Cost recovery implementation statement 2020-21

1.1 Purpose of Cost Recovery Implementation Statement

This Cost Recovery Implementation Statement (CRIS) provides information on how the Australian Maritime Safety Authority (AMSA) implements cost recovery for provision of infrastructure, regulation to support safe ship navigation in Australian waters, marine environmental protection, seafarer and ship safety, ship registration, and related marine services under the Navigation Act 2012 and Marine Safety (Domestic Commercial Vessel) National Law Act 2012. It contains financial estimates for 2019-20 and budget forecasts for 2020-21 and the three following years.

This document provides key information on the application of cost recovery activities, including financial and non-financial performance. It assists stakeholders to understand AMSA’s costs, which strengthens accountability, provides transparency, and demonstrates compliance with CRGs and the Regulatory Charging General Policy Order.

1.2 Description of the regulatory charging activity outputs

1.2.1 Policy background

AMSA’s policy outcome is to ‘minimise the risk of shipping incidents and pollution in Australian waters through ship safety and marine environment protection regulation, and to maximise people saved from maritime and aviation incidents through search and rescue coordination².

1.2.2 Description of the activities

Regulatory charging activity outputs are summarised in Table 1, with the funding mechanism contained in brackets.

Table 1: Descriptions of AMSA’s regulatory charging activity outputs

This CRIS does not cover:

• Regulatory activities of the National System for domestic commercial vessels. On 2 July 2018, the Australian Government announced an additional $10 million funding to delay charging levies to industry for the first three years of service delivery. These activities will continue to be funded by a combination of Commonwealth appropriations and by States and Northern Territory jurisdiction contributions - total funding by all governments is now $112.4 million over ten years. The additional time will enable AMSA to engage with industry on a range of matters and address industry concerns, including:
  • most effective and efficient way to deliver services, and
  • opportunities to reduce costs and administrative burden, without compromising safety. National System operating costs and funding will undergo a review, and include extensive stakeholder consultation on service delivery.
• Commercial charges for the sale of publications (task, record, and logbooks), attachment licensing to third parties to use aids to navigation sites for specific purposes, and sub-leasing office and storage space.
• Search and rescue coordination services for maritime and aviation incidents, which are funded by government budget appropriations⁴.
• Funding arrangements of shipping and offshore petroleum industries and the International Oil Pollution Compensation (IOPC) fund⁵, and
• Externally funded programs sponsored by various government departments for the provision of specific maritime related services.

1.2.3 Appropriateness of cost recovery

It is government policy that when an individual or organisation creates a demand for a government activity, there should generally be a charge for the provision of these activities.

Participants in the commercial shipping industry pay the costs attributable to the provision of navigational infrastructure within Australian waters, marine environmental protection, seafarer and ship safety, marine services under the Navigation Act 2012, ship registration, and some services under the National System for domestic commercial vessel safety.

Regulatory functions in many instances may be applicable across AMSA’s various activity outputs, such as emergency towage capability and work health and safety. Over time, a clearer demarcation of the costs to be borne by industry will be better understood.

Government policy is not to charge a levy for National System for domestic commercial vessel activities until a regulatory review is undertaken, assessing costs, funding options, and reducing administrative burden to industry.

Further, Government continues to funds search and rescue services attributable to community service obligations to the broader community through budget appropriations.

1.2.4 Stakeholders

The principle stakeholders for AMSA’s regulatory charging activity outputs are:

• vessel owners and operators, and their associated agents – international vessels (~5,800) and domestic commercial vessels (~27,000),
• seafarers and coastal pilots – international (~60,000) and domestic (~66,000),
• accredited marine surveyors (~250),
• registered training organisations,
• Commonwealth, State and Northern Territory agencies, and
• the Australian community.

^{1. The Australian Government Charging Framework and the Cost Recovery Guidelines are available on the Department of Finance website www.finance.gov.au.}

^{2. Department of Infrastructure, Transport, Regional Development and Cities, Portfolio Budget Statement 2019-20, Budget Related Paper No. 1.12, page 80.}

^{3. AMSA does not provide navigational aids within port boundaries; these are the responsibility of port operators.}

^{4. The Government reaffirmed its initial policy, upon the establishment of AMSA in 1991, through the Strategic Review of Search and Rescue Service and pricing study in 2001 that search and rescue activities will remain funded from taxpayer funded budget appropriations.}

^{5. The Protection of the Sea (Oil Pollution Compensation Funds) Bill 1992 essentially established the procedure by which entities are required to provide details of oil receipts to the IOPC fund through AMSA - this is not a cost recovery arrangement.}

2.1 Government policy approval to cost recover regulatory activities

The Explanatory Memorandum of the Australian Maritime Safety Authority Act 1990 states the Government’s intent that AMSA ‘will run on a self-funded basis, with services which cannot be provided on a self-funded basis (search and rescue coordination services) to be paid by the Commonwealth’.

AMSA recovers costs from participants in the commercial shipping industry in adherence with Public Governance, Performance and Accountability (Charging for Regulatory Activities) Order 2017, which refers to the Australian Government Charging Framework and CRGs.

2.2 Statutory authority to charge

AMSA’s regulatory charging activities are authorised by the application of Australian Commonwealth legislative instruments, in particular Part 5, Division 2 of the Australian Maritime Safety Act 1990, which provides for the charging of levies and fees with references to the following Acts:

• Navigation Act 2012
• Marine Navigation Levy Act 1989
• Protection of the Sea (Shipping Levy) Act 1981
• Marine Navigation (Regulatory Functions) Levy Act 1991
• Shipping Registration Act 1981
• Marine Safety (Domestic Commercial Vessel) National Law 2012

A summary by AMSA’s activity outputs of government policy approval to cost recover, including date of approval, and statutory authority to charge with legislative references is included in Appendix 1.

3.1 Outputs and business processes of the regulatory charging activities

3.1.1 Activity outputs

As described in Section 1.2.1, AMSA’s role is to deliver on seafarer and ship safety, and marine environmental protection through regulation, as well as provide search and rescue capability. The broad outputs and primary activities for all roles are itemised in Table 2, which also notes whether the output is subject to regulatory charging (cost recovery) or not.

Table 2: AMSA’s broad activity output listing

Operational targets of activity outputs are contained in the annual report and performance statements of AMSA’s Corporate Plan, which describes the reportable measurements to achieve policy outcomes. A summary of regulatory charging activity non-financial performance measures is in Section 8.

3.1.2 Business processes

Levy-based activities

Levy-based regulatory charging activities relate to the provision of a total function (or statutory regulation) as opposed to transactional business processes; business processes and costs for delivering these activities are not undertaken on a transactional basis. Instead, carried out as an overall activity with output outcomes and non-financial performance targets that aim to minimise the risks of shipping and pollution incidents and maximise safety of people involved.

Fee-based activities

Driven by distinct business processes, fee-based regulatory charging activities support specific regulatory functions to which the fees relate. Generic business processes for AMSA’s fee-based activities include:

• receipt, review, and decision on an application, including ongoing consultation with the applicant,
• undertaking technical assessment, with a decision made by a delegate, and
• processing and issuing a certificate, license, exemption, determination, or approval.

In practice, administrative business procedures for the receipt, review and issue are broadly similar across fee-based charging activities. However, time and effort (and associated costs) for technical assessments and decisions vary between the types of outputs and on the complexity or nature of the application.

3.2 Costs of regulatory charging activities

AMSA applies an activity-based costing methodology to determine costs for activity outputs and regulatory charging activities, as depicted in Appendix 2. This holistic methodology allocates all costs to activity outputs based on estimated time and effort, and associated cost drivers.

3.2.1 Changes in costing model techniques

In developing the 2020-21 budget, AMSA undertook an activity-based costing and zero-based budget exercise to establish a framework that is transparent, defensible, and repeatable. The approach in developing costing models is contained in Appendix 3, including cost drivers, assumptions, and sensitivities.

This exercise provided insights into the functional breakdown of activities and associated costs for activity outputs, developed more accurate cost drivers for corporate related enabling activities, refined appropriate service delivery through ranking of activities, and commenced the process in developing key performance indicators for measurement of an activity’s efficiency and effectiveness. The outcome was an activity-based costing model used to develop the 2020-21 budget and to align costs to source funding.

