The following extract continues the law and order’ theme of Real world case 4.2. It explains the use of activity based costing in the Crown Prosecution Service, where decisions are taken on whether a case should be taken to court for trial.

The broad concept of activity costs within CPS is that the number of files handled, multiplied by staff time, is equal to the total cost of staff time spent on the CPS prosecution process. The system is built purely on staff time and excludes accommodation and other ancillary costs, e.g. Capital.

ABC does not replace performance indicators but illuminates them to make their messages more meaningful. Indicators on their own are rather like the controls in a car which tell you how many revs and what speed you are doing, but not if you are a good driver or are respecting the speed limit.

After all, the simple cost of a case can always be determined by dividing expenditure by caseload but this tells you nothing about the efficiency or quality of the product or how the organisation is running, only how much the case costs on average.

Questions

1 What is the benefit of ABC in the situation described here?
2 Do you agree with excluding costs such as accommodation and the cost of capital as explained in the article?