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© ValueAdding.com Ltd. 2007 1
Delivering VfM & EfficiencyDelivering VfM & Efficiencyusing Roughusing Rough--cutcut
Activity Based CostingActivity Based Costing
A practical approachValueAdding.com Ltd
© ValueAdding.com Ltd. 2007 2
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
© ValueAdding.com Ltd. 2007 3
The National Process Improvement Project & The National Process Improvement Project & The Efficiency AgendaThe Efficiency Agenda
© ValueAdding.com Ltd. 2007 4
• 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
© ValueAdding.com Ltd. 2007 5
• 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
© ValueAdding.com Ltd. 2007 6
• 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)
© ValueAdding.com Ltd. 2007 7
• 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?
© ValueAdding.com Ltd. 2007 8
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
© ValueAdding.com Ltd. 2007 9
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
© ValueAdding.com Ltd. 2007 10
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)
© ValueAdding.com Ltd. 2007 11
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
© ValueAdding.com Ltd. 2007 12
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
© ValueAdding.com Ltd. 2007 13
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%
© ValueAdding.com Ltd. 2007 14
Process Costs, the challengeProcess Costs, the challenge
© ValueAdding.com Ltd. 2007 15
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
© ValueAdding.com Ltd. 2007 16
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
© ValueAdding.com Ltd. 2007 17
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
© ValueAdding.com Ltd. 2007 18
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
© ValueAdding.com Ltd. 2007 19
The Principles of Activity Based CostingThe Principles of Activity Based Costing
© ValueAdding.com Ltd. 2007 20
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
© ValueAdding.com Ltd. 2007 21
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
© ValueAdding.com Ltd. 2007 22
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?
© ValueAdding.com Ltd. 2007 23
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
© ValueAdding.com Ltd. 2007 24
Two important principlesTwo important principles
1.Mountains, not Molehills
2.The 20% rule
© ValueAdding.com Ltd. 2007 25
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
© ValueAdding.com Ltd. 2007 26
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
© ValueAdding.com Ltd. 2007 27
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£
© ValueAdding.com Ltd. 2007 28
Value Add analysis and process improvementValue Add analysis and process improvement
© ValueAdding.com Ltd. 2007 29
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
© ValueAdding.com Ltd. 2007 30
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?
Does it contributeto Customer
requirements?
ACTIVITY
Does it contribute to the
Council’s requirements?
Yes
VAVA
SNVASNVA
NVANVA
Yes
No
No Yes
No
Inspecting reported road faults
Writing report
Filling in time sheet
© ValueAdding.com Ltd. 2007 31
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?
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 ofthe process?
Does it contributeto Customer
requirements?
ACTIVITY
Does it contribute to the
Council’s requirements?
Yes
VAVA
SNVASNVA
NVANVA
Yes
No
No Yes
No
© ValueAdding.com Ltd. 2007 32
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
© ValueAdding.com Ltd. 2007 33
We may now decide which process will give greater We may now decide which process will give greater returnsreturns
Mountain
Molehill
© ValueAdding.com Ltd. 2007 34
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
© ValueAdding.com Ltd. 2007 35
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
© ValueAdding.com Ltd. 2007 36
One Touch Processing
Right First Time
The principles for removing NVA areThe principles for removing NVA are……
© ValueAdding.com Ltd. 2007 37
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
© ValueAdding.com Ltd. 2007 38
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?
© ValueAdding.com Ltd. 2007 39
• 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
© ValueAdding.com Ltd. 2007 40
Putting theory into practice Putting theory into practice –– example case studiesexample case studies
© ValueAdding.com Ltd. 2007 41
District Council business case for District Council business case for ee--ProcurementProcurement
Activity Based Costing Case Study
© ValueAdding.com Ltd. 2007 42
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
© ValueAdding.com Ltd. 2007 43
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
© ValueAdding.com Ltd. 2007 44
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
© ValueAdding.com Ltd. 2007 45
Each process incurs different annual costsEach process incurs different annual costs
Initiatoridentifies
need
Findsupplier& quote
Orderraised
on POP
GoodsReceived
Invoiceprocessed
Supplierpaid
RaisePur Req
Corporate Card Purchase and receiving goods and payment
Maverick spendor utilities etc
£34k
£67k £43k £181k
£4k
Total£453k
per annum£124k
Processing costsNOT
Cost of items purchased
© ValueAdding.com Ltd. 2007 46
Initiatoridentifies
need
Findsupplier& quote
Orderraised
on POP
GoodsReceived
Invoiceprocessed
Supplierpaid
RaisePur Req
Maverick spendor utilities etc
£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
Corporate Card Purchase and receiving goods and payment
£3.32
© ValueAdding.com Ltd. 2007 47
Initiatoridentifies
need
Findsupplier& quote
Orderraised
on POP
GoodsReceived
Invoiceprocessed
Supplierpaid
RaisePur Req
Maverick spendor utilities etc
Corporate cardCorporate card costs costs ££3.323.32per transaction per transaction –– including paymentincluding payment
Corporate Card Purchase and receiving goods and payment
£3.32
£22.71
£12.72 £21.00£35.89
© ValueAdding.com Ltd. 2007 48
Initiatoridentifies
need
Findsupplier& quote
Orderraised
on POP
GoodsReceived
Invoiceprocessed
Supplierpaid
RaisePur Req
Maverick spendor utilities etc
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
Corporate Card Purchase and receiving goods and payment
£3.32
£22.71
£12.72 £21.00£35.89
© ValueAdding.com Ltd. 2007 49
Initiatoridentifies
need
Findsupplier& quote
Orderraised
on POP
GoodsReceived
Invoiceprocessed
Supplierpaid
RaisePur Req
Maverick spendor utilities etc
£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
Corporate Card Purchase and receiving goods and payment
£3.32
£22.71
£12.72 £21.00£35.89
© ValueAdding.com Ltd. 2007 50
Initiatoridentifies
need
Findsupplier& quote
Orderraised
on POP
GoodsReceived
Invoiceprocessed
Supplierpaid
RaisePur Req
Maverick spendor utilities etc
£3.32
Quotation plus paper basedQuotation plus paper based costs costs ££92.32 92.32 per transactionper transaction
Corporate Card Purchase and receiving goods and payment
£3.32
£22.71
£12.72 £21.00£35.89
© ValueAdding.com Ltd. 2007 51
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
© ValueAdding.com Ltd. 2007 52
© ValueAdding.com Ltd. 2007 53
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
© ValueAdding.com Ltd. 2007 54
Initiatoridentifies
need
Findsupplier& quote
Orderraised
on POP
GoodsReceived
Invoiceprocessed
Supplierpaid
RaisePur Req
Maverick spendor utilities etc
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
Corporate Card Purchase and receiving goods and payment
£3.32
e-Marketplace quotation, purchasing,receipting and invoice payment
£11
SAVING £81 / transaction
£22.71
£12.72 £21.00£35.89
© ValueAdding.com Ltd. 2007 55
City Council City Council Processing Benefits ClaimsProcessing Benefits Claims
Mapping Workshop followed by interviews
© ValueAdding.com Ltd. 2007 56
© ValueAdding.com Ltd. 2007 57
NonNon--productive time tends to sit in the back officeproductive time tends to sit in the back office……
© ValueAdding.com Ltd. 2007 58
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£
© ValueAdding.com Ltd. 2007 59
Borough Council maintaining the Borough Council maintaining the HighwaysHighways
Interviews followed by mapping
© ValueAdding.com Ltd. 2007 60
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?
© ValueAdding.com Ltd. 2007 61
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
© ValueAdding.com Ltd. 2007 62
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
© ValueAdding.com Ltd. 2007 63
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
© ValueAdding.com Ltd. 2007 64
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%
© ValueAdding.com Ltd. 2007 65
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%
© ValueAdding.com Ltd. 2007 66
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
© ValueAdding.com Ltd. 2007 67
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
© ValueAdding.com Ltd. 2007 68
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
© ValueAdding.com Ltd. 2007 69
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
© ValueAdding.com Ltd. 2007 70
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
© ValueAdding.com Ltd. 2007 71
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%
© ValueAdding.com Ltd. 2007 72
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)
© ValueAdding.com Ltd. 2007 73
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?
