Monterey County

Information Technology Policies

    

Section:

11.0
Subject: Chargeback Policy
Date Issued: September 10, 2002
Issued by: Director of Information Technology, as recommended by the Department Head Information Technology Steering Committee
Applies to: All Departments and Agencies

  

PURPOSE

To establish and define County policy for recovering the cost of internal information technology services in a manner that affords assurances of competitive pricing and service quality consistent with the client Department needs and information technology infrastructure asset management and investment requirements and best management practices.

POLICY STATEMENT

County Departments desire and require the supply of information technology services which are effective, meet their current and future business requirements, are delivered at a price point that is competitive with the market rate for comparable services, and yet are manageable to ensure delivered value.  In order to ensure that the client Departments are able to control their costs and are not held captive to internal services, it will be the policy of the County to gradually introduce choice over both the service provider and the price of services delivered.  The requirement for an incremental approach to introducing choice is predicated upon the need for an orderly transition of both the management practices within Information Technology Department (ITD) and the migration of staff skills to the services where internal resources can provide the highest value.

To facilitate the client Department understanding of internal costs for information technology services, ITD will prepare and annually publish a comprehensive I/T Product and Services Catalog in support of the annual budget development cycle.  The long term goal of ITD will be to evolve the catalog towards a “fee for service” pricing and chargeback methodology that to the fullest extent possible will identify products and services that are comparable to external service providers and are utilization based, or as a minimum, tiered to reflect categories of consumption.  However, initially the catalog may utilize direct cost or cost-plus pricing, tiered flat fees, measured usage fees, and/or user/subscription fee methodologies.  The methodology utilized will be developed in concert with the individual Department Heads and the Department Head Information Technology Steering Committee as the method must support the ability of the client Departments to forecast their demands for service, as well as the ability to manage their costs.  Independent of the methodology utilized, the catalog will include pricing for the products and services that ITD is prepared to provide in the upcoming fiscal year.

The pricing algorithms for determining the cost of the internal information technology products and services will be simple and easy to manage requiring data capture and reporting mechanisms that do not cost more to use than the value of the service being provided.  In general the administrative cost for recovering the cost of the service should not exceed two (2) percent of the cost of the service.   Pricing will cover service delivery costs and, if possible, allow for a markup to cover infrastructure replacement and upgrade costs associated with a service and to reduce the risk of under-recovery.  As the County’s chargeback process and capabilities mature, the catalog will include a benchmarked price for a comparable level of service from an external provider.

The I/T Products and Services Catalog will be utilized by the I/T Business Managers and client Department management to establish annual information technology work programs and Department budgets.  As a part of establishing an annual budget for a program of work the Information Technology Department and client Departments will create Service Level Agreements (SLAs) for the provision of the service.  These SLAs will establish metrics for the service, be used to manage priorities consistent with business needs, monitor and report on the performance of the service for quality and client satisfaction, and establish the cost recovery methodology.

Preferably a single, consolidated bill will be produced monthly for the entire range of services provided and consumed.  All charges accrued to a specific client Department will be fully auditable, as will the costs and revenue attributed to a specific service.  Billing formats will be balanced between the need for summarization and the need for detail to supply sufficient information for the client Departments to know what they are paying for and why, but not necessarily at a discrete level of consumption detail, unless specifically requested by the client.

DEFINITIONS

Direct Cost or Cost-plus – an allocated (prorated) cost to a Department typically associated with an arbitrary once-a-year measurement (i.e. total disk space utilized, number of user-ids, number of desktop platforms, etc.).  This methodology can promote chronic undercapacity and force costs up because resources are often not managed to maintain cost accountability.

Tiered Flat Fees – a chargeback methodology that allows for differing levels of service generally used in connection with differing levels of service.  For example, differing levels of cost could be associated with the help desk for new desktop machines versus older desktop devices that typically require more service due to their age.

Measured Usage – a chargeback methodology that links charges to actual utilization, such as the number of hours of labor used on a project; the number of MIPS (millions of instructions per second), CPU (central processing unit) seconds, or DASD (direct access storage device) bytes utilized on a server, or packets or transactions transmitted over a network.  This method has the appeal of being tied to physical use of a resource and is possibly more manageable by the client Department, but is typically difficult to accurately plan or forecast.

Service Level Agreement – a contract for the delivery of services between a service recipient and the provider which defines the services to be provided, how the services will be managed to priorities and quality, the roles and responsibilities of the parties involved in delivery of the service, and other rules of the engagement including the metrics and reporting responsibilities.

User/Subscription Fee – a charge based upon access to a service, often used where other methods might be to onerous to administer.  An example might be a monthly charge for access to the Internet, or to some other specific application.

ROLES AND RESPONSIBILITIES

Board of Supervisors – establish Departmental budgets based upon projected demands for information technology services in support of business needs.

Information Technology Steering Committee – deliberate and designate the appropriate chargeback methodologies for the various information technology services based upon optimizing cost recovery needs versus the ability of the client Departments to plan and manage their information technology service costs.

County Administrative Officer – review and recommend annual information technology budgets based upon the establishment of business priorities and encourage the creation of appropriate information technology service level agreements.

County Departments – jointly plan annual information technology work programs with the I/T Business Mangers.  Participate in crafting Service Level Agreements to meet business needs.  Utilize annual information technology budgets for effectiveness and creation of business value.

Director of Information Technology – develop and maintain marketing and financial skills with the Information Technology Department to ensure that the transformation towards a “fee for service” business model is successful.  Seek guidance from the Information Technology Steering Committee on the appropriate use of chargeback methodology for the various internal information technology products and services.  Establish and the Information Technology Product & Services Catalog.   Create templates for Service Level Agreements for use by the client Departments and I/T Business Managers.  Modify internal information technology work processes, staff skills, and management tools and techniques to facilitate a migration towards a “fee for service” business model.  Benchmark internal information technology services against external providers and publish the results.  Implement management practice to support service fees, which are competitive with the market.  Transition service provision to external providers where internal sources are not cost competitive and there is no compelling strategic value to retaining the service internally.

Department of Information Technology – maintain auditable records of services supplied, prepare monthly billing statements, and collect revenues from the client agencies for services delivered.

I/T Business Managers – jointly plan annual information technology work programs with the client Departments.  Monitor and manage information technology service delivery per the established Service Level Agreements.  Assist client Departments with understanding the billing/chargeback process and implement any necessary changes.