Developing a Cost Based Rate Model for Telecommunications Services

1. Developing a Cost Based Rate Model for Telecommunications Services Rohit Ahuja Patricia Nelson Scott Sheavly

2. Cornell Overview • Cornell is both a private endowed university and the federal land-grant institution of New York State • 260 major buildings on 745 acres • 7 undergraduate units, plus 6 graduate and professional units: • 4 in Ithaca, NY (grad school, law, mgmt and vet med) • Medical schools in New York City and Qatar

6. Voice and Data Network Facts • Students ~ 20,000 (14,000 undergrads, 6,000 graduate) • Faculty ~ 3,100 • Staff ~ 8,700 • Cornell Data Network: • Active Ports ~ 23,000 (6,000 student) • Active IP’s: ~ 29,000 • Traffic: 60% intra campus; 40% internet • Cornell Voice Network: • Phones ~ 18,000 • Long Distance Minutes ~ 8 Million

7. Charter of Cornell Information Technologies • Cornell’s enterprise information systems, services and support department • Approximately 1/3 of the university IT staff are part of CIT • Provides • General Campus Services (E-mail, Helpdesk, Backup) • Administrative Systems • Distributed Learning Development and Support (Academic Technology Center, Public Labs) • Data Network Services • Voice Services (Phones, Long Distance, Moves, Adds and Changes)

8. CIT Sources of Funding

9. CIT FTE Growth

10. Problems and “Drivers” • University administration’s perspective • