Measuring Administrative Costs: UK Standard Cost Model Manual

Better Regulation Executive









Measuring Administrative Costs:
UK Standard Cost Model Manual

























Version: 1.01
29 September 2005

---

Better Regulation Executive
Cabinet Office
22 Whitehall
London
SW1A 2WH
United Kingdom



For information and queries please contact:
Matthew Barnes
abmethod@cabinet-office.x.gsi.gov.uk
Tel: +44 (0)20 7276 5008
Fax: +44 (0)20 7276 2157


Sections draw on the International Standard Cost Model manual available at
www.amvab.dk/graphics/Byrdebarometer/Procesguide/Fase_1/ManualSCM.p
df.
This UK manual is largely based on a translation of the Standard Cost Model
manual used in Denmark.

---

Contents

1. Introduction 7
1.1. Objectives 7
1.1.1. Different types of Standard Cost Models measurements
8
1.2. About this manual
8
2. Standard Cost Model: Outline
11
2.1. How to estimate administrative costs?
11
2.1.1. How are administrative costs defined?
12
2.1.2. What are information obligations and what are their components? 12
2.1.3. What is meant by business?
12
2.1.4. What is central government regulation?
13
2.1.5. How to estimate costs?
13
2.2. How does it all fit together?
13
3. Standard Cost Model: detailed description
15
3.1. Definitions and concepts
15
3.1.1. Financial costs
15
3.1.2. Compliance / Policy costs
15
3.1.3. Administrative burdens versus administrative costs
15
3.1.4. Administrative costs
15
3.1.5. Administrative burdens
15
3.1.6. Information obligations
16
3.1.7. Data requirement
17
3.1.8. Administrative activity
17
3.1.9. Business 17
3.1.10. Government 18
3.1.11. Non-Government 18
3.1.12. Regulation 18
3.2. Costs 19
3.2.1. Cost parameters
19
3.2.2. Price 19
3.2.3. Tariff 20
3.2.4. Time 20
3.2.5. Quantity 21
3.2.6. Acquisitions 21
3.2.7. The normally efficient business
21
3.2.8. One-off costs and recurring costs
22
3.3. Origin of regulation
23
3.4. Coverage of measurement
25
3.4.1. International rules implemented in regulations are measured
25
3.4.2. All compulsory and voluntary regulations
25
Better Regulation Executive

3

---

3.4.3. Full compliance
25
3.4.4. Regulations including the reimbursement of administrative costs
26
3.4.5. Contingent requirements
26
3.4.6. Geographical coverage
26
3.5. Segmentation 27
3.5.1. Firm size
27
3.5.2. Industry sector
27
3.5.3. e-Government solutions
28
3.6. Flow of regulation and updating the baseline
28
3.6.1. Flow of new regulation
28
3.6.2. Standard Cost Model and Regulatory Impact Assessment
29
3.6.3. Assessing progress
30
4. Measurement process
31
4.1. Phase 0 – Start-up
32
4.2. Phase 1 – Preparatory analysis
33
4.2.1. Step 1: Identification of information obligations, data requirements and
administrative activities and classification by origin
33
4.2.2. Step 2: Identification and demarcation of related regulations
34
4.2.3. Step 3: Identification of segments
34
4.2.4. Step 4: Identification of population, rate and frequency.
35
4.2.5. Step 5: Business interviews versus expert assessment
35
4.2.6. Step 6: Identification of cost parameters
36
4.2.7. Step7: Preparation of interview guide
36
4.2.8. Step 8: Expert review of steps 1-7
36
4.3. Phase 2 - Time and cost data capture and standardisation
37
4.3.1. Step 9: Selection of typical businesses for interview
37
4.3.2. Step 10: Business interviews
37
4.3.3. Step 11: Completion and standardisation of time and resource
estimates for each segment by activity
38
4.3.4. Step 12: Expert review of steps 9-11
38
4.4. Phase 3 – Calculation, data submission and reports
39
4.4.1. Step 13: Extrapolation of validated data to national level
39
4.4.2. Step 14: Reporting and transfer to database
39
5. Detailed measurement guidance
41
5.1. Borderline cases in the scope of standard cost analyses
41
5.1.1. Treatment of complaints
41
5.1.2. Differentiation between households and businesses
41
5.1.3. Measuring the administrative costs of inspections
42
5.1.4. Tribunals, court cases and investigations
42
5.1.5. Start-ups and first time compliance
42
5.1.6. Reading guidance
42
5.2. Breaking down regulations into information obligations and data
requirements 43
5.2.1. Information Obligations: example types
43
5.2.2. Categorisation of data requirements
45
4

UK Standard Cost Model Manual

---

5.3. Identification of administrative activities
51
5.4. Classification of data requirements by origin
52
5.5. Demarcation of regulation
54
5.6. Segmentation 54
5.6.1. Firm size
55
5.6.2. Industry sector
55
5.6.3. e-Government solutions
55
5.6.4. Other segmentation issues
55
5.6.5. Limitations on industry sector analysis
57
5.7. Specifying population, rate and frequency
58
5.8. Business interviews versus expert assessment
60
5.9. Identification of cost parameters
61
5.9.1. Internal occupation groups
61
5.9.2. Overhead 62
5.9.3. External service providers
62
5.9.4. Acquisitions 63
5.10. Preparation of interview guide
64
5.11. Selection of typical businesses for interview
65
5.12. Conducting business interviews
66
5.13. Identifying the normally efficient business
67
5.14. Completion and standardisation of time and resource estimates
for each segment by activity
68
5.15. Reporting 69
5.15.1. Presentation of results
70


Better Regulation Executive

5

---

---

1. Introduction
In the Budget on 16 March, the Chancellor announced the Government’s
acceptance of reports from the Better Regulation Task Force (BRTF) and the
Hampton Review.

