An activity-based costing model for Legal Aid Manitoba:
Design and implementation challenges
Greg Mason
Department of Economics
University of Manitoba and PRA Inc.
Rita Gunn
PRA Inc.
Brenda Chorney
PRA Inc.
June 3, 2007
An activity-based costing model for Legal Aid Manitoba: Design and implementation challenges
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Introduction
Cost-benefit (CBA) and cost-effectiveness analysis (CEA) obviously require good measures of
cost. The focus tends to be on measuring outcomes through some form of net impact. However,
the complexities of measuring costs can pose important problems for proper estimation of value
for money. Organizations that wish to understand cost drivers and opportunities for realigning
resources also require accurate measures of cost.
Unfortunately, accounting techniques that are needed to report company progress to shareholders
or for taxation purposes can fail to reveal the true economic costs of producing any good or
service. This is exactly the same issue that confronts an evaluator who wishes to evaluate the true
cost of producing any output or outcome.
Activity-based costing (ABC), now well into its third decade since its original development,
offers one approach to collecting and presenting cost data that aligns with outputs and outcomes.
This paper presents an overview of ABC, applies the technique to understanding costs within a
specific operational review setting, and then draws some lessons, especially with respect to the
requirements for collecting data and the institutional and management culture barriers that may
impede the collection of the data.
Critique of conventional accounting for evaluation and operations analysis
Conventional accounting statements, such as those that appear in various organizational reports,
such as the Legal Aid Manitoba (LAM) Annual Report, present important information for macro
budgeting and financial control. As is typically the case, the LAM Annual Report presents costs
associated with major expense categories such as private bar legal fees/disbursements,
community law centres, and general and administrative expenses. Further detail appears in a
statement that identifies cost categories such as advertising, meetings, telephone, and salaries
(about 2/3 of the total).
Unfortunately, this additional detail does not support resource allocation and planning since all
categories of spending appear to be necessary. How does one cut back on telephone, salaries, or
supplies generally, without knowing the contribution made to the outputs of the firm? One needs
to apportion each expense to each output.1
In the context of an evaluation, the key problem is to determine the value for money obtained
from each outcome. These may be traced back along the logic model and result chain, however
enumerating the activities is not the same as placing a cost on the activities.
1
The other side of the value “equation” is to measure the contribution of an output to revenue, but this is
typically an easy thing to do in the private sector. This is more challenging in a public sector context where
outcomes are not readily linked to activities and outputs.
An activity-based costing model for Legal Aid Manitoba: Design and implementation challenges
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In the context of a program evaluation and/or operational review, two limitations exist with
conventional accounting.2

First, the statements of expenditure offer little insight into the costs of individual
processes/products/services and do not support management in the identification of where
operational changes might increase capacity. In an evaluation setting, because resources may
be shared by several outputs/outcomes, the cost of producing an outcome is not known.

Second, these conventional statements do not reveal the administrative costs involved in
delivering services. Most statements identify fixed costs such as rent and may identify some
management salaries as “administrative.” However, operational staff does some
administration, and senior management does spend a portion of its time in managing a
specific results chain. The cost of the innumerable meetings used to deliver programming
need to be assigned to the program outcomes. Also, in some cases management may offer
direct services such as performing legal work or other “line duties,” often just to “keep their
hand in.”
The consequence of these limitations is that the true cost of offering services is typically
understated. This leads to errors in value for money estimates.
Activity-based costing – rationale
The focus of activity-based costing (ABC) is to assign all costs – direct and indirect – to the
processes that characterize an organization. ABC has its origins in the need for organizations to
identify the full cost of creating specific outputs. In an earlier era, say the time when Ford
produced one black model, there was little need for detailed analysis of the costs for producing
that product. A typical automotive firm now produces many models. More significantly, the
proportion of costs devoted to research, design, advertising, regulatory compliance and other
services is much higher than it was in the 1930s. ABC assigns these costs to specific models to
identify the true cost of production.
Figure 1 presents a schematic of a traditional accounting statement of expenses. Salaries,
supplies, and “other” typically comprise variable costs, and items such as rent comprise fixed
costs and must be borne regardless of level of activity.
2
It is important to emphasize that conventional financial statements are very important for financial
reporting; activity-based costing is not a replacement for conventional accounting, but a complement.
An activity-based costing model for Legal Aid Manitoba: Design and implementation challenges
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Traditional Cost
Accounting Model
+
Variable
Salaries
Supplies
+
Other
Rent
Fixed
+
=
Total Cost
Figure 1: Traditional Cost Accounting
In a service sector agency, such as LAM, 70% or more of the costs are salaries. The central point
is that although some staff are 100% involved in administration, most staff do some
administration each day. Estimating the time spent by each staff member in administration and
then translating that into a share of salary, summing across all positions, will produce a true
estimate of the salary component directed to administration.
Also, and this is the most important point, many departments produce more that one output. In
measuring value for a specific activity-output-outcome, which may be termed a “business line,”
the traditional financial statement, whether it be for a private firm or public agency, typically
does not produce a separate income-expenditure statement for each business line.
The goal for ABC is to accurately measure the full costs of producing the outputs required under
the legislation that created LAM, specifically legal advice/counsel and legal representation in
various criminal and civil matters.
An activity-based costing model for Legal Aid Manitoba: Design and implementation challenges
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Figure 2 presents a decomposition of a typical business line, which is nothing more than selected
elements of a logic model. Typical service lines include:





