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corporate plans and budgets » Plan & Budget 2002/03 - Cost effectiveness

‘for 2002/03 we estimate that our unit cost will remain at around the same level in money terms’

introduction

7.1 Our plan is to build a cost-effective and responsive ombudsman service. An increasing workload will require additional resources, but we intend to measure our cost effectiveness by looking at unit costs on a year on year basis. We gave a commitment in last year’s Plan & Budget that the unit cost would not rise above £688. If volumes fell, we aimed to make sufficient savings to keep to our agreed target. But if this should happen mid-way through the financial year, we would need a period of time to achieve those savings. This remains our approach.

measurement of unit cost

7.2 We calculate the current measure of unit cost by taking the aggregate costs of the organisation (before financing costs) and dividing by the number of cases closed in that year. We noted in last year’s Plan & Budget that this can be a misleading measure of cost effectiveness, particularly if we resolve a higher number of complaints in our customer contact division so they do not go on to become chargeable cases.

7.3 Since the customer contact division plays a key role in settling cases at an early stage (before they become chargeable), we are at present developing a range of key indicators to measure our performance in this area.

unit costs

7.4 In 2001/02 we expect the unit cost to fall from the 2000/01 figure of £753 to around £688, which is in line with the published budget. For 2002/03, we estimate that the unit cost will remain around the same level in money terms, which represents a fall of £20 in real terms. This is after absorbing the improved timeliness and service efficiency standards described above and the staff salary increase.

7.5 The unit cost is made up as follows: -

Build-up of the cost per case
Actual 2000/01 £
Forecast 2001/02 £
Budget 2002/03 £
Case-handling direct costs
387
354
344
Cost of complaints prevention
customer contact division
74
66
65
technical advice/communications
25
23
22
Other
support costs
90
70
69
management & board
24
16
15
best practice/management information system
0
9
12
premises & facilities
100
96
95
depreciation
53
54
66
Total
753
688
688

7.6 The fall in unit cost results from a combination of a productivity gain by the case-handling divisions and a volume gain from the spreading of support costs and premises costs over a wider volume of case closures.

7.7 The impact on unit costs of the two alternative scenarios would be as follows:

a) higher complaint levels The unit cost would fall to around £650, due to the volume gain from spreading fixed costs over additional case closures.

b) falling complaint levels As soon as it became clear that this was the position, we would have two options. We would consult the FSA and other stakeholders on which option to pursue. First, we could cut costs aggressively to maintain the £688 level - although the later the position became clear, the more difficult this would be. Second, we could allow the unit cost to rise to just above £700 (still below the £688 in real terms) in anticipation of the extended jurisdiction over the coming years.

conclusion

7.8 We are committed to our unit cost and productivity targets and believe they are entirely compatible with our desire to provide a quality service. We would like to hear of any additional measures we could usefully use.