchmark the costs of their services with one another – something of particular interest to those contemplating partnership working for shared delivery, where an understanding of one another’ s baseline positions is critical.
Using the Cost Architecture Framework and calculator involves the following steps:
• Deciding on the service( or transaction) to be measured. Users can select from the LGSL( to identify the service), as well as from the 50‘ generic processes’, to characterise the work that supports the process.
• Identifying activities undertaken in performing a process. This involves looking at what people do in order to execute a business process. This could include( continuing the inspection example): planning a site visit, travelling, visiting a site and updating records after a visit.
• Entering staff time and related costs on each activity. At this stage in the process, annual total costs for each activity are identified.( For consistency across the sector, costs headings are consistent with the Service Reporting Code of Practice.)
• Calculating service volumes( transaction numbers). Before unit costs can be calculated volume figures need to be arrived at.
• Identifying unit and channel costs. Having identified the total cost of activities( and the generic processes they support), these are divided by volume figures in order to arrive at unit costs.
• Conducting value‐adding analysis. As well as calculating the cost of activities, the calculator also allows activities to be categorised as‘ value‐adding’,‘ sustaining’ or‘ non‐value adding’.
• Deciding on desirable change. Armed with this information, managers and partners are better placed to understand how resources are being used, the level of productive of given resources, and which activities, processes and services are delivering the best value for money.
5. Discussion and conclusions
This paper has sought to follow the application of one management accounting technique, Activity‐Based Costing( ABC), as it was applied and tailored across a number of local government initiatives. The developments discussed originated in a desire among local authorities for a more consistent approach to measuring the cost of delivery channels, and the transactions and processes that underpinned them. This led on to the guidance that became known as the Cost Architecture Framework. This linked costing techniques, based on ABC, to work on local authority process architecture, resulting in a standardised framework for describing and costing processes, transactions and services.
An infrastructure( in the form of an online calculator) now exists to support this framework, including the collation and sharing of cost information that populates the Framework. Not only is this being used to help local authorities benchmark their processes, services and delivery channels more accurately, it is also being employed to help eliminate waste and inefficiency, and so design better services for the public. As such, ABC is being employed not primarily as a tool for accountants. Rather, it is being used by staff involved in supporting process improvement and channel migration. Indeed, it could be argued that this limited – or perhaps‘ targeted’ – application is one key reason it has gained traction in this case.
The fact that activity‐based thinking found a home in broader process improvement initiatives should come as no surprise. As Friedman and Lyne( 1995) observe, a consequence of using activities as the basic building blocks of a costing system is the compatibility with a general process approach to organisations, as found in initiatives such as business process re‐engineering( p. 15). In an activity‐based system, they go on to say, it is possible to cost cross‐functional processes – which themselves are comprised of activities – something not possible with traditional functional systems( p. 16).
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