A new department was set up in November 2002 to promote economic development and regeneration in the Borough. The department’s staff manage partnership and corporate initiatives, provide information and advice to businesses and developers and contribute to local policy in the Borough.

 

 

 After 6 months in operation the department’s manager Clara Bird decided that the key activities need to be analysed to identify opportunities for improving service delivery. Clara believes a ‘cost sampling’ or snapshot’ approach is required to identify key activities and their costs. This technique will help the department to develop estimates of how much time is devoted to different activities and then by using an average hourly rate for all staff Clara will be able to estimate the total annual cost of an activity. The decision to use an average hourly rate for all staff will save time with the first ‘cost sampling’.

 

Introducing a ‘cost sampling’ approach has not been tried in the Borough before and other managers have not been informed of Clara’s decision to introduce this technique. Before she moved to her current post Clara was aware that many managers were critical of the financial information they received but they were also reluctant to try techniques such as activity based costing. Managers in the Borough have described activity based costing as a technique that is only suitable to other sectors or criticised the complexity of the technique. Clara is hoping to demonstrate that the ‘snapshot’ approach is worthwhile.

 

Clara decided that about 6 to 8 activities need to be identified to give the staff a good understanding of the key activities in the department. The possibility of identifying 20-30 activities was considered but this was rejected because there was very little time to do the work. For the whole exercise it was felt that the information must not take too long to collect and interpret and the ‘snap shot” should be repeated regularly.

 

 

 

The activities identified by Clara and her staff for the first ‘snapshot’ are given in appendix 1 and the cost drivers are given in appendix 2. For the first 12 months the total annual staff related cost for the department is £200,000 and the estimated total number of hours for all staff is 8,000. Clara decided to include only staff related costs in her calculations as this represented approximately 80% of total department costs.

 

The chief executive has indicated that all managers will have to contribute to a cost reduction exercise in the next 6 months. No details are yet available but Clara believes managers will be asked to identify value-added and non-value added activities for the exercise. 

 

 

 

Brief details of the key activities identified Clara and her staff are given below:

 

 

 

 

 

Evaluate the choice of cost drivers identified by Clara and discuss how the accuracy of the costs can be improved.

 

 

Clara is hoping to use the information to compare the performance of her department with similar departments nationally and also identify potential areas for cost reduction. Discuss.