Research and development
Promotion
Financial assistance
Technical assistance
Specific interventions for labour market training, health promotion, etc.
A program may consist of one or many service lines, depending on the complexity of the policy.
Note also that not every service needs to include the same activities.
Service Line 1
Service Line 2
...
Service Line n
Activity 1
Activity 1
...
Activity 1
Activity 2
Activity 2
...
Activity 2
...
Activity 3
Outputs and
Outcomes
Outputs and
Outcomes
Figure 2: Activities and service lines
Activity 3
Outputs and
Outcomes
An activity-based costing model for Legal Aid Manitoba: Design and implementation challenges
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Most of the cost in any public or private service is labour. The “trick” is to collect information
from all classes of staff on the activities each completes in support of the services line. It is
important to reiterate that all staff means everyone from clerk to CEO, and further, that the menu
of activities must encompass everything done to produce the outputs in the service line. Figure 3
shows how one moves from a traditional costing model through an activity costing.
Activity 1
(Time)
Service
Line 1
Person 1 (Time x wage)
Service
Line 2
Service
Line k
Cost of person
1 in activity 1 in
service line 1
Cost of Person
1 in Activity 1
Person 2 (Time x wage)
Cost of Person
2 in Activity 1
Person 3 (Time x wage)
Cost of Person
3 in Activity 1
+
+
Time cost of
service line 1
(Activity 1)
Time cost of
service line 2
(Activity 1)
+
Time cost of
service line k
(Activity 1)
Total Cost of
Activity 1
Figure 3: Decomposition of activities among service lines for all staff involved
The final step is to show how traditional cost accounting decomposes into activity based cost
accounting and how the two models are just two perspectives on the same set of facts. Figure 4
starts with the traditional model on the left, then decomposes the service lines into activities to
allocate the costs of wages on the right. Administrative and other overhead costs can be
prorated, provided they do not comprise a large portion of the costs. It is very important that
management time be included in overhead, and that all wages and salaries be allocated to
activities.
An activity-based costing model for Legal Aid Manitoba: Design and implementation challenges
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Figure 4 clearly shows that conventional cost accounting and activity based costing are simply
different perspectives. The advantage of ABC is that the interpretation of a service line as a
results chain element of a logic model supports a precise costing of each output and, from there,
an accurate value for money estimation.
Service Line Decomposition
Activity
(Time)
+
Service
Line 1
Service
Line 2
Service
Line k
Cost of
activity 1
+
2. Time x wage
Cost of
activity 2
+
3. Time x wage
Cost of
activity 3
+
Salary 1
1. Time x wage
Salary 2
Salary 3
Cost of activity 1
in service line 1
+
+
:
=
Total
Salary
Salary Cost of
Service Line 1
Salary Cost of
Service Line 2
+
+
Fixed
Costs
Total
Salary
Salary Cost of
Service Line k
+
=
:
=
Fixed cost
allocated to
Service Line 1
Fixed cost
allocated to
Service Line 2
Fixed cost
allocated to
Service Line k
Service Line
1 cost
Service
Line 2 cost
Service
Line k cost
Fixed
Costs
+
=
Total Cost
+
+
Figure 4: Service line decomposition
Total Cost
=
=
An activity-based costing model for Legal Aid Manitoba: Design and implementation challenges
Steps in the activity-based costing process – Application to legal aid
In simple terms, ABC requires the following steps: defining the processes used within an
organization; creating an Activity Dictionary that translates processes into specific steps against
which employees may record time; collecting information on the time spent on each activity by
each employee; calculating the annual time spent across the organization in each activity; and
then, using salary information to place a dollar value on each activity.
The service flows and activities of the organization need careful mapping. This process will
typically require extensive consultation with managers to ensure accuracy in process
descriptions. Figure 5 presents a typical process diagram for a component of legal aid services.
Application/Intake (Private Bar)
Output
Issue Certificate
Case Accounts Payable
YES
Receive application
from private bar
(Verify completeness,
obtain more
information...)
Review application
(Apply eligibility criteria)
Accept as certificate?
(Review file, verify information,
obtain additional information...)
YES
Referrals/Appeals
(Review application,
determine whether
to forward)
NO
Applicant appeals
Rejection
(Inform applicant)
Output - Rejections
issued
(Counsel applicant,
correspondence, record
decision.. .)
Figure 5
NO
Accept appeal?
(Review appeal, make
decision)
7
An activity-based costing model for Legal Aid Manitoba: Design and implementation challenges
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The next step is to identify major activity areas and service lines. Table 1 shows the 10 major
activity areas and service lines developed for this study. A key element of the application of
ABC to this review is that we tracked activities for serving criminal adult, criminal youth, and
civil cases. For some activities (8, 9, and 10) where some staff could not assign their time to
criminal or civil cases, we allowed them to enter time in “all categories.”
Table 1: Major areas of activities for LAM
Activities related to:
Service line
Application Intake (Formal certificate applications – private and LAM)
Criminal
adult
Criminal
youth
Civil
2.
Application Intake (Certificate equivalent, informal LAM cases)
Criminal
adult
Criminal
youth
Civil
3.
Case Assignment Process (within LAM)
Criminal
adult
Criminal
youth
Civil
4.
Duty Counsel (LAM) or Drop-in Centre
Criminal
adult
Criminal
youth
Civil
5.
Case Conduct (LAM – informal cases, certificate equivalents and
certificates)
Criminal
adult
Criminal
youth
Civil
6.
Accounts Payable (Invoices by private bar – taxation)
Criminal
adult
Criminal
youth
Civil
7.
Accounts Receivable (Clients on partial or full contribution, charge on
land)
Criminal
adult
Criminal
youth
Civil
8.
IT systems support (Use all service lines if time cannot be allotted between
Criminal
Criminal
youth
Civil
Criminal
adult
Criminal
youth
Civil
Criminal
adult
Criminal
youth
Civil
Criminal
adult
Criminal
youth
Civil
1.
criminal adult, criminal youth, and civil cases)
Internal support – Not case related (Use all service lines if time cannot be
9.
allotted between criminal adult, criminal youth, and civil cases)
10.
External relations – Not case related (Use all service lines if time cannot be
allotted between criminal adult, criminal youth, and civil cases)
Activities unusual for a typical day (Use all service lines if time cannot be allotted
between criminal adult, criminal youth, and civil cases)
All
Service
Lines
All
Service
Lines
All
Service
Lines
All
Service
Lines
Table 2 presents part of the final Activity Dictionary and shows the sub-activities within the first
activity: “Activities related to Application Intake.” Intuitively, the more activities and subactivities identified in the Activity Dictionary, the more accurate the costing. However, limits
exist to the detail that employees can recall and record.
Table 2: Activities related to application intake
Activities related to:
1. Application Intake (Formal certificate applications – private and LAM)
a.
b.
c.
d.
e.
f.
g.
h.
i.
Clarify application with the person that took the application (calling back to
ask questions about application)
Determining eligibility and making eligibility decisions (gathering facts,
meeting/interviewing applicants, consulting with senior management and/or
intake officers, responding to applicant enquiries, computer searches, court
registry, Internet, telephone advice)
Inform applicant of decision and respond to inquiries on decisions (issue
certificate or amendment/issue rejection of application and appeals)
Review appeal
Monitoring/supervising staff
Review staff operations
Allocate workload
Correct mistakes
Office support for application intake (e.g., pulling files, filing, faxing, or
photocopying)
Time by service line
Criminal
adult
Criminal
youth
Civil
An activity-based costing model for Legal Aid Manitoba: Design and implementation challenges
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The preparation of the full Activity Dictionary (see Appendix A) requires extensive pre-testing.
A single form must work for all employees from senior management to lawyers to part-time
clerks. Each sub-activity includes additional descriptors to guide respondents in recording time.
Despite the pre-testing, once data collection started, research staff at PRA needed to spend time
clarifying details to ensure that staff had a common understanding of the requirements.
Two separate weeks served as data collection periods. All staff received five copies of the
Activity Dictionary with instructions on completion. In the first data collection period
(November 14 - 18), some staff placed their time in aggregate categories or did not separate the
time on the three service lines (criminal adult, criminal youth, and civil). PRA staff spent time
calling back respondents to clarify the intent. The second data collection period produced much
superior data; we elected to use this data for the subsequent calculations.
The “raw” data consisted of approximately 155 forms (one for each staff member) for each of
the working days that week. Two critical assumptions underlie ABC:


staff must enter their hours faithfully and accurately
the Activity Dictionary must capture the processes used by the organization.
The data required adjustment in several ways. For example, there were several employees who
were away for all of the second week. In such instances, we used their time reported for the first
week. We also excluded any time employees reported as non-working time, such as time spent
at doctors appointments, holiday time, or sick time. We then normed all working hours to each
employee’s standard work week (36.5 hours for full-time and the expected work hours for parttime). The argument is that while someone might work overtime during the observation, on
average, the hours worked will average to a common number — and the standard work week
seems reasonable. Finally, because staff had the option of entering time in either six-minute
increments (common for lawyers entering time), total minutes, or percent of their day, these all
needed to be converted to fractions of an hour.
PRA staff checked all received forms (155 staff x 5 days, or 775 forms) for consistency. Due to
the complexity of the forms, we used double entry to ensure accuracy.
An activity-based costing model for Legal Aid Manitoba: Design and implementation challenges
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Estimation of activity cost
We used the hourly wage for each employee to compute the cost of each activity, first for that
employee, and then for the whole organization. The result was a weekly cost (in terms of salaries
and benefits) for each of the activities and sub-activities identified in the Activity Dictionary and
classified by service line.
For example, in a typical week, LAM has 5,473 hours of employee time, which is split between
criminal adult (2,426 hours), criminal youth (388 hours), and civil (2,659). The total salary cost
for all services is $165,980. Annual employee hours are 284,605, with a total salary of
$8,630,956. Table 3 presents estimates of salary costs for the activities and by management,
legal, and support staff. 3
Table 3: Allocation of salaries to activities by staff categories - annual values
Management
Legal staff
Support staff
1.
2.
Application Intake (Formal certificate
applications)
Application Intake (Certificate
equivalent, informal LAM cases)
All staff
$147,111
20.3%
$100,396
1.9%
$566,525
22.6%
$814,033
9.4%
$36,012
5.0%
$67,312
1.2%
$11,290
0.5%
$114,613
1.3%
0.1%
3.
Case Assignment Process
$5,002
0.7%
$33,196
0.6%
$3,104
$41,303
0.5%
4.
Duty Counsel or drop-in centre
$24,591
3.4%
$1,011,869
18.7%
$67,975
2.7% $1,104,436
12.8%
5.
Case Conduct
$45,801
6.3%
$3,670,280
67.9%
$794,221
31.7% $4,510,302
52.3%
6.
Accounts Payable
$55,065
7.6%
$2,773
0.1%
$151,767
7.
Accounts Receivable
8.
IT systems support
9.
Internal
10. External relations
Note:
$209,605
2.4%
$8,408
1.2%
$455
0.0%
$169,889
6.8%
$178,752
2.1%
$31,566
4.4%
$5,587
0.1%
$252,883
10.1%
$290,035
3.4%
$329,856
45.5%
$465,481
8.6%
$475,534
19.0% $1,270,870
14.7%
$40,989
5.7%
$45,562
0.8%
$10,456
$724,401 100.0%
% of total by staff category
6.1%
8.4%
$5,402,911 100.0% $2,503,645
62.6%
29.0%
0.4%
$97,007
1.1%
100.0% $8,630,956 100.0%
100.0%
Salaries are derived from the activity time sheets and current salaries. The total salary will not match data in the annual reports.
To reiterate, two goals exist for this approach to costing.

