In 2008, the Department of Communities and Local Government in the UK published a report which addressed how local authorities need to gain a deeper understanding of the costs of the services they provide. The report details some research with selected local authorities and focuses in particular on the use of ABC in the collection and calculation of costs. It notes that ABC has been adopted in a ‘rough-cut’ fashion to determine staffing costs in some cases. For example, making estimates of staff time on services delivered is a starting point. Costs could then be apportioned using agreed standardized definitions of direct and indirect employee costs (e.g. training, recruitment). Having done this, a comparison against the number of transactions or time taken will give a cost per service. This rough-cut ABC has the advantage of being simple and also high-lighting areas which may require further investigation. A disadvantage is its simplicity, but also a lack of standardized cost definitions in local authorities is problematic.

Aside from staffing costs, the report identifies eight to ten overhead costs which can also be apportioned using ABC, in either a rough-cut form initially, or in its full form, i.e. performing a full activity analysis and selecting costs drivers. These costs include things like premises-related expenditure, transport-related expenditure and supplies and services. In a roughcut form, the cost ‘drivers’ suggested for these costs include staff numbers, floor area, information system details, total budget, non-staff budget and activities processed.

Questions 

1 Can you think of any cost drivers for a local authority service you are familiar with?

2 Would the allocation of central government funding to local authorities benefit from information on activities in a local authority?