Supplementary memorandum submitted by
the Environment Agency
Questions 19-20 (Mr Richard Bacon): Activity Based
Costing
The Environment Agency has worked to improve
its efficiency and effectiveness since its formation. The Agency's
inherited financial and human resources (HR) systems inhibited
efficiency and provided inadequate financial and human resources
management information.
Spending Review 2002 provided the financial
resources to replace the previous ageing systems. The Agency in
2002 developed a business case for replacing the finance and HR
systems with an integrated enterprise suite of finance and HR
resource systems (known in the Environment Agency as "IBIS").
The implementation was to proceed on a phased basis with the most
significant elements of finance functionality being introduced
in March 2005. This provided the basis to cost activities and
outputs known as Activity Based Costing (ABC).
The core systems were provided by Oracle with
the ABC system provided by another supplier (Prodacapo), due to
a gap in Oracle's provision. The following summarises the key
areas questioned:
Timing
The ABC component of the IBIS project lasted
15 months (including the procurement phase) and transitioned to
being part of normal business at the end of March 2005. The gap
between identifying the requirement for ABC and implementing it
was due to the need to first implement IBIS financials which provides
the necessary Time Recording and Cost data to create the ABC information.
Cost
The total cost of the ABC system implementation
was £600,000. Pricewaterhouse Coopers were commissioned as
external consultancy support for specialist advice on system selection
and procurement strategy based on their knowledge of the marketplace,
at a cost of around £10,000. Tribal Government Consulting
provided an external IT and project management service at a cost
of around £307,000.
Status
Following the gathering of time and cost information
from April 2005, managers in the Environment Agency have now received
their first set of ABC information. This is providing baseline
data from which to analyse improvement opportunities and track
benefits from change. Work is underway to identify and realise
efficiency benefits in a number of areas. These benefits will
be implemented systematically in the next two years and beyond.
Question 23 (Mr Richard Bacon): Streamlining Abstraction
Processes
Streamlining Abstraction Processes is a business
process change project that has developed new IT systems which
will deliver efficiencies in the core regulatory activity of abstraction
licensing and reduce burdens on business.
The two main strands of this work are business
change and IT development. Two consultants are assisting us in
these changes, Logica CMG for the business change and Science
Systems (SciSys) delivering the generic IT regulatory tool across
all of the modernising regulation projects.
Logica CMC are contracted until February 2006
at a total cost of around £66,000.
The Environment Agency has awarded SciSys a
three-year contract to provide core services in support of the
development and enhancement of key regulation systems in England
and Wales. £15 million is being budgeted for by the Environment
Agency to provide technological enhancements to enable improved
and streamlined delivery of regulation processes for delivering
the whole of the Modernising Regulation IT infrastructure, to
include the SAP project.
Our business case identified costs of £8.8
million over the three years of the project, with benefits rising
to at least £3.5 million per annum following completion and
bedding in the of the new processes. We are currently preparing
detailed plans for implementation following recent approval to
proceed with the project.
Question 33 (Mr Richard Bacon): Asset Management
Strategy
Following a review of the Environment Agency's
asset management policies and procedures, the Agency is taking
forward a more integrated and strategic approach to Asset Management.
This will identify modern asset management techniques to deliver
significant efficiencies to the Agency.
The Environment Agency operates physical assets
to the value of £20 billion, and spends some £400-500
million per annum on their renewal, upkeep and maintenance. There
is potential for significant savings to be achieved, by looking
at the way in which these assets are currently managed, by identifying
appropriate standards of maintenance, and by analysing ways of
providing such maintenance.
In developing the strategy we have learnt from
the experience of others in successfully introducing asset management
in comparable businesses.
The strategy will be prepared by April 2006
and will demonstrate how more efficient asset management will
be developed in the Environment Agency, including ways to deploy
staff and reduce costs whilst ensuring an acceptable standard
of maintenance of assets. The project is developing a detailed
business case for a preferred option setting out the likely benefits,
costs and risks.
To construct the right strategy for the Environment
Agency we needed to access skills and experience in our current
business practices, recent developments and operating risks. This
internal knowledge needed to be complemented with experience of
delivering cost savings through the implementation of modern asset
management techniques in a similar large, complex organisation.
The external specialist support is provided
by an independent consultant who worked in several operating roles
(including Director of Operations) during a 12 year period whilst
asset management practices were developed and embedded within
Wessex Water.
The approved budget for the project of developing
the asset strategy is £200,000 in direct costs. It is due
for completion by the end of March 2006.
During the past two years we have made improvements
in asset management. We now have solid records of asset condition,
held in a national database. This work was initially focussed
on flood risk management assets and has now been widened to navigation
and water resource assets. The improved information of asset condition
has helped us to target capital, maintenance and operational funding
to best manage risk and optimise whole life costs. We have initiated
a substantial programme of improvements to our navigational assets.
