GOVERNMENT INSIGHTS EXECUTIVE BRIEF

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Executive Brief: Activity-Based Management Drives ROI at DWP

Adapted from Best Practices: Performance Management at DWP's Jobcentre Plus: A ProveIT Case Study by Jan Duffy (www.sap.com/industries/publicsector/public) Sponsored by SAP September 2009

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INTRODUCTION Created in June 2001, the principal aim of the Department for Work and Pensions (DWP) is to promote financial opportunity and independence for all. DWP is responsible for delivering the government's welfare, pensions and child support reform agenda and helps individuals to achieve their potential through employment, and to provide for themselves, their children, and their future retirement. Aside from being a major strategy and policy department, it is also the biggest delivery department in the U.K., processing more than two million transactions every week. Employing 110,000 staff based in more than 1,000 locations across the U.K., the DWP has annual operating costs of around 8.5 billion. It has financial transactions with 17 million customers every week and processes benefits and pensions payments totaling more than 125 billion per year. Together, these represent approximately one quarter of all public spending in the U.K. Through its two main delivery agencies, the DWP is responsible for delivering a wide range of services associated with 12 major state benefit programs, plus 17 other linked services to more than 20 million people.
Jobcentre Plus

Launched in April 2002, Jobcentre Plus is an executive agency of the DWP that combines the functions of the former employment service and the working age functions of the former Benefits Agency, supporting people of working age (16- to 59-year-olds) claiming benefits such as income support, jobseeker's allowance (JSA), incapacity benefit, care giver's allowance, and the social fund. Jobcentre Plus employs 70,000 people in its offices and call centers across the U.K. Its net operating cost amounted to 3.315 billion in FY 20082009.

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As one of a number of steps to improve efficiency and effectiveness, Jobcentre Plus completed a three-year program to link together 31 contact centers across the U.K. in 20082009, creating Europe's largest single virtual telephone network. A single national telephone number is now available for all new benefit claims, and customer calls can be directed to the next available member of staff wherever they are in the country. Each year, 6,500 agents handle 18 million customer calls. According to its 20082009 annual report, Jobcentre Plus dealt with more than one million more new claims for JSA in 20082009 an increase of around 50% compared with the previous year. At the same time, it has improved on the time taken to process JSA claims. A sustained high level of performance was achieved by Jobcentre Plus by building its capacity through streamlining its processes, bringing new people into the organization, and increasing productivity. An activity-based management (ABM) system supports Jobcentre Plus in achieving its goals and objectives by providing detailed management information about productivity and costs, as well as a facility to analyze and use this data in the planning process. Jobcentre Plus teams make extensive use of this capability to manage workloads across the countrywide virtual network of agents.
Activity-Based Management at Jobcentre Plus

Given the general financial challenges faced by the public sector right now, there is an increasing emphasis on cost analysis and justification. Using a common set of operational factors of production (e.g., staffing, IT demand, accommodation use, goods and services consumption, process design and organization, service quality, and productivity), ABM delivers the answers to the questions that need to be addressed by any conscientious manager. In a complex, fastchanging environment like the DWP, it is difficult to make informed decisions about the implications of changes in inputs and outputs without the type of detailed information provided by ABM. When used in conjunction with the appropriate software in the case of the DWP, SAP BusinessObjects Profitability and Cost Management application ABM increases visibility into output, activity, and process costs. This information improves the quality of management decisions, provides the facility for benchmarking year-over-year activities, or tracking movement following a change in process or volumes. It also provides an effective way to prove and measure the effectiveness of process improvement initiatives. The result is a data set that allows informed identification of targets for efficiency improvements and support for strategic planning and budgeting. Ultimately, this leads to improved productivity and a reduction in performance variation across different divisions or business units.

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Jobcentre Plus uses the ABM solution to develop valid, realistic economic models that reflect the relationships between expenses and costs. The information produced by ABM answers many difficult questions about the effectiveness and efficiency of processes and business units. The rich functionality provides Jobcentre Plus with the ability to drill down to a very granular level and analyze the productivity of an individual process or unit, or roll the data up to a higher level. Adrian Fisher, head of Decision Support and Mark Speakman, head of MI Future Systems from DWP told IDC Government Insights that the tool is used to produce scenario optimization models that support the planning process and budgeting and forecasting activities.
Multiyear Iterative Planning Cycle Introduced

Strategic planning in the public sector is usually based on a fixed calendar, but strategic decisions need to be made continuously to ensure timeliness; therefore key decisions are often made outside of the planning process. The timing of the cycles needs to be coordinated to ensure that specific planning outputs are linked to completion of each particular cycle. A recently implemented multiyear planning process at DWP is iterative and is driven by a succession of activities that occur over a rolling three-year cycle, mitigating many of the timing challenges associated with the previous process (see Figure 1).

FIGURE 1
Multiyear Planning Cycle

Source: IDC Government Insights, 2009

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The new planning process facilitates multiyear, annual, and in-year planning/budgeting/forecasting to be coordinated over the three-year planning cycle, accommodating the overlap during years 1 and 2. The focus of cycles 2 and 3 is on developing an additional year of plans and targets to ensure that DWP generally has a forward-looking threeyear planning horizon. This allows managers to discuss and decide rather than review and approve. If assumptions need to be revised due to significant external events or changes in policy priorities, this can be incorporated into the system in real time. The ability to develop forward-looking scenarios is extremely important to the multiyear cycle. Information generated by the ABM system is used to support this and other important elements of the planning process.
Integrated Planning and Performance Management Process and ABM

The DWP determined that the implementation of an integrated planning and performance management (IPPM) process would be beneficial to developing a better understanding of its complex cost base, achieving greater insight into the business at all levels, and providing a clearer line of sight between inputs and outcomes. The three key elements of the IPPM program are: Continuous planning Performance management framework Understanding the cost base IPPM introduced a continuous timetable for planning and budget reviews based on a system of: Planning assumptions, setting out the expected future market and operating environment for the DWP, as well as quantified forecasts of customer demand for DWP services Strategy maps showing how low-level activities within the business contributed to departmental outputs and to departmental strategic objectives (DSO) outcomes as well A balanced scorecard to present strategic information from across the department for use by executive and departmental boards ABM scenario planning systems that could model and budget for forecast demand within the context of planning assumptions about the future operating environment Systems to help optimize resources at a detailed level (principally workforce planning, IT demand management, estate and accommodation, and financial control) to ensure plans are actively managed and complied with daily

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The IPPM process is supported by the rich data set provided by the ABM system and implemented as part of a broader finance transformation program (see Figure 2). The IPPM links the cost of inputs to the cost of outputs using ABM principles. ABM is a method of identifying and evaluating activities that a business performs using activity-based costing to establish relationships between overhead costs and activities. ABM ensures that overhead costs are more precisely allocated to services, customer segments, employees, and so on.

FIGURE 2
From Activity-Based Costing to IPPM
Driver-based forecasting Capacity planning Strategic scenario planning Comparative metrics

Source: IDC Government Insights, 2009

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BENEFITS
Return on Investment

The introduction of ABM is helping to improve productivity and value for money at the DWP. For example, by better understanding the operational activities that drive costs within the business, Jobcentre Plus has managed to drive higher consistency in performance across locations. ABM also contributed to the ability of Jobcentre Plus to forecast with greater accuracy and thereby manage increased volumes. As a successor to the unit costing system, the original focus for ABM was cost management, but Jobcentre Plus district managers have targets that are mostly performance and productivity-based. Consequently, performance and productivity monitoring has become an everyday activity. DWP executives intuitively know that improved productivity leads to decreased costs and ABM proves the truth of that hypothesis. Over the last three years, every measure of productivity at Jobcentre Plus has shown a strong improvement. The ability to benchmark a unit at any level against another similar unit provides DWP with the opportunity to identify differences and then drill down to determine the root cause of the differences, and ultimately make adjustments. ABM is visible across all levels of the organization, supporting the differing needs of executives, operational managers and frontline employees. Because the results are considered to be valuable to the management process, the use of ABM has encouraged a culture that is focused on minimizing waste of all types of resources and is targeted on productivity improvement on an ongoing basis. Performance management and ABM have enabled the DWP's excellent results, which in turn reflects positively on individual managers at all levels of the organization. The DWP's performance management capabilities have proven to be invaluable in managing the dramatic changes in demand resulting from the economic downturn, and at the same time a requirement to reduce costs by 5.6%. At the same time, the ability to demonstrate and substantiate need, using the results of ABM, was invaluable when increased funding was required in order to cope with the unprecedented increase in Jobcentre Plus applications. HM Treasury provided 1.3 billion in increased funding in November 2008 and a further 2.8 billion was provided in the April 2009 budget because the DWP was able to substantiate its claims and demonstrate its need without doubt and with transparency. In the Jobcentre Plus Annual Report and Accounts issued in July 2009, CEO Mel Groves reported, "Despite dealing with over one million more new claims for JSA in 20082009 around a 50% increase compared with the previous year we improved on the time taken to process JSA claims, successfully meeting our year-end target. In