AMSA is currently engaged in the next stage of its continuous improvement program by mapping key processes, measuring effective service delivery, and analysing costs through benchmarking direct and overhead activities against industry standards to determine efficiency. This will support the upcoming government review of AMSA’s operations and reduce administrative burden and costs to regulated entities, without compromising safety.

3.2.2 Nature of costs

The nature and make-up of costs vary considerably across AMSA’s regulatory charging activity groups. For example, for provision and maintenance of aids to navigation there is an extensive capital cost component (depreciation), with consistently high operational maintenance costs, reflecting the hostile environmental conditions in which these assets operate.

In contrast, compliance and certification activity groups are labour intensive and as such have a high staff cost component. Generally, activities with a large staffing level require a higher proportion of property operating expenditure and ICT overheads compared to activities that have minimal labour inputs.

3.2.3 Cost categories

Direct

Direct costs are those costs directly and clearly attributed to an activity group based on estimations of resource requirements to deliver statutory and regulatory obligations, and include direct operational management support activities – direct costs include employee, suppliers, and depreciation expenditure. AMSA business line managers provided direct input in assigning costs to activities, including staff utilisation to achieve operational outcomes validated by estimated time and effort requirements, and supplier costs based on an analysis and nature of expenditure.

Corporate overheads

Overheads include property operating expenditure, ICT networking, communication costs, and enabling tasks and processes to support service delivery of AMSA’s activity outputs through provision of corporate services and executive functions.

Enabling overheads comprise executive, human resources, finance, governance, and general ICT support – accompanying their respective share of property operating expenditure, ICT networking, and communication costs.

AMSA applies several cost drivers to allocate indirect, support, and corporate overhead costs to direct activity outputs, as detailed in Appendix 3.

Capital costs

Depreciation and amortisation is a representation of capital costs, used to determine capital expenditure requirements for replacement and enhancement of assets. Assessed on an asset-by-asset basis to identify the appropriate treatment, where there is a specific direct link depreciation is assigned to an activity group, whereas corporate support related depreciation is assigned to the appropriate overhead classification.

3.2.4 Cost estimates for 2020-21

Estimated costs for providing AMSA’s regulatory charging activities, broken down into direct average staffing levels (ASL), and direct, overheads, and capital costs is set out in Table 3.

Table 3: Breakdown of costs estimates for 2020-21

*Direct ASL does not include corporate support or non-regulatory charging activities (such as search and rescue or National System regulatory function output currently funded by government).

** Consists of various activities considered immaterial for reporting purposes.

3.3 Design of regulatory charges

3.3.1 Charging structure

Regulating international and domestic commercial shipping and seafarers is a complex undertaking, with a wide variety of vessel types, manning levels, competency prerequisites, handling requirements for various cargoes, operational conditions, and jurisdiction and international obligations.

AMSA applies a ‘user pays’ principle for regulatory charging activities. The design of AMSA’s regulatory charging activity outputs considers whether the provision of such regulatory activities is to an individual entity (reasonably attributed to that entity), or to a group of entities (provided to commercial shipping industry and broader community) – where the former, fees are charged, whereas the latter involves levies.

AMSA’s broad charging structure is summarised in Table 4.

Table 4: Charging structure of regulatory activity outputs

Levy-based activities

AMSA’s methodology for charging levies is derived from historical predecessors, as well as international standards where banding by tonnage is considered common practice for the commercial shipping industry. Levy rates within these bands, are adjusted periodically to address shortfalls or imbalances, with the last change occurring in 2014-15.

International commercial vessels are liable for levies on either (1) the date of arrival to an Australian port, or (2) where the vessel is in Australia waters with no corresponding paid levy applicable for the previous three months, the day after the end of that period. For Australian coastal trading vessels, unless the vessel is out-of-service, levies are payable at the start of each quarter.

The average number of port visits during each levy payment period (three months) varies depending on the vessel type and handling of cargoes, with bulk cargo vessels averaging around one to two visits per levy payment period and container ships around five to six.

