What’s the Obsession with Activity Based Costing in Planning? – It Doesn’t Work

Both PAS and the DCLG seem obsessed with activity based costing as a means of estimating the real full cost of processing planning applications.

But its bunkum.

In both the public and private sector its largely discredited.

The 2008 Review of Policing for the Home Office by Sir Ronnie Flanagan concluded that  that manually driven ABC was an inefficient use of resources: it was expensive and difficult to implement for small gains, and a poor value, and that alternative methods should be used.  Barely 4 years after its use had been mandated by the home office.

I know some private sector consultancies where staff spend up to 10 minutes every hour time recording.  Are they happy then raising their variable cost base by 17% in this way!

Many would claim, apart from the time costs, it just doesn’t work as an accurate means of accounting.  For example the field of throughput accounting many examples have been found of where cost accounting gives false results and if private sector bodies followed it they lose profits and if public sector bodies did they reduce productivity (Corbett, T. 1998. Throughput Accounting. North River Press.)

Lean accounting and throughput accounting have given us more accurate metrics so why does the planning profession use a method that is falling out of use elsewhere and is just plain flawed.

Lean accounting lesson – All you need to measures costs is to measure throughput and inventory once you have made an accurate assessment of labour and on costs for each person in a process.  Now lets say you have 100 planning applications – for sake of argument all the same complexity – generating Y income.  Divide your staff (again for simplicity assume all cost the same) costs x by Y you have your throughput over the period (lets say six weeks).  If staff have 4 weeks target to process then if there intray stacks up you are loosing money/productivity, if it goes down if you gaining it.  That’s all you need to measure the inputs and outputs.  The same applies to staff commenting.  It only gets complex with applications of different types.  But if you set staff time processing targets for different categories of application – and you can benchmark these – you can apply the same input-output metrics. What is more such metrics will tell you if you are eating into or building up a backlog and whether you are gaining or losing productivity.

Activity based costing is a bit like trying to measure the GDP of a country by measuring the cost of every single transaction – an impossible task.  All you need to measure is the changes to balances.

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