Question 69 (Jon Trickett): Cost re-allocation
between Flood Risk Management and Water Resources
We have recalculated 2005-06 standard unit charges
for abstraction to show the impact of adjusting for the NAO recommendations
which will be taken forward (principally the reallocation of hydrometric
costs from water resources to flood risk management).
It should be noted that a number of important
other factors will bear upon the actual unit charges which we
will be proposing for 2006-07 (including pay and price inflation,
changes in workload, changes in the fixed asset infrastructure
affecting cost of capital charges, and other efficiency improvements).
Nevertheless, the table below isolates the impact
of reallocation in line with the NAO Report based on 2005-06 charges
rates:
| Region | Standard Unit Charges per 1,000 metres cubed 2005-06
|
| Actual | Adjustment for Reallocations, etc
| Revised |
| £ | £
| £ |
| Yorkshire | 10.03 | -0.22
| 9.81 |
| Thames | 11.91 | -0.48
| 11.43 |
| North West | 11.98 | -0.49
| 11.49 |
| Midlands | 12.76 | —
| 12.76 |
| Southern | 16.71 | —
| 16.71 |
| Wessex | 18.34 | -0.18
| 18.16 |
| South West | 18.34 | -0.18
| 18.16 |
| Anglian | 21.72 | -0.55
| 21.17 |
| Northumbria | 23.57 | -0.22
| 23.35 |
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As explained in the NAO Report and reinforced at the PAC
hearing, unit abstraction charges are fixed on a regional basis
to recover the Environment Agency's water resources costs incurred
in the particular regions.
The variations in regional unit rates reflect the major differences
in infrastructure costs and workload, which exists between the
regions. For example, the high unit charge in Northumbria is primarily
attributable to the section 20 charges for Kielder, while the
unit charges in the Anglian region reflects the high cost of capital
charges for the supporting infrastructure, including the major
Ely—Ouse transfer scheme. The unit charges in Southern,
Wessex and South West reflect the higher workload on water resource
planning and management in those regions.
The development of activity based costing and use of benchmarking
between regions will help us to isolate the efficiency component
from other cost elements in unit charge variations and to inform
and drive further efficiency improvements.
Question 75 (Mr Richard Bacon): Sea Defences
North Norfolk District Council has lead on the production
of a second generation Shoreline Management Plan (SMP) covering
the area between Kelling Hard and Lowestoft on the Norfolk coast,
called the Norfolk SMP. The first SMP for this stretch of coastline
was produced in 1996. All of the current SMPs are now due to be
reviewed, in line with Defra guidance. The Norfolk SMP was one
of three pilot SMPs using the revised Defra guidance.
Policies set in the first SMP document have not been universally
applied. Their initial inclusion was motivated by local politics
or public opinion, whether or not the measures were demonstrably
economically or physically sustainable. For example, a policy
of "hold the line" for Happisburgh could not be sustained
by North Norfolk District Council owing to the costs involved
and in consequence there has been continued erosion of the coastline.
The second generation SMP contains policy options that work towards
a long-term vision over three time frames, 0-20 years, 20-50 years
and 50-100 years, although there is no evidence that unpopular
but sustainable options will be any easier to achieve second time
around.
The proposed short-term policies for the new SMP provide
a high degree of protection for existing communities against flooding
and erosion. The preferred long-term policies set out in the new
plan promote greater sustainability of the shoreline, and one
more in keeping with the natural character of the coast. However
compliance will be difficult where unpopular choices are made
even though the actions to be taken may be some years away.
Continuing to defend the shoreline in a manner similar to
today would produce a significant alteration in the nature of
the coast, with large concrete seawall structures and few beaches.
This might maximise protection to property and land, but would
be both difficult and very expensive to sustain.
The SMP has been split into four management units. For unit
three, Eccles to Great Yarmouth, the preferred policy is minimal
intervention. The position of the existing hard defences are preventing
the natural movement of sediment and structures will become increasingly
difficult to maintain or justify over time as the coastal system
retreats. This whole length of coast is reliant upon sediment
eroded from the cliffs of North Norfolk for beaches to provide
natural defence, which has been supplemented in recent years through
beach recharge along the Eccles to Waxham frontage. The reefs
at Winterton will defer problems for up to 50 years but it is
recognised that beyond that time continuing to apply this measure
may become increasingly difficult to sustain. The impacts upon
areas further down coast may also be significant, if this position
continues to be held long-term, as they will receive no natural
sediment, which will deplete beaches and accelerate erosion. The
preferred policy for this area is to investigate the potential
for change whilst still defending, with a view to longer term
set back of defences.
At the southern end of this section, Great Yarmouth is a
location that justifies full protection on economic grounds against
erosion or flooding. With the exception of the northern and southern
extremities of the town, the beach provides ample protection,
provided that sediment supply is maintained. The presently defended
areas of Caister and California will continue to be defended for
some time. If such a policy continued to be applied into the long-term,
there would be a significant impact on sediment supply, potentially
interrupting sediment transport to Great Yarmouth. Therefore the
longer term Plan should allow for some realignment of the shoreline
to take place north of Caister Point to enable improved material
movement along this coastline.
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