The commercial shipping industry pays levies on non-exempted vessels⁶ that are twenty-four metres or more in tonnage length, with the rate based on a vessel’s net registered tonnage, with environmental marine protection activity output charged on vessels that also carry ten or more tonnes of oil on board⁷, with a minimum amount payable of $10. AMSA’s levy ready reckoner is in Table 5.

^{6. There is a list of exemptions contained in the Marine Navigation Levy Collection Regulations 2018, Marine Navigation (Regulatory functions) Levy Collection Act 1991, and Protection of the Sea (Shipping Levy) Regulation 2014.}

^{7. There will be situations where vessels exempted from both the Marine Navigation Levy and Regulatory Function Levy may be liable for the Protection of the Sea Levy. Generally, these vessels include fishing, religious charitable, non-for-profit organisation, or research vessels.}

Table 5: AMSA’s levy ready reckoner

* Schedule of levy rates are contained in each respective levy legislative instruments.

As illustrated in Figure 1, the total number of levy liable visits to Australian ports by applicable foreign-flagged and domestic coastal trading vessels has slowly increased from ~10,000 in 2015-16 to an estimated ~10,500 for 2019-20, while total net registered tonnage volumes (the basis for collecting levies) have risen proportionally more, signifying larger vessels are visiting Australian ports in 2019-20.

Figure 1 – Volumetric data for levy revenue (net tonnage and number of vessels)

The majority of vessel types visiting Australia continue to be bulk cargo carriers, with iron ore and coal vessels contributing ~67% of total net tonnage – which indicates a heavy reliance on iron ore and coal exports.

Despite the steady increase in the quantity and size of international ships visiting Australian ports, shipping usage for aids to navigation, and demand for inspections and other regulatory functions is largely influenced by externalities that may impact volumes year-on-year. These are largely outside the control of AMSA, including the COVID-19 pandemic, potential trade disputes, economic disruptions, and the changing climate.

In relation to environmental marine protection, given the nature and purpose of this activity, it is not possible to ascertain when a marine environmental emergency will occur. When an incident does occur, costs of clean-up operations and financial commitments can be enormous, with legal proceedings often taking years to conclude. While international compensation regimes are generally highly effective, the cost of responding to an incident can exceed the available liability and compensation limits. From evidence of incidents overseas, in these cases governments have had to bear the shortfall, which can be many hundreds of millions of dollars.

These factors mean that any projections of expected growth (or reductions) in demand for regulatory charging activities must consider complex relationships within the commercial shipping industry. AMSA is continuing to develop and rollout risk-based models to provide better insights into the linkage between the level of regulation effort to cost recovered revenue from industry.

Fee-based activities

Fee-based activities include assessment of applications, exemptions and determinations, inspections and surveys, registration of vessels, conducting examinations, and accreditation of non-government service providers.
AMSA applies fixed fees to regulatory charging fee-based activities where the range of typical delivery times do not vary significantly from the standard average time. Where there are wide variations, indicated by significant divergences from the standard deviation, the basis of the relevant charge is an hourly rate, and any reasonable unavoidable travel costs. These travel costs may be flights and accommodation, where provision of services are at locations remote from AMSA’s regional offices⁸, or motor vehicle travel rates where vehicles are used for the mode of transportation to and from offices⁹.

Marine services and ship registration is tracked using multiple systems, including a Coastal Pilotage System, International Marine Qualifications System, NAVIS (ship registration), MARS (domestic commercial vessels), and Financial Management Information System. Volumes are estimated based on inputs provided by business line managers during the budget development process, using largely historical data obtained from these various systems, and adjusted for expected variances.

A schedule of fee-based regulatory charging activities, separated into fees under the Navigation Act 2012 and fees under National System, is included in Appendix 4. Charging rates are published on AMSA’s website.

3.3.2 Revenue estimates

Revenue estimates for current year (2019-20), budget (2020-21), and the three forward year estimates are summarised in Table 6.

Table 6: Revenue estimates

3.3.3 COVID-19 disruptions and bushfire relief

AMSA is committed to providing relief to the domestic commercial industry from natural disaster disruptions, such as the 2019-20 bushfires, and the COVID-19 pandemic. As part of this commitment, AMSA has implemented:

• exempting vessels used in emergencies such as evacuation of bushfire victims,
• minimum safe manning requirements and safety management system temporary updates in response to a natural disaster, and
• general exemption for seafarers providing an extension for certificates of competency with expiry dates between from 26 March 2020 to 1 October 2020.

