Dennis Maloney from Colorado introduces this workshop
What is the right approach?
Understanding the value of IT – Educause Quarterly November 2003
– Defining value, realizing value, structuring the value discussion, and metrics.
Brad Wheeler and Laurie Antolovic from Indiana are talking about Metrics, ABC, and the Value of IT to the institution. How big is the crew doing this activity? One financial analyst who spends half her time. The rest of the work is done by the people who are the custodians of the services.
Their annual process – Jul-Sep is assessment by the CIO and his cabinet, budget and project completeness, etc. Data collection takes place, using budget figures. The annual user survey is done then too, to provide user quality assessments. Laurie’s shop has really routinized all of this work. The survey is long and painful, but they get 40% response rate. They use the diagram of the annual planning processes in their budget hearings with the provosts at each of the campuses. It helps them frame the conversation, rather than having the conversation framed for them.
They can see lots of data on services, such as five year trends on service costs and unit costs for each service.
Pruning and reallocating – the expenditure review committee process trims budgets for reallocation to new priorities. Each manager has to give back a certain amount of money into a central pool for funding new proposals. Formal proposals request funding for new needs. Their latest was to take 5% from the entire base of the organization, across all the parts of the organization. They then can use that amount as being available for use to fund new proposals.
Difference between financial accounting and Activity Based Costing – in accounting money comes in to a unit, and then it is allocated for staff, equipment, etc. But that doesn’t tell you the cost of services, like what does it cost to provide an email account? or a support center call, or faculty consultation? This creates a healthy tension among service owners and providers. e.g. owner of peoplesoft hr system – “I need more attention from the sysadmins to tune my HR app” – DB manager: “I’ll charge 40% of sysadmin Joe’s time to the HR service owner” – you can throw a fit and go to the owner about that charge, or you can say “I always wanted that time, and now I’m going to use it.” Those conversations bring about a lot of behavioral change.
ABC came about as part of the quality movement.
Our first exercise is on establishing the cost of a service.
The example is the cost of support center activities.
+ Direct Costs
+ Suppeliers (internal service providers
= fully-burdened cost
Divided by unit = service unit cost
Activities – answer help desk phone lines; assist walk-in customers; answer email help desk messages; maintain knowledgebase; provide extended consulting. Figured out for each person providing services
They already had a culture of distributed budget responsibility. That’s the level of detail from which they started. They spent a good chunk of time on defining services. Every service has an owner.
First they calculate the percentage of time each person spends on each activity. Has nothing to do with number of hours per week – just percentage of a person’s time overall. Then they derive the cost of each of those activities by dividing each person’s fully loaded full-time salary by the percentage of activities. They don’t do hour-tracking on a regular basis – just percentage estimates are good enough for what they’re doing.
Direct costs are figured using the percentage allocation by activities to allocate direct costs like hardware/software, training, tools, maintenance, etc. That approach doesn’t work in instances where there are large capital expenditures on equipment.
Internal services (internal systems administration, administrative support costs, etc) are allocated as Service Supplier Cost allocations into the fully burdened cost of goods.
Those total costs are then divided by the number of units served. It’s possible to have lots of arguments about what the units used for any given service should be. Use whatever unit best communicates the accountability and comparability of services.
For systems administration, the data center manager estimates the amount of effort that each system consumes, from example all of the operators’ time, etc.
Laurie runs training on ABC every year.
Costs are done on budget on a cash basis. Once you get over the initial cost, then everything is lifecycle funded. They’ve decided to not amortize capital expenditures for ABC to keep the complexity down. They’ve applied this to all services, regardless of the kind of money used to fund the service.
This doesn’t reflect the financial transactions – e.g. the people who run chat in the support center don’t pay money to the people who provide identity management, even though the id management people would allocate some of their activity to the support center for that activity in the ABC.
The cabinet goes through the analysis annually, and looks at anything that has less than 85% satisfaction rating for elimination (or for increased funding to improve).
Laurie’s slides from a 1997 CAUSE workshop on how to get started with ABC are online at http://www.stonesoup.org/Meeting.next/metrics.pres/CAUSE97.htm