IT Service Cost Modeling and Chargeback Policies

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IT Service Cost Modeling and Chargeback Policies

• OACDP January 2004 Conference
• Mt. Bachelor Village, Bend OR

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Definitions

• What is Cost Modeling?
• Map costs to activities, services, and customers
• What is meant by Chargeback Policy?
• How you determine what you charge customers
• How costs for IT services are collected through
  budget allocation, indirect charge, direct
  charge, monthly, annually, annually in arrears,
  etc.

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Multnomah County Experience

• IT Service Definitions and Service Costs
• BEFORE
• AFTER
• What did we accomplish?
• Improved accountability, accuracy of cost
  assignment, flexibility to make changes, customer
  understanding and control
• IT management team learned about costs in all
  areas

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About the MultCo IT Cost Model

• Why?
• Primary objective Cost recovery for all internal
  services from external sources (grants, Fed )
• Hardware/software used, cost
• SAS Activity Based Management 6.1
• 45,000 purchase plus 15,000 training
  installation
• Time to construct IT model
• More than 2,000 hours (to model 27M in services
  for 5,000 employees and non-County customers)
• 8 months 20 of 8 FTE 3-week all IT staff
  survey
• Cost Technology Inc. consultant 60,000 (Feb
  Aug 03)
• Decisions/assumptions made lessons learned

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Example of MultCo IT Cost Model

• Cost model reports for customers showing the IT
  services they use, what activities and costs make
  up those services, and how they can use the model
  to manage their IT costs
• Cost model reports IT managers use to evaluate
  costs of service provision, to find ways to
  streamline costs, to manage IT costs by service
  area and/or by customer

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IT Services and Costs FY04

• Desktop - 4,803,975
• Wide-Area Network (WAN) - 2,418,057
• Telecommunications - 4,844,693
• Applications - 14,702,706

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Software Applications

• Services
• Maintain existing software applications (FTE
  contract labor)
• Enhance existing software applications (FTE
  contract labor)
• Develop new software applications (FTE contract
  labor)
• Applications server support (FTE, server hardware
  software)
• Applications Help Desk (FTE)
• Total FY05 Cost 14,702,706
• Allocation Methods
• Department-specific applications assigned to
  each department
• Countywide applications (Web, GIS, Data
  Warehousing) assigned by of PCs
• Assignment of labor hours to maintain, enhance,
  and develop applications
• based on IT staff survey and management
  projection of changes in FY05
• Server support costs assigned by
• and size of servers (system administration
  data center costs)
• of gigabytes (data storage backup service
  costs)
• Application help desk costs assigned by of
  help desk calls (Remedy tickets)

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Software Applications Issues Options

• Major Changes/Issues
• Countywide applications cost not allocated to
  Depts in FY04 (5.4M)
• No net change in number of applications supported
• Ongoing applications support compromised for CHS,
  OSCP, Business Services, and Community Services
  without additional applications staff
• Health Department will need additional staff to
  support implementation of EMR or other new
  applications
• Options that impact costs
• Defer new system implementation and enhancement
  of existing systems
• If developing or purchasing new systems or
  enhancements
• Use existing County system rather than purchase
  additional
• Buy a turnkey system rather than develop a custom
  application
• Select a system based on technology already in
  use at the County
• Implement management review of system
  enhancements requested by users
• Locate servers in central data center
• Archive aged data to reduce data storage and
  recovery costs

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Desktop Support

• Services
• Desktop PC support
• Basic service highest common service level
  across all departments
• Approx. 1 technician per 200 PCs
• Response time on desktop help desk tickets
  monitored to maintain consistent service level as
  workload varies (24 FTE)
• Custom service PC and LAN help desk service.
• May include additional FTE above standard
  technician/PC ratio to maintain basic service
  level for customers with many physical locations
  or multiple desktop configurations (5 FTE)
• LAN server administration (6 FTE, server hardware
  software)
• Email service (2 FTE, server hardware software)
• Internet access (0.6 FTE)
• Total FY05 Cost 4,803,975
• Allocation Method
• Basic Desktop, LAN, Email, and Internet costs
  assigned equally by number of PCs
• Custom Desktop FTE assigned to specific customers
  based on pre-existing service levels
• PC/LAN help desk costs assigned by number of help
  desk calls (Remedy tickets)

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Desktop Support Issues Options