AMSA is also considering other options to reduce stress on operators during this period.

3.3.4 Review of charging structures

AMSA is engaged in a comprehensive all-inclusive review of its regulatory charging activities, structures and rates in anticipation of the upcoming government review. The following specific items are planned to be assessed over the next twelve to twenty-four months:

• Following the activity-based costing and zero-based budget exercise, undertake an analysis of direct processes and corporate overheads to assess efficiency, including benchmarking with external entities.
• Assess levy regulatory drivers to approximate levels of resources used to produce activity outputs, to demonstrate a linkage between the level of effort and the output. Initial findings indicate net tonnage may be an appropriate driver of effort. Work is continuing to finalise AMSA’s conclusions, with any proposed change to involve wide and extensive consultation.
• Assess whether the delivery of fee-based activity outputs at minimal costs is the most effective and efficient way to deliver services, and whether industry can fully absorb the resultant cost of service delivery.
• Review hourly and fixed rates of fee-based activities under the Navigation Act 2012, Shipping Registration Act 1981, and the National System. Where similar personnel, expertise, and services are performed, rates should align.
• Investigate an indexation strategy (if applicable) on regulatory charging activities and the need to regularly revise charge-out rates, to reduce inflationary pressures on costs.
• Work with industry and government on an agreed level of maintenance and utilisation of temporary regulatory charging reserves to fund specific requirements.

AMSA will engage widely and extensively with stakeholders providing opportunities for feedback on any proposed changes, with provisions to address industry concerns. A stakeholder engagement strategy will be prepared for each consultation.

AMSA has implemented internal controls to ensure costs recovered for regulatory charging activity outputs are measured correctly and are collected on time. In adherence with legislative obligations, an officer of Australian Border Force may detain a vessel at any Australian port for any unpaid and outstanding levies. The vessel can only be released after payment is received. This process ensures the existence of any unpaid levies are consistently at a very low level.

An assessment of regulatory charging activities was conducted using Department of Finance’s Charging Risk Assessment. AMSA considers the risk to remain low to medium, given no anticipated changes (other than indexation) to current activities in 2020-21. Identified risks, accompanying mitigation strategies and controls, are provided in Table 7 with additional details provided in AMSA’s Corporate Plan.

Table 7: Risks and mitigation strategies associated with regulatory charging

Communication with stakeholders is an essential part of developing the CRIS, with adherence to AMSA’s Statement of Regulatory Approach.

AMSA published a consultative CRIS on its website and invited specific industry groups and participants to comment on its cost recovery arrangements; other groups, owners and operators, and the public were able to respond as well. The consultation was over a two-week period, commencing on 15 June 2020 and closing on 28 June 2020.

Industry groups invited to provide feedback included:

• Domestic Commercial Vessel Industry Advisory Committee
• Fishing Industry Advisory Committee
• Regional Safety Committees
• Ports Australia
• Marine Industry Association
• Ship Australia Limited

Key items raised by stakeholders during this consultation period were:

• Due consideration be given to general exemptions to volunteer (non-for-profit) marine rescue and service organisations and volunteers from National System fees and future levy.
• As part of the government review, ensure adherence to the key objectives for establishing a harmonised regulatory system – to operate in a more effective and efficient manner, reduce administrative burden (and costs to industry), and improve marine safety.
• Identify whether a material ‘public good’ component exists for the delivery of domestic marine services, and if appropriate, work with the Department of Infrastructure, Transport, Regional Development and Communications to develop options for government to consider for partial cost recovery.

Following consultation, AMSA responded appropriately to each response received.

A report detailing all feedback received from stakeholders on CRIS consultations over the previous year, with a summary of AMSA’s responses, will be prepared and published on the website in early 2020-21.

AMSA is still exploring options to implement a specific ongoing cost-recovery external stakeholder engagement strategy that will include performance measures and will involve consultation as part of the upcoming government review. Feedback from this process, as well as previous consultations, will inform AMSA of potential funding options that may be eventually considered by Government.

