Corporate Overhead Allocation Model for Government

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Corporate Overhead Allocation Model for Gov't
A Generic Approach to the Assignment of Corporate
Costs to Program Areas
Strategic Analysis Cost Management Division
Resource Management Directorate Canada Revenue
Agency
March 2004
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Introduction

• To provide an overview of the CAM including
• Purpose and Potential Applications of CAM
• Guiding principles Costing Methods
• CRAs CAM Architecture
• Guiding Principles Data Methods
• Costing Approaches Data Sources
• Corporate Service areas and drivers
• Development of a costing tool
• Development of a Business Intelligence Tool

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Purpose of Model

• To allocate corporate support costs contained in
  each departments Corporate Services business
  lines of the PAA (such as HR, IT, FA, etc) to
  the program areas based on how program areas
  consume these services.
• To provide standard corporate support costing
  rates for government organizations.

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Potential Applications of CAM

• Internal Decision-making
• More accurate full costing of programs
• Full Costing of PAA Program elements
• Improved understanding of how internal services
  are consumed
• Supports certain performance measure calculations
  (i.e. trend in client group unit costs)
• High level benchmarking
• Determining corporate service burden on new
  programs/initiatives
• External Stakeholders
• Central Agency Information
• Annual Report
• Program Administration discussions with Provinces
  and OGD

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Background

• CAM developed to bring CRAs costing capability
  closer to determining full program costs on a
  causal basis instead of the global allocations
  such as FTEs.
• Ties in with direction of OAG to not stovepipe
  corporate costs but to reflect truer program
  costs.
• Complements the Agencys direction to integrate
  transparent management for results into a
  decision-making and accountability process.
• Coincides with the implementation of TBSs
  Program Activity Architecture and supports
  expenditure management review
• External Charging Policy Bill C-212

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Evolution of Costing Model

• A feasibility study (2001) raised concern that
  Corporate Services standard costs were not
  indicative of how individual programs actually
  consumed these services, which affected the
  accuracy of full program costing.
• A series of fact finding/data gathering sessions
  ensued under the umbrella of an activity based
  costing pilot phase.
• A prototype CAM was developed to demonstrate
  feasibility concept.
• Further enhancements to model like refining cost
  drivers, incorporating other volumetric data,
  populating another year of expenditures, etc.
• Results shared with corporate support areas

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Guiding Principles- Costing Methods

• OAG Pronouncements
• Financial Management Capability Model
• Chapter 2 of April 2003 Report
• Chapter 6 of March 2004 Report
• Management Accounting Standards, Practices
  Techniques
• Standard Costing, Activity-Based Costing
• TBS Guidelines
• Inter intra-departmental Charging, Costing of
  Government Outputs, External Charging Policy
• Modern Comptrollership
• Program Activity Architecture

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CRAs CAM Architecture

• TBS Results Based Management Integrated
  Management Model Resources Activities
  Outputs structure
• Resource segment uses G/L data and time keeping
  stats
• Allocations made to the Responsibility Centre
  level
• Three levels of Overhead are calculated
  National, Regional and Local
• Outputs are fully costed programs

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Corporate Services in CAM

• FINANCE
• Material Management
• Telephony
• Security
• Financial Administration
• Real Property
• HUMAN RESOURCES
• Staffing
• Compensation
• Classification
• INFORMATION TECHNOLOGY
• Software Solutions
• Technical Infrastructure

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Guiding Principles- Data Methods

• CAM integrates data from a variety of different
  sources in order to generate the allocation of
  corporate services costs down to a Responsibility
  Centre Manager level.
• Financial system expenditure/budget data
• FTE data
• Time-keeping statistics (if available)
• Corporate Service level volumes
• Staffing volumes, Purchase orders, financial
  transactions, etc
• Square metres
• Software / Hardware usage data

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CRAs CAM Costing Approach
Program BL 1 - 4 Activities
National
G/L Expenditures
Fully Costed BL (1-4)
Regional
Corporate BL 5 Activities
Local
Real Property
ITB Client Applications
(Sq m)
ITB Internal Applications
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Data Source Mappings
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CAM Application Tools

• CAM can be implemented using complex costing
  software tools or simply by using a spreadsheet

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Development of a Costing Tool

• Simple, easy to use MS Excel template format,
  designed to ensure the consistent application of
  the Agencys Costing Policy
• Ensures consideration of all standard and
  corporate support costs, including costs incurred
  by OGDs
• Allows the user flexibility to customize standard
  costs
• Provides consistent presentation of costs through
  the use of a summary report, with supporting
  details
• Can be used to cost submissions to TB, cost
  recovery initiatives and internally funded
  projects

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Development of a BI Tool

• Financial and non-financial data modeled in cube
  format
• Multi-dimensional views generated
• Drill-down capability
• Trend analysis enabled

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Room for Improvement

• The move toward the new PAA structure to
• Generate more relevant resource consumption
  information by program, process and client group
• Generate information on a more consistent basis
  across the organization and at various levels of
  the organization
• Link program delivery and client group
  information to Departments strategic management
  frameworks (Annual reporting, Benchmarking,
  Performance Measurement)

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Room for ImprovementContd

• Refine cost drivers to match corporate program
  delivery (where possible and where makes sense)
• Automation of data extracts
• Analyze CAM results with corporate support
  personnel

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Questions?