3
First, we wish to understand the cost of each activity and, from there, compute various
aggregates of activity. Most important, we can calculate the time (and salary cost) of
direct client support versus the cost of indirect client support. Direct client support is the
actual provision of legal services to the client. The key idea is simple: some staff may
spend all their time in indirect client support. However, no one spends all his or her time
in direct client support. Even a lawyer involved only in duty counsel has administrative
responsibilities. This calculation supports a more accurate computation of the costs
incurred in administration. For example, LAM staff spends about 33% of the total salary
budget in indirect client support. In terms of criminal adult cases, 35% of the total salary
goes to criminal adult support (and 65% to direct client service). In contrast, only 56% of
the salary goes to direct client support of criminal youth, and 44% is used for indirect
client support.
Management includes all senior managers, Executive Director, and the Chair of the Management Council.
Legal staff includes lawyers (including supervising attorneys), paralegals, and articling students.
An activity-based costing model for Legal Aid Manitoba: Design and implementation challenges

11
Second, the ABC supports accurate calculation of the costs of providing services through
staff counsel versus the private bar. This is a central question facing all mixed systems.
Typically, estimates of the cost of certificates handled by private bar versus staff counsel
use average costs. The crudest estimates simply use the total number of certificates
divided into the total tariffs paid to the private bar to obtain the average cost. Similarly,
the total costs of legal aid services (less the tariff paid to the private bar) divided by the
number of certificates is a common method for estimating the cost of a case through staff
counsel.
Another approach is to prorate reported administrative overhead (leases, utilities, and salaries of
administration) to private and staff counsel using the percentage of certificates handled. The
method used in this study is an attempt to include the portion of the total salaries that are
administrative (indirect client support) as well as the traditional administrative overhead (leases,
utilities, and other “hard” costs).
How Legal Aid Manitoba spends time and salaries
It is possible to calculate the costs of many combinations of activities and sub-activities, to all
the staff, or just a component, such as management or legal. Table 4 presents the salary costs of
court appearances, and shows that LAM spends 16,912 hours a year in court appearances, for a
salary total of $687,485, or about $40 per hour. Recall this includes lawyers, paralegals, and
students.
Table 4: Cost of court time – court appearance and court waiting
Court time
Salaries
Total hours
Court appearance
All services
$687,485
16,912
Criminal adult
$483,912
11,671
Criminal youth
$50,081
1,418
Civil
$153,492
3,823
Waiting in court
All services
$252,039
6,743
Criminal adult
$208,852
5,561
Criminal youth
$15,152
346
Civil
$28,035
836
Much of court time involves waiting to see clients, Crowns, etc. This waiting time costs LAM
about $250,000 per year with the bulk of the costs borne in criminal adult cases.
An activity-based costing model for Legal Aid Manitoba: Design and implementation challenges
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An example of how the interaction was used is in calculating net administration costs for time
spent in supporting client services. While gross administration includes all time not spent either
in support of case conduct or duty counsel, net administration includes all time not spent in direct
contact with clients (i.e., time not spent in providing legal services, taking applications for
service, or answering questions). These “behind the scenes” costs are needed to support an
organization. Table 5 presents these costs. Legal Aid spends over 100,000 hours in net
administration, and $2.8 million (of the $8.6 million total salary budget) in gross administration,
or about 33%. We use this number to estimate the true administrative cost of other legal aid plans
in Canada.
Table 5: Net administration
All services
Criminal adult
Criminal youth
Civil
Salaries
$2,782,787
$1,350,341
$275,996
$1,156,450
Hours
102,341
49,563
9,967
42,812
Every organization wastes time through repeating work, correcting mistakes, and so forth. The
ABC reveals that this “churn” (see Appendix B for the formula used to define this) costs LAM
about $345,000 per year.
Calculating the costs of supporting the private bar
The cost of certificates handled by the private bar is not just the tariff. Some of LAM internal
staff time is work that supports private bar certificates, for example, for taxation. Therefore, the
share of LAM costs that should be allocated to the costs of a private bar certificate is the tariff,
plus a share of the hard costs and a share of the salaries of all employees. Since the exact share of
salaries and overhead to apply to the cost of a private bar certificate is not easily identified, we
used two methods for this calculation to provide costs as an estimated range rather than a discrete
estimate.
In determining a method to use to allocate the share of LAM staff salaries, the first step was to
determine those activities that are obviously performed to support LAM staff certificates, those
performed to support private bar certificates, and those that could obviously be shared activities.
Salaries for activities performed solely to support LAM staff (processes 2 to 5 and process 7,
Table 1) were assigned to LAM certificates; salaries for activities performed solely to support the
private bar (process 6, Table 1) were assigned to private bar certificates. The salaries that could
not be directly assigned to the private bar or legal aid counsel became the “unallocated wage
cost.” Intake activities for formal certificates were prorated based on the past three-year average
of 57% of the total certificates/certificate equivalents to private bar and 43% to LAM staff. For
the remaining activities, we used two methods to allocate share of unallocated wage cost time
between these activities. The two methods resulted in estimates of costs that we believe bracket
the true cost of providing service using the private bar compared to LAM.
An activity-based costing model for Legal Aid Manitoba: Design and implementation challenges
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Scenario 1: Prorated based on share of certificates
In the first case, the 57/43 percent ratio used for application intake was used for the remaining
activities (i.e., processes 8 to 10). So any activity that was not obviously performed solely to
support either private bar or LAM certificates was allocated to private certificates and LAM
certificates (and certificate equivalents) based on this ratio. This surcharge was added to those
activities that were specifically allocated to either private bar or LAM certificates to give a total
allocation of salaries of approximately 20/80 percent between the two.
Scenario 2: Prorated based on salary share of applicable activities
This, however, might assign too high a proportion of staff salaries to the cost of private bar
certificates for certain activities. Therefore, a second method employed was (rather than
allocating the remaining activities based on the 57/43 percent certificate split), to sum up the
activities already allocated above between private bar and LAM certificates, calculate a
proportion using these sums, and then apply this proportion to the remaining activities. This
resulted in a total allocation of salaries between private bar certificates and LAM certificates of
approximately 10/90 percent.
To allocate overhead costs, the overhead costs from the past three years were first averaged, then
proportioned between the three service lines according to the percent of total
certificates/certificate equivalent each of these accounted for. The proportions of LAM salaries
calculated to support private bar and LAM certificates for each of the scenarios above was then
also used to allocate LAM overhead costs to either the private bar certificate or LAM certificate
for each service line.
This enabled us to estimate the costs per certificate for the private bar and for LAM staff for the
two scenarios, as shown in Appendix D. The cost of supporting certificates and certificate
equivalents is uniformly higher for LAM staff compared to the private bar.
One might argue that duty counsel and drop-in costs should not be assigned to the costs of
completing cases by LAM staff. If one deducts the share of salaries recorded as supporting duty
counsel and drop-in (activity 4) and a proportionate share of overhead, the difference between
the costs of cases handled by the private bar and LAM narrows somewhat.
Table 7: Cost per certificate
Adult criminal
Youth criminal
Civil
Total
Method 1
Private bar Staff counsel
$849
$956
$685
$681
$950
$1,440
$861
$1,089
Method 2
Private bar
Staff counsel
$759
$1,077
$578
$816
$855
$1,564
$769
$1,210
This analysis shows that certificates handled by the private bar are less expensive than those
handled by LAM staff. Note that we included certificate equivalents in the cases handled by
LAM, as if they were the same as a certificate. It is arguable that some of the cases handled as a
certificate equivalent might be handled by daily counsel and not be upgraded to a full certificate.
If that is true, then the cost advantage of the private bar increases.
An activity-based costing model for Legal Aid Manitoba: Design and implementation challenges
14
Implementing ABC: institutional and cultural dimensions
The theory of ABC is relatively clear; the data collection process must contend with a range of
technical, institutional, and cultural challenges.
The implementation of ABC in an evaluation context presents the following technical
challenges:

The program must decompose into clear service or business lines where results chains
(activities and outputs) clearly show the flow of resources. The challenge lies in creating
the map or flow of activities within institutions and systems that have “evolved.” This
mapping exercise can be onerous, especially in busy operations, requiring detailed
consultations to get it right. Outsiders have difficulty understanding the steps that insiders
take for granted. The product must be a flow process that enumerates all the activities and
that staff can visualize as encompassing what they do. Every activity step must represent
a legitimate element in the “production” of an output.
One potential consequence of this mapping exercise is that organizations may identify
weaknesses in processes and implement changes, which then invalidates the costing
exercise. If the change is fundamental, the costing process should be deferred until the
new process is stabilized. An option is to collect activity-costing data based on the old
process, using recall type questions, and then repeat the exercise using the first point as a
baseline.

The data collection process must collect the detail needed, but not be intrusive. This issue
lies at the core of institutional and “cultural” opposition to ABC. The activity dictionary
prepared for LAM is every detailed, and some staff reacted negatively to the prospect of
completing this form. Two issues emerged that required adjustment to the context:
 Aside from the lawyers, maintaining time records is a foreign concept for most staff.
The result is that data needed to be collected in 6 minute increments from lawyers,
actual time from hourly staff, and percentage of a day from managers.
 Managers have much more difficulty allocating their time than those offering direct
services such as lawyers or support staff. These resources are usually the most highly
paid, and collectively their salary costs comprise a large percentage of total operating
costs. It is preferable to allocate management time to the activities needed to prepare
the outputs, but in many organizations, management performs unique functions that
do not align with any operational activities. These include government liaison and
work with professional standards setting bodies. Information technology represents
another area of unique activities that support all business lines generically. In the
activity dictionary, these appear under activities 8, 9, and 10.
An activity-based costing model for Legal Aid Manitoba: Design and implementation challenges

15
Staff must allocate their time to each step relevant to their involvement. For most, this is
a different way of doing their daily business, and the data collection instrument is
intimidating.
In fact, most staff only need complete a small fraction of the form. Thus, the actual task
to allocating time is small, usually under 5 minutes a day. The danger is that staff may
complete the form in haste, and not consider time they may have spent in all activity
areas. Extensive pre-testing and training on the form helps reduce this source of
inaccuracy. Even with these precautions, we discarded the first wave of data collection
when too many discrepancies emerged.

Regardless of the pre-testing and care in providing instruction, the fact that this is a
unique activity and unlikely to be repeated raises the possibility that respondents may
reply with less care than desirable. Certainly, extensive checking and rechecking needed
to be completed after respondents returned the firms.