Financial estimates for AMSA’s regulatory charging activity outputs for current (2019-20), budget (2020-21), and three forward year estimates, including explanations to material variances, is summarised in Table 8, with cumulative results in Table 9.

Table 8: Financial estimates for regulatory charging activities

* Revenue includes insurance recoveries for aids to navigation assets and insurance and legal settlements for environmental emergency pollution response.

Table 9: Financial estimates for regulatory charging activities

As noted, AMSA’s financial estimates provided here do not include the activity output for the National System regulatory-based seafarer and ship safety. Given the upcoming government review of this function, it is not possible to comment on forward years with any degree or level of accuracy, or without legislative funding provisions. To do otherwise would be confusing and counterproductive to users of this CRIS.

Historical financial performance of AMSA’s regulatory charging activity outputs, from 2013-14 to 2018-19, are shown in Table 10, including explanations of material variances. The cumulative results for regulatory charging activity outputs are included in Table 11.

Table 10: Historical performance of AMSA’s regulatory charging activities by output

* Revenue includes insurance recoveries for aids to navigation assets and environmental emergency pollution responses. In relation to environmental emergencies, there is typically a four to six year delay in incurring expenditure associated with operational costs, which occurs immediately after an incident, and any eventually insurance recovery or legal settlement.

Table 11: Cumulative performance of AMSA’s regulatory charging activity outputs

The cumulative balance for regulatory charging activity outputs from 2013-14 to 2018-19 is a $17.9 million surplus. This balance has been used in part to fund the development and implementation of a modern regulatory infrastructure framework applicable for both international and domestic commercial vessels.

Following the activity-based costing and zero-based budget exercise, we are now in a position to analyse business processes and corporate overheads to understand reasons for the imbalances (under and over recovery) of regulatory charging. As part of the government review, AMSA will develop strategies to address these imbalances, with extensive stakeholder consultation on any proposed changes.

Costing outputs through activity-based costing techniques is a powerful tool in management, providing accurate information on the costs of activities and processes in which to make informed decisions. However, it does not provide any in-depth analysis that may be symmetrically tracked (or measured) to assess achievement of predetermined objectives in support of AMSA’s policy outcomes. To achieve a more comprehensive analysis alignment of costing to performance indicators (or targets) is essential.

Effective performance measurement is key to ensure objectives are met in keeping with stakeholder expectations. Reporting on key performance indicators provides a consistent and repeatable framework to communicate goals, create measurable objectives, and it allows for benchmarking.

Performance indicators and measurements are based on non-financial, as well as financial information. These can be tricky to develop as indicators are usually confused with business metrics. A relevant performance indicator provides information that is significant and useful to AMSA and its stakeholders, and is attributable to activities.

In establishing key performance indicators, the SMART criteria is used:

S Is the goal of the activity specific?
M Can you measure progress towards that goal?
A Is the goal realistically attainable?
R How relevant is the goal to AMSA?
T What is the time-frame for achieving the goal?

Overtime, the SMART criteria will be expanded to SMARTER with the additional of Evaluation and Revaluation. These last two steps are important to ensure the ongoing relevance of each measure.

KPIs for non-National System regulatory charging activities are summarised in Table 12, broken down by output, activity group, whether it is measuring efficiency or effectiveness, and rational and success factors – sourced from our Corporate Plan. AMSA has consistently achieved its targets.

Table 12: Performance targets for 2020-21

The reporting against these targets will be contained in our 2020-21 Portfolio Budget Statements, Annual Report, and updated 2020-21 CRIS, all expected to be published in October 2020.

The development of key performance indicators for the National System has commenced through an internal consultative process undertaken with business-line managers. The Executive and accountable authority will review and approve these prior to holding an extensive consultative process with external stakeholders. Further, as part of the upcoming government review, AMSA will assess and redefine all performance indicators.

Indicative dates for updating tasks throughout the 2020-21 budget year and beyond are listed in Table 13 – this does not incorporate the upcoming government review of AMSA’s operations scheduled in 2020-21 that will involve extensive and comprehensive stakeholder engagement.

Table 13: Indicative events and forward dates

CRIS approval and change registers from 2016-17 to 2019-20 are provided in Tables 14 (to be updated after the 2020-21 CRIS is approved).