Recommendation 1 of the BRTF report is that the UK should adopt the
Standard Cost Model and use it to measure the baseline of the Administrative
Burden in the UK by May 2006. This manual sets out how the Standard Cost
Model will be applied in the UK.

The Standard Cost Model (SCM) – also known as the Dutch model – provides
a framework methodology for measuring administrative costs. To implement
this model in the UK, a number of specific implementation and methodological
choices need to be made.

To allow measurements to be compared and targets for reductions to be set
across government, consistency in methodology and measurement is critical.
This approach does not give a statistically representative measurement –
which would be both a very expensive and lengthy process. Instead it is a
pragmatic approach to measurement that gives indicative data on the size of
burdens to allow reduction targets to be set and areas to focus on identified.
In light of this it is important that the model is applied in the same way across
government with any errors and biases as likely as possible to be in the same
direction.

1.1. Objectives
The aim is to implement a system of measuring the administrative burden
imposed by the Government through regulation in a way that allows targets for
reduction of the burden to be set and provides incentives to policymakers to
pay increased attention to the administrative burden they may impose. The
application of the SCM should be action-oriented to allow practical
simplification measures to be undertaken and targets for burden reduction
achieved.

The system should provide motivation for culture change in policymaking
throughout Government and the adoption of Better Regulation practices. It
should be placed in the context of the UK’s well developed Regulatory Impact
Assessment process, meaning that in making and reviewing policy the relative
costs and benefits of each option overall should be considered and weighed
up against the administrative burden that would be imposed while meeting the
policy objectives.

The BRTF recommended that the UK adopt the international Standard Cost
Model as used in the Netherlands and Denmark. As such in implementing the
SCM in the UK any variation from international practice needs to be justified.
This is particularly important at a time when both the European Union and
Better Regulation Executive

7

---

OECD are looking at using the SCM or and SCM-based methodology for
international comparisons of administrative burdens.

1.1.1. Different types of Standard Cost Models measurements
A Standard Cost Model measurement may consist of a measurement of the
anticipated administrative consequences of a draft law, draft executive order
or other initiative. Such a measurement is designated an ex-ante
measurement of the administrative costs as it is a measurement of the
administrative consequences of a regulation before it is implemented. The
results from an ex-ante measurement may, for example, form part of the
overall consequence assessment of a bill’s economic and administrative
effects on the public sector, businesses, citizens, environment etc.

A Standard Cost Model measurement can also consist of the factual
administrative consequences for the businesses in respect of an implemented
law, statutory instrument or other initiative. Such a measurement is
designated an ex-post measurement of the administrative costs as a
measurement of the administrative costs that arise after a regulation has
come into effect and has been able to have an impact on business. An ex-
post measurement is carried out when an initial measurement is to be made
of the overall administrative costs in an area of regulation, known as a
baseline measurement.

A baseline measurement is a statement of the overall administrative costs that
businesses have in following a current set of regulations at a given point in
time. A baseline measurement may be made of selected areas of regulation
or of all regulation that affects business.

Ex-post measurements are also conducted in order to keep the baseline
measurement updated with the consequences of new or amended
regulations. This should form part of wider departmental evaluation
programmes. It is suggested that three years after implementation is an
appropriate time for this to occur. At this time the ex-ante estimates of the
administrative costs produced at the time of implementation can be reviewed
and updated if necessary.

The Better Regulation Executive has the responsibility for co-ordinating and
quality assuring both ex-ante and ex-post measurements. The measurements
cannot, however, be carried out without extensive involvement by the relevant
government departments, which possess the professional expertise in the
regulatory areas. The actual measurements are usually conducted by external
consultants. Business organisations also need to be involved.

1.2. About this manual
This manual describes how a Standard Cost Model measurement is to be
carried out. The aim of the manual is for it to provide an exhaustive
description of the Standard Cost Model method, whereby the most important
questions in connection with the employment of the method may be answered
8

UK Standard Cost Model Manual

---

by reference to the manual. It is, however, important to stress that the method
is not static. The fundamental principles remain intact, but elements in the
method will be constantly developed in line with the method being employed
in new areas and in relation to new problems. The manual is not, therefore,
definitive, but will be updated in keeping with the method’s continued
development.

This is the first edition of the UK manual and is based on the fourth edition of
the Danish manual.

This manual is in four parts. The first two describe the Standard Cost Model,
with chapter 2 containing an outline of the model and chapter 3 a more
detailed description. Chapter 4 outlines the measurement process and
chapter 5 gives more detailed practical measurement information. There are
also a number of annexes in a separate volume.



Better Regulation Executive

9

---

---