Finance IT case study: How cost management helped DWP
Mark Speakman, a service manager within the Investment, Change and Business Intelligence Directorate at the Department for Work and Pensions (DWP), describes the changes brought about by a new automated system.
In a recent presentation, DWP service manager Mark Speakman explained how Vantage PS profitability cost management (PCM) software had given the department a deeper understanding of unit cost and productivity.
For the first time the DWP was able to understand exactly how £8bn of operational expenditure was being spent by linking operational activities to service output by building an activity-based costing model within the software to calculate unit costs per activity.
The model helped the DWP to compile evidence to convince the Treasury that additional funding was needed to support increased demand during the recession.
The unit cost information is also used as for internal service benchmarking to pinpoint areas of best and worst performance. By spreading techniques from better performing units, the department has been able to improve performance in other areass.
DWP uses the PCM software to run scenarios that help senior managers to understand how strategic decisions will work at the operational level before they are implemented. The software also gives them accurate data to compare the cost impact of one course of action against another.
With more than 103,000 staff and an annual budget of £8bn, the DWP is the UK's largest civil service department, serving more than 20m citizens a year.
It operates two delivery units - Jobcentre Plus and the Pension and Disability Carers Service - and is responsible for welfare and pension policy across the country.
Faced with such large responsibilities, the DWP has historically struggled to manage its cost base. Without good data to show how costs related to operational activities and outputs, managers couldn't analyse effectiveness or improve efficiency.
Speakman explained that back in 2005/6 the department went through a big resource management (RM) implementation based on an Oracle 11g eBusiness suite.
“Unfortunately for us the activity-based management side of Oracle didn't do quite what we wanted it to do, so we ran a competition with the help of Gartner and had a procurement exercise to see which software company wanted to come in and assist us.”
Speakman contined: “We were very good at various bits of our expenditure, we were very careful where we ring-fenced money that we had to spend on certain employment programmes, but the overall picture was a bit lacking.
“We instigated a piece of work the called the 'cost phase model' and the intention was to put together all the departmental spend. We looked at what we already had and then pulled the bits into one overarching model that accounted for our full expenditure so we could take a view.
“The Oracle package did a wonderful job at the bottom end of the department and a wonderful job at the top of the department. And from the base level we could work up our unit costs for the lowest level to say what the departmental costs were, but we struggled to get anything in between.”
1. Selection process was designed to be open and fair.
2. Rather than putting it out via the European Journal, the DWP approached the top five suppliers recommended by Gartner.
3. Four of the five submitted tenders.
4. Following a couple of withdrawals, the department was left with a choice of two.
5. The decision was based on value for money and procuring a system with the capabilites the DWP needed.
To make informed resource allocations, spending information needed to be broken down across departments, regions and districts, right down to office and branch level, he added.
The department ultimately turned to Oracle's German rival SAP and its Profitability and Cost Management (PCM) software to get the integrated cost control and performance management system it needed.
Following the tendering competition (see right), the successful candidate was ALG Software, an SAP partner, supported by Vantage Performance Solutions.
“The implementation was done by ALG and we ended up with the Vantage people. At about the same time as the software was being implemented one of these prime ministerial reviews was going on along with a capability review,” Speakman said.
“Vantage worked with us to understand the organisation and deliver a solution that helps us access the information we needed to manage costs and increase productivity.”
Speakman said that the system demonstrated its effectiveness as the global financial crisis first bit in 2008/9 and in the economic downturn that followed.
“We were able to use the information we had within the Job Centre Plus unit costing model to actually say, look we've got these extra people coming in to claim now, and it's costing us this much to administer their benefit claims.”
The department was also able to work out the cost to get these people on back to work initiatives.
“For the first time Treasury took notice when they could see the costs had been worked out using a bit of science, not just by saying this is what we spent last year divided by what we thought we had.”
And unlike many civil service IT implementations, the DWP cost management project was brought in on time and on budget.