Finally, absolute confidentiality must exist. Even so, some staff had reservations about
completing the forms, expressing concern that senior management may have access to
time sheets. This reflects the culture of management that exists; in time, were ABC used
routinely, this concern would abate
Summary
The main reason for applying ABC to a mixed model legal aid system was to determine whether
it was most cost effective to hire staff to conduct cases, or outsource the work to the private bar.
ABC is the best method for examining that question. This paper has reviewed ABC and its
application to costing activities within Legal Aid Manitoba. In the course of the study, several
institutional and cultural barriers needed to be surmounted to collect valid data.
APPENDIX A
Activity dictionary
Telephone #: _______________________ Please check () how you have allotted your time for the activity time tracking, in either:
Total hours worked: __________________
1 6-minute increments
2 Total minutes
3 Percent of day
FRIDAY, DECEMBER 16, 2005 – ACTIVITY TIME TRACKING
Time by service line
1. Activities in support of: Application Intake (Formal certificate applications – private and
LAM)
a.
b.
c.
d.
e.
f.
g.
h.
i.
k.
l.
m.
n.
o.
p.
q.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
Criminal
youth
Civil
Criminal
adult
Criminal
youth
Civil
Criminal
adult
Criminal
youth
Civil
Criminal
adult
Criminal
youth
Civil
Determining eligibility (meet with potential client, gather information)
Fact gathering on case
Meet/correspond with clients (in court, in LAM office, by telephone)
Prepare cases for subsequent appearance (bail, sentencing)
Consult/correspond with Crowns/other counsel, court officers, sheriffs, social workers, etc.
Consult/correspond with court officer, social workers
Monitoring/supervising/training/scheduling including case allocation
Court appearance (time before judge)
Court appearance (waiting)
Update case data/revise certificates/prepare or type duty counsel reports
Correct mistakes
Travel related to duty counsel
Office support for duty counsel (filing, pulling files, faxes, photocopying, etc.)
Drop-in centre assistance (answering questions, taking applications, interviewing, etc.)
Travel related to drop-in centre
5. Activities in support of: Case Conduct (LAM – informal cases, certificate equivalents and
certificates)
a.
b.
c.
d.
e.
Criminal
adult
Review case requirements, review caseloads and staff availability, allocate cases
Monitoring/supervising/scheduling staff
4. Activities in support of: Duty Counsel (LAM) or Drop-in Centre
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
Civil
Determining eligibility for service by LAM (gathering facts, meeting/interviewing applicants, responding
to applicant enquiries, searches on CLOS, court registry, Internet, review case, review amendment
applications, preparing/typing letters and other correspondence)
Accept as certificate equivalent/short case
Inform applicant of decision (issue/prepare certificate or amendment; issue rejection of
application/appeals)
Disbursement review
Monitoring/supervising/scheduling staff
Review staff operations
Correct mistakes
Office support for application intake (filing, pulling files, faxes, photocopying, processing applications,
etc.)
3. Activities in support of: Case Assignment Process (within LAM)
a.
b.
Criminal
youth
Clarify application with the person that took the application (calling back to ask questions about
application)
Determining eligibility and making eligibility decisions (gathering facts, meeting/interviewing applicants,
consulting with senior management and/or intake officers, responding to applicant enquiries, computer
searches, court registry, Internet, telephone advice, preparing/typing letters and other correspondence)
Inform applicant of decision and respond to enquiries on decisions (issue certificate or amendment/issue
rejection of application and appeals, preparing/typing letters to applicants)
Review appeal
Monitoring/supervising staff
Review staff operations
Allocate workload
Correct mistakes
Office support for application intake (filing, pulling files, faxes, photocopying, processing applications,
etc.)
2. Activities in support of: Application Intake (Certificate equivalent, informal LAM cases)
j.
Criminal
adult
Fact gathering on case (reviewing particulars)
Research law/precedents
Trial preparation, document drafting, case scheduling (typing court documents)
Open and maintain case file, update case data (documenting, organizing case data)
Consult/correspond with Crowns/non-LAM counsel, court officers, sheriffs, social workers, etc.
(meetings, dictating or typing letters, e-mails, telephone, etc.)
Consult/correspond with LAM lawyers (certificate lawyer or other LAM lawyers) (meetings, dictating or
typing letters, e-mails, telephone, etc.)
Consult/correspond with clients (meetings, dictating or typing letters to clients, e-mails, telephone, etc.)
Interview witnesses/police/experts
Monitoring/supervising/scheduling staff lawyers and other staff
Court appearance (time before judge or jury)
Court attendance – waiting
Manage changes in case particulars (revise certificates, change of counsel, change of charges, change
in accused, deal with lawyer conflicts)
Review staff operations
Travel (case related)
Correct mistakes
Office support for case conduct (filing, pulling files, faxes, photocopying, etc.)
FRIDAY, December 16, 2005 – ACTIVITY TIME TRACKING
Time by service line
6. Activities in support of: Accounts Payable (Invoices by private bar – taxation)
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
e.
f.
g.
h.
i.
j.
k.
(*Use all service lines if time cannot be allotted between criminal adult, criminal youth, and civil cases)
(*Use all service lines if time cannot be allotted between criminal adult, criminal youth, and civil cases)
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
q.
Criminal
youth
Civil
Criminal
adult
Criminal
youth
Civil
All
Service
Lines
Criminal
adult
Criminal
youth
Civil
All
Service
Lines
Criminal
adult
Criminal
youth
Civil
All
Service
Lines
Criminal
adult
Criminal
youth
Civil
All
Service
Lines
