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An introduction to Activity Costing with Nimbus Control 2007 for the Probation Service.
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Activity Costing with Nimbus Control 2007
1.
An approach to
Activity Costing ISC 2010 © Copyright ISC 2010 Activity Costing 1
2.
Aims To understand
the basic principles of carrying out a costing exercise To develop an understanding of what needs to be costed To identify an approach to carry out costing, that is: Practical Consistent Accurate © Copyright ISC 2010 Activity Costing: 2
3.
Costing overview In
order to be able to make sensible decisions about the efficiency and effectiveness of processes and organisations, a simple, but robust method of carrying out Costing of Activities is required. The aim is to be able to compare “apples with apples”. © Copyright ISC 2010 Activity Costing: 3
4.
Questions for Costing
to answer You can use the technique to answer questions such as: What is the cost of processing one transaction? (e.g. cost per completion, cost per offender, cost per case) How much resource do we need available, in order to be able to process this amount of work? (e.g. Full Time Equivalents required to deal with 10 cases per day) How do our processing costs compare with those of other organisations? (e.g. against benchmark organisations, or for contestability, or Best Value reviews) © Copyright ISC 2010 Activity Costing : 4
5.
Costing Principles ©
Copyright ISC 2010 Activity Costing : 5
6.
7.
IT, HR,
other “central function costs”
8.
9.
Materials and
other directly used resources
10.
11.
Principles For Activity
Costing to be meaningful you need to know the following: The scope of the activities carried out The resources employed in carrying out those activities The amount of those resources consumed, per transaction When modelling alternative scenarios, you also need to understand the “drivers” of activities; i.e. what is it that causes a process transaction to be carried out and its costs to be incurred? © Copyright ISC 2010 Activity Costing : 8
12.
Approach at individual
process level Map the process (including possible alternative process flow routes) Identify the resources used at each process step Agree the costing basis (e.g. hourly rates, resource costs) Measure process transaction times, or identify number of transactions completed e.g. per hour Calculate cost per transaction(Note: this is usually the cost of achieving a successful output, rather than cost per input) For modelling purposes, identify transaction drivers (what causes the process to occur?) © Copyright ISC 2010 Activity Costing : 9
13.
Scope definition For
example, in an IT Procurement process you might define the scope as being all the tasks from identification of the need, through to delivery to the user. But, it excludes the activities carried out by external suppliers. © Copyright ISC 2010 Activity Costing : 10
14.
What does this
process cost? Calculate the cost per order and annual cost of IT procurement © Copyright ISC 2010 Activity Costing: 11
15.
What does this
process cost? - Answers Cost per order = £152.81 Cost per annum = £119,192 (assumes a 52 week year) © Copyright ISC 2010 Activity Costing : 12 Now, calculate how many FTE Admin Officers are required (Assume an 8 hour day)
16.
Full Time Equivalents
The basic FTE calculation is = (N x Volume x Duration) / Working Period. (where N = No of resource types associated with that particular activity) e.g. A process deals with 7 SDRs per day, involving only Probation Officers, each taking 10 hours. The working period has been defined as 5 days per week of 7 hours per day. The FTE is 10 = (1 resource type x 7 SDRs per day x 10 hours each) / 7 hrs per day = 10 i.e. 10 people (Probation Officers) required per day. © Copyright ISC 2010 Activity Costing : 13
17.
What you need
to know… Costing defaults (8 hours x 5 days x 48 weeks) Resource Rates Per annum, per hour, per minute? Mid-band, Actual, Budget? Including NI and Superannuation? Duration timings How were they determined? Units: Minutes, Hours? Volumes (frequencies) Per day, week, month, year? Per offender, per group, per session? Display decimal places Refreshed from drill-downs? © Copyright ISC 2010 14
18.
Costing Reports –
Excel export © Copyright ISC 2010 15 Beware of double-counting
19.
Look at the
process AND the data Identify Real, Business and Non-Value steps Why is each step being done? Who is doing each step? Remember the Seven Wastes Transport - materials Inventory – stocks and stores Movement - people Waiting - people Over-production – more than is needed Over-processing – unnecessary steps Defects – failures and rework © Copyright ISC 2010 16
20.
Improvement Skills Consulting
Ltd. www.improvement-skills.co.uk info@improvement-skills.co.uk © Copyright ISC 2010 Activity Costing : 17
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