The Larian Consultancy Limited Transparency Costing Issues

The Larian Consultancy Limited Transparency & Costing Issues

The Larian Consultancy Limited Objectives For This Session • Introduce costing approaches to support justification library services in academic institutes • Provide a “taster” of costing that needs to be done to justify existence • Provide a couple of “defence strategies” based on costing techniques • Introduce EFQM model as framework for guiding you through the process

The Larian Consultancy Limited Costing Issues • Different costing “building blocks” • Cost levels to be ready to open for business – Vary according to individual quality statements • Activity based cost levels driven by the numbers of sales units • Support costs or overheads • Zero based budgeting builds from the bottom up – What do we need to deliver the quality we promise at the activity levels we need to service?

The Larian Consultancy Limited Cost Levels to Be Ready to Open for Business Minimum Fixed Costs

The Larian Consultancy Limited How Fixed Costs Are Likely to Build in a Library Setting Premises Systems & IT Infrastructure Minimum quality threshold for materials Minimum Cost related to opening hours Minimum costs associated with opening hours

The Larian Consultancy Limited How Fixed Costs Affect Unit Costs • The higher the user numbers the lower the unit cost! • The % of the funding level per student used in library provision may help to prove value • Market penetration – active users – What % do you get to?

The Larian Consultancy Limited Defence Strategy 1 • Identify your minimum fixed costs levels required to fund your minimum quality thresholds • Compare likely income/budget allocation with the minimum fixed costs levels • If funding is less than the minimum fixed costs levels – Reduce quality thresholds to compensate – Close down! – Prepare case for adequate funding

The Larian Consultancy Limited Activity Based Cost Levels Driven by the Numbers of Sales Units

The Larian Consultancy Limited Activity Based Costs • Broadly two categories • Develop a standard cost for routine repeat activities – Process costing • Services based upon a time inputs – Job costing – Project costing

The Larian Consultancy Limited Develop a Standard Cost for Routine Repeat Activities • Process costing • Use process costing techniques – Identify time and skills inputs into the typical activity – Consider materials and overheads costs – Develop a cost per item • Standard Cost

The Larian Consultancy Limited Process Costing Are activity units completed repetitive processes needing sequential attention? Y Are tasks consistently applied each time repeated? N Compare costs with other providers Consider using project quotation & management approaches Multiply units by Standard Cost to demonstrate budgetary need N Prepare a forecast of anticipated activity levels Identify your costs Y Are details of skills and time required at each stage known? Y N N Allocated costs to each stage? Y Set a Standard Cost for management and budgetary control purposes

The Larian Consultancy Limited Defence Strategy 2 • Identify resources devoted to routine service activity • Challenge whether these services still remain essential • Challenge quality thresholds within • Argue for appropriate funding to deliver activity levels

The Larian Consultancy Limited Services Based Upon Time Inputs • • High skills set end Where your professionalism makes a difference Job costing Project costing

The Larian Consultancy Limited Zero Based or Project Costing Examples • Staffing – 4 hours of senior officer time @ £ 50 – 8 hours of qualified officer time @ £ 30 – 10 hours of junior officer time @ £ 20 =£ 200 =£ 240 =£ 200 • Materials – Quantity required x unit costs • Management administration – Percentage or hours • Travel – Additional or included in the hourly rates? • Overheads IT, capital charges (accommodation costs) legal, personnel, finance, other – The use of overheads absorption rates

The Larian Consultancy Limited Project Costing Control costs so that costs to date = those expected for particular milestones and outcomes Agree project outcomes with “client” Set interim milestones and outcomes Identify skills quantity & type (inputs) required to deliver outcomes Monitor milestones, inputs and outcomes Identify unit costs of inputs Multiply no of units x unit cost to determine cost of project

The Larian Consultancy Limited Defence Strategy 3 • How much of your professional staff time is used for high skills set end of service delivery? • Are you spending enough time on these activities? • Are they visible to your customers and stakeholders? • Does the outcome add value to the University’s services/stakeholders? • What would happen if you dropped these?

The Larian Consultancy Limited Know Your Budget Structure An Illustrated and Simplified Example

The Larian Consultancy Limited Extract From an ANSOFF Grid

The Larian Consultancy Limited Staffing Requirement Based On Activity • “ 1650 hours a year is considered a fair estimate of the working year of an academic for costing purposes. ” – Para 32 An overview of TRAC

The Larian Consultancy Limited Staffing Requirement Based On Activity

The Larian Consultancy Limited Operating Budget

The Larian Consultancy Limited Can You Analyse Resource Use Like This? • If so you can challenge it

The Larian Consultancy Limited Challenging Resource Allocation • Are the priorities right? • Is the support level appropriate for the service levels it supports? • Are you spending enough time on development of new/existing services • What should you discontinue

The Larian Consultancy Limited Business Excellence Model - 8 Categories Leading to Excellence Copyright © 1999 - 2003 EFQM

The Larian Consultancy Limited Copyright © 1999 - 2003 EFQM