• Major Changes/Issues
• No net change in number of PCs supported
• 4,062 PCs plus 711 PCs for Sheriff DA
• 10 FTE reduction (savings recovered in FY 04)
• Impact on service levels minimized through IT
  re-org
• County IT assumes budget responsibility from
  departments for LAN server capital replacement -
  50,000 added in FY05
• Options that impact costs
• Reduce number of PCs
• Share printers and other peripheral devices
  wherever possible
• Reduce number of types of printers and other
  devices used (e.g. PDAs, projectors, scanners,
  digital cameras, etc.)
• Limit use of non-standard software on desktop PCs

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Wide Area Network

• Provide network connectivity
• Between buildings
• WAN circuits 5 types (Leased line cost)
• WAN server, switch, and circuit support (FTE,
  hardware software)
• Virtual private network (VPN) access
• Enables remote access to County email and
  software applications from home or travel
  Internet service provider account (FTE, hardware
  software)
• Total costs for FY05 2,418,057
• Allocation Method
• Actual WAN circuit cost assigned to departments
  (cost varies by type and location of circuit)
• WAN infrastructure support (FTE, MS) assigned
  equally by of circuits
• VPN cost assigned by of VPN accounts in use

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Wide Area Network Issues Options

• Major Changes/Issues
• No net change in number of circuits supported
• Average circuit cost was allocated in FY04.
  Actual circuit cost is assigned in FY05.
• VPN service in FY04 was allocated by capacity (
  of licenses reserved by each department). VPN
  service in FY05 is assigned by usage ( of
  licenses in use by each department).
• Options that Impact costs
• Reduce of physical locations connected to WAN,
  and/or of backup circuits to various locations.
• Reduce speed/bandwidth of circuits (e.g. replace
  higher cost T1 circuits with lower cost DSL
  connections for small workgroups in remote
  locations).
• Share circuits when multiple departments are
  located in same building.

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Telecommunications

• Provides various phone services
• Desktop phones (equipment long distance
  service)
• Cellular phones (equipment airtime)
• Pagers
• Voice Mail
• Automated Call Distribution (ACD)
• Pay phones
• Video conferencing
• Data cabling, and Moves, Adds, and Changes (MAC)
• Internal and external telephone directory service
• Total Cost for FY05 5,341,000
• Allocation Method Direct charge of actual costs

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Telecommunications Issues Options

• Major Changes/Issues
• New cost model shifts costs between telecom
  services
• Rate increase due to under-recovery of actual
  costs in FY03 and FY04 is not 3.2 across the
  board
• Actual cost increase/decrease depends on mix of
  equipment telecom services used by each
  customer
• Reduced cost of moves/adds/changes by 60,000 by
  replacing 140,000 of contract labor with 1 FTE
  (80,000)
• Any significant change in volumes of specific
  telecom services used by customers will require
  rate recalculation to re-apportion fixed costs
• Options that Impact Costs
• Control number of moves/adds/changes (MAC)
• Coordinate with Telecom staff as early as
  possible for lowest MAC cost
• Telecom staff conducting customer audits to
  review service usage and potential for reducing
  costs
• Ensure management review of employee long
  distance and wireless usage

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Flat Fee

• Provides software licenses/PC replacement
• PC hardware replacement (4 year cycle)
• Microsoft software license (Windows, MS Office
  suite)
• McAfee anti-virus software license
• WinZip file compression software license
• Program administration
• Flat Fee for FY05 575/PC Total 2,744, 475
• Reduced 70/PC based on average hardware cost
  reduction to 1500/PC and reduced Microsoft
  license costs via State contract
• Budget for number of PCs in use by department
  based on November 2003 inventory
• Allocation Method
• Direct charge

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FLAT FEE RATE FOR FY 05
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MultCo IT Chargeback Policy

• All IT costs are managed through the County IT
  budget (with exception of some IT services for
  Sheriff DA)
• Telecom services direct charge of actual costs
  based on usage with monthly invoices
• All other IT services customer enters into
  Service Level Agreement specifying expected usage
  of each service (quantity- of units and
  quality-service level) for the next FY
• IT invoices customers based on annual costs of
  negotiated SLAs at 1/12th per month.
• Significant changes in service levels by several
  customers may result in a mid-year rebudgeting
  (and re-calculation of service rates) for all
  customers.

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MultCos Experience in Closing

• The good, the bad, and the ugly
• Customers more satisfied -- costs explainable,
  customers can influence their costs, less
  haggling over budget!
• IT Managers can better manage costs identify
  for which services or customers costs seem high
• Clear list of services, costs, cost drivers,
  chargeback based on service consumption and
  service level agreements
• Danger of too much detail time spent modeling
  vs managing
• Cost model never done
• Redundant data entry Budget system, SAP GL, and
  SAS/ABM
• Contact info for more information
• Lisa Yeo lisa.m.yeo_at_co.multnomah.or.us