General communications – not case related (reception, telephone, e-mail, correspondence)
Internal consultations regarding applying LAM policy
Special LAM projects (e.g., Collaborative Law Project, training seminars)
Responding to external queries on legal aid coverage (e.g., from the public, social workers, police,
private bar) – either general enquiries or for potential clients
Organization accounting/financial support (e.g., payroll, financial statements, budgeting, etc.)
Supervise/coach staff/U of M law students (not case related)
Support/consultations with regional offices
Professional development – attendance, program development (e.g., staff seminar)
Meet with judges, court officials (not case related)
Telephone calls with regional offices
Board meetings/support
Travel (not case related)
General human resource and personnel support (hiring, training)
General administration (please specify the tasks)
Time tracking (LAM related)
Time tracking for this activity dictionary
Facilities management
10. Activities in support of: External relations – Not case related
(*Use all service lines if time cannot be allotted between criminal adult, criminal youth, and civil cases)
a.
b.
c.
d.
Criminal
adult
Application development and maintenance
Application testing and training
Network administration
User administration
Database administration
Back-up administration
Hardware infrastructure maintenance and upgrades
Software infrastructure maintenance and upgrades
End user application support/“help desk”
Documentation
Team consultations for system support
9. Activities in support of: Internal support – Not case related
a.
b.
c.
d.
Civil
Financial review (review assessments)
Negotiate repayment plan
Monitor costs (e.g., court costs, disbursements)
Monitor and record/process payments (partial and full contributions, welfare receivables);
Monitor and process Charge on Land
Client consultations (e.g., for payment process or follow-up on late payments)
Cancel certificate
Close account
Monitoring/supervising/schedule staff
Review staff operations
Correct mistakes
Office support for accounts receivable (filing, pulling files, faxes, photocopying, etc.)
8. Activities in support of: IT systems support
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
Criminal
youth
Review invoice
Contact counsel for more information
Negotiate payment (taxation and providing direction/consultation re: counsel’s invoices)
Make decision on invoice
Authorize payment
Issue payments
Monitoring/supervising staff
Review staff operations
Correct mistakes
Office support for accounts payable (filing, pulling files, faxes, photocopying, etc.)
7. Activities in support of: Accounts Receivable (Clients on partial or full contribution, charge
on land)
a.
b.
c.
d.
Criminal
adult
Consultations/communications with other LAMs
Consultations/communications with provincial/federal government
Travel for meetings with LAMs/federal government
Presentations/meetings/conferences with external groups/organizations
Activities unusual for a typical day
(*Use all service lines if time cannot be allotted between criminal adult, criminal youth, and civil cases)
(Please specify the activities)
APPENDIX B
Formulas used in calculating elements of administrative cost
An activity-based costing model for Legal Aid Manitoba: Design and implementation challenges
1
Formulas used in calculating elements of administrative cost
The formulas used for computing various elements of administrative cost appear below.
Analysis template – salary allocation
Overall costs
1. TOTAL = sum of 1 - 10
2. GROSS ADMIN = General administrative cost 1 + 2 + 3 + 6 + 7 + 8 + 9 +10
3. GROSS ADMIN/TOTAL = proportion of salaries in gross administration
4. NET ADMIN = 1(e – i) + 2(d – h) + 3 + 4(j-m,o) + 5(i, l-p) + 6 + 7 +8 + 9 + 10
5. NET ADMIN/TOTAL
Costs in support of private bar (Accounts Payable)
6. TOTAL PB = 6
7. DIRECT PB = 6(a-d)
8. NEG PB = 6b + 6c+ 6d + 6e
9. ADMIN PB = 6(e – j)
Costs in support of Accounts Receivable
10. TOTAL AR = 7
11. DIRECT AR = 7(a – e)
12. ADMIN AR = 7(f – k)
Direct case service (application intake + duty counsel + case conduct). This refers to time/$ applied directly to the case.
13. TOTAL CS = 1 + 2 + 4 + 5
14. DIRECT CS = 1(a-d) + 2(a-c) + 4(a-i) + 5(a-k)
15. UNPRODUCTIVE TIME (Churn) = 1(a, d, h) + 2(g) + 4(i, k) + 5( k, o)
16. TRAVEL CS = 4(l, o) + 5n
17. CORRECT CS = 1h + 2g + 4k+ 5o
18. ADMIN CS = 1(e - i) + 2(e - h) + 3 + 4(j – m,o) + 5(l – p)
Management (All service lines only)
19. MANAGE = 9 + 10 (for all managers)
20. MANAGE TRAVEL = 9l + 10c
21. MANAGE MEET/CONSULT =9b + 9g +9i + 9j +9k +10a +10b +10d
Staff that did court appearances - court waiting vs court appearances
22. COURT APP=4h + 5j
23. COURT WAIT=4i + 5k (if 4h>0, 5j>0)
24. COURT WAIT/COURT APP
Time spent on internal support and external relations for all staff
25. INTER. SUPP. & EXT. RELATIONS = 9 + 10
26. INTER/EXTER TRAVEL = 9l + 10c
27. INTER/EXTER MEET & CONSULT =9b + 9g +9i + 9j +9k +10a +10b +10d
Total and direct case service separated out by legal staff, support staff and mgmt
28. LEGAL STAFF - TOTAL CS = 1 + 2 + 4 + 5
29. SUPPORT STAFF - TOTAL CS = 1 + 2 + 4 + 5
30. MGMT - TOTAL CS = 1 + 2 + 4 + 5
31. LEGAL STAFF - DIRECT CS = 1(a-d) + 2(a-c) + 4(a-i) + 5(a-k)
32. SUPPORT STAFF - DIRECT CS = 1(a-d) + 2(a-c) + 4(a-i) + 5(a-k)
33. MGMT - DIRECT CS = 1(a-d) + 2(a-c) + 4(a-i) + 5(a-k)
APPENDIX C
Synopsis of activity-based costing applied to Legal Aid
An activity-based costing model for Legal Aid Manitoba: Design and implementation challenges
1
Synopsis of Activity-Based Costing Applied to Legal Aid
Steps in the activity-based costing exercise
Action
Description
Meet with LAM management to define Ten major processes and over 80 activities within these processes
major LAM activities and processes,
were identified. Major processes included:
and develop Activity Dictionary
 Application intake (formal certificates); application intake
(certificate equivalents and informal cases); case assignment
process; duty counsel and drop-in clinics; case conduct;
accounts payable (taxation); accounts receivable (for clients not
on full contribution certificates); systems department; internal
support; external support.

Service lines include: criminal adult; criminal youth and civil
cases.

Some sets of activities clearly related to private bar (e.g.,
accounts payable), other activities related solely to legal aid
clients (e.g., accounts receivable), and still others support both
clients on a private bar certificate and legal aid certificate (e.g.,
client intake.)
Pre-test Activity Dictionary with select
Winnipeg and regional staff

Pre-test staff were asked to fill out the Activity Dictionary for one
day and make comments of missing activities or points of
clarification.
Inform staff of the ABC exercise

LAM sent a memo to all LAM staff informing them of the review,
of the intent of the ABC exercise and informing them they would
be requested to participate in this exercise for two discrete one
week periods.
Activity Dictionary exercise – Week 1
Activity Dictionary exercise – Week 2
All LAM staff were asked to complete the Activity Dictionary for each
day during the week of November 14 – 18, 2005, indicating which
activities they performed and how much time spent on each.

Activity Dictionary packages were sent to each staff member
with an explanation of the exercise and detailed instructions on
how to complete the dictionaries.

Staff were assured of confidentiality and told to call or email
PRA with any questions.

Staff filled out the dictionaries according to which of the above
processes it was in support of and whether it was for a criminal
adult, criminal youth, or a civil case. For certain activities it was
not possible to specifiy A service line, for example, systems
department support, or certain of the internal or external support
activities could be in support of all three service lines. For these
processes, an “all service” category was included in the
dictionary.

After completion of the dictionaries, the information was verified,
and where necessary, call-backs of staff were made for
clarification.

Because a number of clarifications were necessary to indicate
to staff where they should be allocating their time, Week 1 was
used as a training week.

All LAM staff were again asked to complete the dictionaries, this
time for the week of December 16 – 20.
An activity-based costing model for Legal Aid Manitoba: Design and implementation challenges
2
Steps in the activity-based costing exercise
Action
Description
Data entry
 Data was entered into an Excel spreadsheet. Data for each
LAM staff was added for the week and prorated to reflect that
person’s expected hours of work for the week (for example, to
correct for missing days or hours) and multiplied by salary to
provide a weekly salary value for LAM staff activities.
Data analysis

Reporting hours were normalized to each employee’s standard
work week to account for holidays, sick days, and part-time
staff.

Annual salaries were used to calculate an hourly wage for each
respondent.

The next step was to create a weekly cost for each activity for
each respondent, and then total each activity to create a weekly
cost for each activity.

From this, an annual cost for each activity was calculated,
expressed as the annual wage bill allocated to each activities.

This enabled a number of calculations (reported throughout the
Main findings) made to support the activity-costing exercise.
APPENDIX D
Comparison of private versus public provision of legal aid
An activity-based costing model for Legal Aid Manitoba: Design and implementation challenges
1
Cost per certificate
Scenario 1
Private bar
Salaries
Adult criminal
Youth criminal
Civil
Total
Overhead Tariffs paid
Total
LAM
Certificates
Cost/
Certificate
Salaries
$783,877
$424,621
$4,549,661
$5,758,158
6,784
$849
Adult criminal
$157,354
$122,354
$715,310
$995,018
1,452
$685
Youth criminal
$674,911
$212,102
$3,002,815
$3,889,828
4,093
$950
Civil
$1,616,142
$726,168
$8,267,785 $10,610,095
12,329
$861
Overhead
Total
Cert
&CE
Cost/
Certificate
$4,809,910
5,030
$956
$786,268
1,154
$681
$3,452,600 $1,085,039
$4,537,639
3,150
$1,440
Total
$7,014,814 $3,151,912
Less Duty counsel
$10,166,726
9,335
$1,089
$ 920
$3,119,887 $1,690,023
$442,327
$343,941
Scenario 2
Private bar
Salaries
Adult criminal
Youth criminal
Civil
Total
$390,079
Overhead Tariffs paid
$211,303
$4,549,661
Total
LAM
Cost/
Certificates
Certificate
Salaries
$5,151,043
6,784
$759
Adult criminal
Overhead
$3,513,685 $1,903,340
Total
Cert
&CE
$5,417,025
5,030
Cost/
Certificate
$1,077
$69,826
$54,295
$715,310
$839,431
1,452
$578
Youth criminal
$412,001
$941,856
1,154
$816
$378,676
$119,005
$3,002,815
$3,500,496
4,093
$855
Civil
$3,748,835 $1,178,136
$4,926,971
3,150
$1,564
$838,581
$376,793
$8,267,785
$9,483,159
12,329
$769
Total
$7,792,375 $3,501,287
Less Duty counsel
$11,293,663
9,335
$1,210
$1,038
$529,855