Activity Costing with Nimbus Control 2007

An approach to Activity Costing

ISC 2010

© Copyright ISC 2010Activity Costing 1

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 2010Activity Costing: 2

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”.


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 2010Activity Costing : 4

Costing Principles


The cost of running your organisation


OverheadCosts

The costs needed to support and administer each service, but which are not directly attributable to it:- Governance & Development costs (e.g.

legal, audit, business development)- IT, HR, other “central function costs”- Utilities, premises, office equipment

DirectCosts

The costs directly associated with delivering particular services:- People costs based on time spent - Materials and other directly used

resources- Facilities used directly for the service

The cost of running a particular service (e.g. UPW)


OverheadCosts

Have to be allocated (or apportioned) using an agreed, practical basis

OverheadCosts (A)

ServiceA

DirectCosts

Can be identified from a Process Map by identifying work-time durations (to calculate people costs) and other resources used directly in the process

DirectCosts (A)

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?


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?)


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.


Ask for PC

2

C=£15.00

Du=1.00h

V=3.00(d)User

Approve PC

3

C=£25.00

Du=1.00h

V=0.60(d)Computer Dept.

Mgr.

Order PC

4

C=£7.81

Du=1.00h

V=3.00(d)Admin Off icer

20%

Approve PC

6

C=£156.25

Du=5.00h

2.40(d)IT Director

80%

Start1

V=3.00(d)

End5

V=3.00(d)

Du=0.00h

D=0.00h

100%

What does this process cost?

Calculate the cost per

order and annual cost

of IT procurement


Ask for PC

2

C=£15.00

Du=1.00h

V=3.00(d)User

Approve PC

3

C=£25.00

Du=1.00h


Mgr.

Order PC

4

C=£7.81

Du=1.00h


20%

Approve PC

6

C=£156.25

Du=5.00h

2.40(d)IT Director

80%

Start1

V=3.00(d)

End5

V=3.00(d)

Du=0.00h

D=0.00h

100%

What does this process cost? - Answers Cost per order = £152.81 Cost per annum = £119,192 (assumes a 52 week year)


Ask for PC

2

C=£15.00

Du=1.00h

V=3.00(d)User

Approve PC

3

C=£25.00

Du=1.00h


Mgr.

Order PC

4

C=£7.81

Du=1.00h


20%

Approve PC

6

C=£156.25

Du=5.00h

2.40(d)IT Director

80%

Start1

V=3.00(d)

End5

V=3.00(d)

Du=0.00h

D=0.00h

100%

Now, calculate how many FTEAdmin Officers are required(Assume an 8 hour day)

© Copyright ISC 2010

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.

Activity Costing : 13

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?


Costing Reports – Excel export


Activity Text IDTotal Cost Duration Volume Resources

Level : 1 Draft Copy

Prepare Programme 1 £90.16 120.00' 10.00yProgramme Manager; Treatment Manager

Refer any issues to OM 2 £4.13 15.00' 10.00yTutor Run TF Sessions 3 £165.93 343.00' 220.00yTutor; Co-Tutor

Complete Programme review/report 4 £31.75 109.00' 75.00yTutor; Treatment Manager

Level : 1.3 Draft Copy Prepare session 1 £19.54 30.00' 220.00yTutor; Co-Tutor Run Session 2 £111.24 240.00' 220.00yTutor; Co-Tutor Write up Contact Logs 3 £16.28 25.00' 242.00yTutor; Co-Tutor

Communicate progress & enforcement issues to Case Manager 4 £9.77 15.00' 220.00yTutor; Co-Tutor

Run Catch-up Session 5 £8.27 30.00' 22.00yTutor

Update IAPS with attendance & scores 6 £8.27 30.00' 242.00yTutor

Level : 1.3.2 Draft Copy

Attend Sessions 14 & 22 1 £33.08 120.00' 20.00yOffender Manager

Run Sessions 2 £78.16 120.00' 220.00yTutor; Co-TutorLevel : 1.4 Draft Copy

Allocate Report for writing 1 £0.75 2.00' 75.00yTreatment Manager

Prepare Post-Programme Report 2 £24.81 90.00' 75.00yTutor

Read & Countersign Report 3 £5.63 15.00' 75.00yTreatment Manager

Arrange appointment with OM for 3-way 4 £0.55 2.00' 75.00yTutor

=VALUE(LEFT(F3,LEN(F3)-1))

To convert 10.00y to a value

Beware ofdouble-counting

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


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www.improvement-skills.co.uk

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Activity Costing with Nimbus Control 2007

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