© ValueAdding.com Ltd. 2007 74
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
© ValueAdding.com Ltd. 2007 75
Building a RoughBuilding a Rough--cut ABC Modelcut ABC Model
© ValueAdding.com Ltd. 2007 76
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
© ValueAdding.com Ltd. 2007 77
Plan the ProjectPlan the Project
© ValueAdding.com Ltd. 2007 78
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
© ValueAdding.com Ltd. 2007 79
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
© ValueAdding.com Ltd. 2007 80
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
© ValueAdding.com Ltd. 2007 81
The resulting The resulting ““modelmodel”” can be as simple as a can be as simple as a spreadsheetspreadsheet……
© ValueAdding.com Ltd. 2007 82
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
© ValueAdding.com Ltd. 2007 83
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?
© ValueAdding.com Ltd. 2007 84
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?
© ValueAdding.com Ltd. 2007 85
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
© ValueAdding.com Ltd. 2007 86
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
© ValueAdding.com Ltd. 2007 87
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?
© ValueAdding.com Ltd. 2007 88
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
© ValueAdding.com Ltd. 2007 89
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
© ValueAdding.com Ltd. 2007 90
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?
© ValueAdding.com Ltd. 2007 91
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
© ValueAdding.com Ltd. 2007 92
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
© ValueAdding.com Ltd. 2007 93
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
© ValueAdding.com Ltd. 2007 94
Process MappingProcess Mapping
© ValueAdding.com Ltd. 2007 95
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?
© ValueAdding.com Ltd. 2007 96
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”
© ValueAdding.com Ltd. 2007 97
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
© ValueAdding.com Ltd. 2007 98
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
© ValueAdding.com Ltd. 2007 99
……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%
© ValueAdding.com Ltd. 2007 100
Interviewing staffInterviewing staff
© ValueAdding.com Ltd. 2007 101
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
© ValueAdding.com Ltd. 2007 102
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
© ValueAdding.com Ltd. 2007 103
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
© ValueAdding.com Ltd. 2007 104
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
© ValueAdding.com Ltd. 2007 105
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
© ValueAdding.com Ltd. 2007 106
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!
© ValueAdding.com Ltd. 2007 107
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!
© ValueAdding.com Ltd. 2007 108
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
© ValueAdding.com Ltd. 2007 109
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
© ValueAdding.com Ltd. 2007 110
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
© ValueAdding.com Ltd. 2007 111
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
© ValueAdding.com Ltd. 2007 112
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%
© ValueAdding.com Ltd. 2007 113
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
© ValueAdding.com Ltd. 2007 114
SelfSelf--interviews on the Internetinterviews on the Internet
© ValueAdding.com Ltd. 2007 115
Cost DriversCost Drivers
© ValueAdding.com Ltd. 2007 116
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
© ValueAdding.com Ltd. 2007 117
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?
© ValueAdding.com Ltd. 2007 118
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
© ValueAdding.com Ltd. 2007 119
General Ledger General Ledger and Financial Dataand Financial Data
© ValueAdding.com Ltd. 2007 120
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.
© ValueAdding.com Ltd. 2007 121
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
© ValueAdding.com Ltd. 2007 122
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
© ValueAdding.com Ltd. 2007 123
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…
© ValueAdding.com Ltd. 2007 124
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
© ValueAdding.com Ltd. 2007 125
Building the ModelBuilding the Model
© ValueAdding.com Ltd. 2007 126
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
© ValueAdding.com Ltd. 2007 127
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
© ValueAdding.com Ltd. 2007 128
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
© ValueAdding.com Ltd. 2007 129
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
© ValueAdding.com Ltd. 2007 130
Using the outputUsing the output
© ValueAdding.com Ltd. 2007 131
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
© ValueAdding.com Ltd. 2007 132
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£
© ValueAdding.com Ltd. 2007 133
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
Form
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321 Form Handling Process
© ValueAdding.com Ltd. 2007 134
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
© ValueAdding.com Ltd. 2007 135
• 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
© ValueAdding.com Ltd. 2007 136
““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?
© ValueAdding.com Ltd. 2007 137
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
© ValueAdding.com Ltd. 2007 138
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
© ValueAdding.com Ltd. 2007 139
Summary and QuestionsSummary and Questions
© ValueAdding.com Ltd. 2007 140
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
© ValueAdding.com Ltd. 2007 141
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
© ValueAdding.com Ltd. 2007 142
Develop and follow a route mapDevelop and follow a route map
• Teamwork is critical• Planning and timing are important
– Workshops– Interviews– Completion date
© ValueAdding.com Ltd. 2007 143
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
© ValueAdding.com Ltd. 2007 144
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