Table 14: CRIS approval and change register

Summary of government policy approval to cost recover, including date of decision, and statutory authority to charge by activity output, with references, is provided below.

Principles applied

There are five principles that support the development of our costing model:

(1) Linked to strategic business planning: costing is not just a ‘bean counting’ exercise. It should be linked to the strategic direction and planning of AMSA, and inform executive at a strategic and tactical level.
(2) Holistic approach: a modelling exercise should include all revenue and operating expenditure, including overheads, other indirect costs, and capital expenditure (capital allowances and/or depreciation). Further, it should focus not just on cost recovery activities, but all activities of AMSA. This will result in a model that can fulfil multiple demands for costing information.
(3) Comprehensive and consistent: a simple approach that applies consistency in the application of modelling rules across all business areas and activities, creating a robust model understood by stakeholders. It should be developed over short timeframes, with a relatively small input of resources.
(4) Flexibility: it is important to recognise that demands for service delivery change over time, driven by various internal and external circumstances. A costing exercise must be dynamic in nature to evolve with changes to AMSA’s business requirements and circumstances.
(5) Institutionalised as a ‘normal’ function: modelling should be a living database that requires regular updating on a periodic basis. This is successful when the model receives official endorsement with AMSA wide involvement (operational area’s ‘buy-in’). Costing will then become a routine task and a ‘foundation stone’ for improving and reporting on financial performance.

Methodology

The methodology for modelling AMSA’s costs is summarised in the illustration below. It adheres to activity-based costing principles, which enables more analysis on the efficiency of activity outputs and/or business processes for cost recovery and other activities. It focuses on cost drivers, which allocates indirect costs to direct costs and then to an output.

Not all business processes are specific or direct in the provision of activity outputs. Several tasks are support related activities that simply enable the delivery of AMSA’s core outputs to stakeholders. Nevertheless, these should form part of the activity cost.

Cost categories

As part the costing methodology, we assign each activity to one of the following four cost categories to ensure appropriate identification of overheads for allocation to an activity.

• Direct: representing direct business processes (or tasks) relevant in service delivery of activity outputs.
• Indirect: exists to support the delivery of a direct activity. Examples include divisional support activities such as general management, specific ICT costs relating to systems to enable service delivery, and supporting property operating expenditure, ICT networking, and communication. Indirect processes are allocated to direct activities based on a cost object using an appropriate driver.
• Corporate overheads: enabling tasks and activities to support service delivery of AMSA’s activity outputs through provision of standard corporate and executive functions. Corporate overheads include executive, human resources, finance, governance, and general ICT support, accompanying their respective share of property operating expenditure, ICT networking, and communication. Similar to indirect, corporate overheads allocated to direct activities based on cost drivers.
• Depreciation: representing capital costs, asset register assessed on an asset-by-asset basis. Where there is a specific direct link to an activity, depreciation is assigned to an activity group, where corporate support related, depreciation is assigned to the appropriate overhead classification.

Below is an outline of the composition of an activity cost.

Approach

As well as the principles in methodology detailed in Appendix 2, an effective model must be:

• Robust – in addition to the allocation of direct costs, a model must be capable of reliably allocating indirect and corporate overheads to direct activities.
• Defensible – assumptions and approach applied in determining cost allocations must be clearly documented and capable of withstanding external scrutiny, and
• Repeatable – model must be capable of supporting a repeatable process in future periods.

An illustration of the model approach applied in 2020-21 is detailed below.

Data collection and collation

The typical approach is to use data collection systems, such as timesheets, to gather information about drivers and use this for the allocation of costs to activities. AMSA does not currently collect timesheet data. Instead, the approach applied in 2020-21 is to use a data collection template with direct input from each business line area manager.

Managers assigned staff and employee costs (based on ASL equivalent grades), and supplier costs to activities and activity groups. During this data collection phase, managers provided:

• reasons why AMSA performs the activity, including how it is funded,
• whether the activity is ongoing, commencing, or terminating,
• description of activity drivers, including expected volumetric data per annum, expected impacts (risks, quality, benefits, service levels…etc.) for scenario levels, and justification for using the driver,
• risk assessment, identifying risk of not performing the activity, and
• corporate focus area aligning with Corporate Plan.