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March 2009, we interviewed 80% of all new JSA customers within three days to offer help in finding work. We also performed above target in answering telephone calls to our contact centers." Because it is firmly believed that ABM contributed significantly to these achievements, these comments suggest a resounding success as far as ROI is concerned.
Advanced Functionality Supports Increased Applicability of ABM

Virtually all front line public sector delivery organizations carry the heavy burden of repetitive, transactional tasks, such as collecting taxes, processing claims, or issuing permits and licenses. Understanding the costs associated with each step of a process will help these organizations to develop a better understanding of the budget and resource requirements to handle these activities and thus avoid the risk of underfunding. After all, it is difficult to plan or budget to reach a certain level of performance without a clear understanding the cost of performance. ABM had a very significant and beneficial impact on the DWP's ability to deliver the transformation and modernization program successfully. Given the complex and challenging combination of reducing costs, increasing efficiency, and adding services, not having a good understanding of how well employees and business units were doing was not an option. Reductions in time to process and increases in volumes are testimony to the success of Jobcentre Plus and its change program. The quality of information produced by ABM is much appreciated by senior managers because it supports their efforts to deliver on their targets. As the ABM system matures and senior managers increasingly recognize and exploit its full capabilities, there is an opportunity for the DWP to improve on its position as a leading-edge planning and performance management organization. The DWP has achieved positive change across the organization. In particular, Jobcentre Plus has delivered cost savings and productivity increases that can be proven because they were monitored and managed using ABM. Transformation is difficult at any time, but undertaking a major transformation project in the midst of an economic downturn was an enormous challenge; ABM allowed the DWP to actually manage the change as it was taking place. The initial focus was on unit costing, but as the ABM system was developed and put into use, interest turned increasingly to productivity monitoring. The superior "what if" capabilities allow managers to project the effect of increases in volume, decreases, or other changes in employee numbers, impact of system downtime, vacation, sickness, and so on.

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When coupled with IPPM, this capability supports the development of advanced optimization and scenario models that add a level of flexibility and visibility to the management process that previously did not exist. For example, in the past, applications were handled at a location related to the customer's postal code. Today, workload can be transferred from one contact centre to another with confidence that it can be accommodated based on the data delivered from the ABM system. CONSIDERATIONS From a technological perspective, the applications were well known to the DWP and Jobcentre Plus. However, there was a need to rescale the hardware platform for ABM development with an inevitable risk of the unknown. A rapid application development approach was used and users were heavily involved in the development and testing cycle. In particular, the development team benefited tremendously from having a person from Jobcentre Plus as a full-time member. The initial supplier (ALG Software) of the ABM application software was a relatively small organization and this carried a certain level of risk. When ALG Software was acquired by BusinessObjects, this risk was minimized. When BusinessObjects was acquired by SAP, the remaining risk became immaterial. From an overall perspective, the ABM solution and the IPPM process combine to reduce much of the risk associated with the planning and budgeting process, allowing the DWP to respond to the Capability Review recommendations in a practical way. Since the original unit costing system was already in place, the management team was accustomed to monitoring and managing performance. However, there was a risk that managers would not embrace the broader capabilities of ABM. Furthermore, SAP's continued investment in advancing the application's functionality provides assurance of continued support for DWP's growing use of ABM. CONCLUSION Governments at all levels will be challenged to minimize waste, improve productivity, and generally make better use of resources of all kinds. Mandated budget reductions are unlikely to be effective in the long term without changes to the work that is being done and to the way that work is done. Continued investment in government services improvement will be required, but not without careful analysis of where that investment should be made to maximize the achievement of visible results.

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At the time of the 2009 Budget, HM Treasury issued the following statement alongside announcements about funding commitments: "Since 1997, record levels of investment matched by reform have delivered real and lasting improvements in Britain's schools, hospitals, and other public services. The government's short-term focus is on supporting employment and jobs through the downturn, while doing more to prepare Britain for the economy recovery. the government will continue to invest in frontline public service priorities, alongside a stronger drive on value for taxpayer's money in order to ensure sustainable public finances over the medium term." Sustainable public finances require fiscal accountability. Understanding the costs of a process, linking those costs to the activities within that process, and then having the ability to connect this data with DSOs and PSAs, will all be essential if good investment decisions are to be made. Achieving this will benefit significantly from the use of appropriate analytical tools and techniques and closed-loop performance management. Underpinned by ABM, this will prove to be invaluable to many government departments and local governments. LEARN MORE
Related Research

Best Practices: Performance Management at DWP's Jobcentre Plus: A ProveIT Case Study (Government Insights #GITD02R9, September 2009)
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