Overhead model

The collation of data collection templates determined direct costs for each activity output. To calculate fully absorbed costs of an activity output, an attribution of indirect and corporate support costs to each direct activity based on drivers is required. The overhead model applies several cost drivers.

Allocation of indirect support costs

Activity groups are used to assembly similar activities for the purposes of allocating indirect support costs to direct activities. There are two levels of activity groups to provide options in accurately assigning costs:

• Activity group 1 – set at the highest level at which common activities can be identified.
• Activity group 2 – sets a lower level to allow for a more targeted approach to overhead allocation. It also allows for activities to be split between international and domestic industries.

Currently, indirect support costs are assigned to direct activities using direct ASL of that respective activity group as a cost-driver. The model has the flexibility to assign dollar values to specific individual activity groups. However, at this stage, ASL deemed the most appropriate as costs are influenced by the number of staff.

Where costs are incurred solely to support a specific group of activities, such as ICT hosting and support of software, the activity group is used to assign costs – as illustrated below.

The following indirect costs have been allocated in the model utilising activity groups:

• Support activities (excluding corporate overhead functions) required for the delivery of a group of activities, such as divisional management and administrative costs,
• Depreciation costs for assets that directly support a group of activities, and
• ICT operating expenditure on projects and systems that directly support a group of activities.

Property operating expenditure

Given its role, AMSA operates at numerous locations throughout Australia, leasing offices and storage facilities, as well as owning eight remote residential properties and one regional office. This corresponds to a sizeable property footprint and associated operational expenditure.

Property operating expenditure for office leases and residential properties are allocated by aggregating costs by location, and then directly allocated to each business line area in proportion of the respective number of staff and contractors utilisation that location – below is an illustration of this process.

Property operating expenditure for direct activities, such as aids to navigation sites or leasing space for National Plan stockpiles, are allocated directly to their respective activity outputs.

Corporate overheads

Corporate overheads allocated to direct activities using several cost drivers, depending on the nature of the expenditure, detailed below.

Attribution of costs to non-regulatory charging activities

Staff providing regulatory charging activities may also undertake other activities funded by either government budget appropriations (search and rescue coordination services and regulatory function National System activities) or Australian Government agencies for targeted externally funded maritime related programs.

Costs for non-regulatory charging activities are identified during the collection and collation phase by direct input from business unit managers, with indirect and corporate overheads treated in the exact same manner as regulatory charging activities. This holistic approach (mentioned in Appendix 2) ensures a comprehensive model fulfilling multiple demands for costing, with no risk of omitting any costs from total activity outputs.

Sensitivities

Cost drivers and assumptions underlying the modelling are developed to limit and constrain any significant sensitivity from changes in demands of regulatory charging activities. Nevertheless, it is recognised that costs are sticky in the short-to-medium timeframe, predominately consisting of contracted suppliers and staff.

Supplier costs are largely longer-term contracts where expenditure relates to service requirements or deliverables. These are generally not dynamic or responsive to short-term changes in demand of regulatory charging activities. Staff costs have a similar constraint for short-term movements, and are based on long-term expected time and effort requirements to meet policy outcomes to an acceptable standard, as identified by business unit managers.

In determining the staff and supplier cost levels, AMSA forecasts the expected level of demand for regulatory charging activities as part of its annual budgeting processes. This process is based on historical data and trends, consultation advice, understanding known economic factors, and thorough communication with principle stakeholders. Although, externalities, such as COVID-19 disruptions, trade disputes, or austerity measures may impact resourcing and service delivery.

Fees under Navigation Act 2012 and other Acts

A schedule of the fee-based regulatory charging activities are listed below, with reference to Australian Maritime Safety Authority Fees Determination 2015.

Fees under National Law (National System)

In accordance with Clause 52 of the Marine Safety (Domestic Commercial Vessel) National Law Regulation 2013, annual indexation shall apply to specified fees contained within the provisions. This is a mandatory legislative requirement.

The indexation factor is 2.2% for 2020-21, with an effective date of increase being 1 July 2020.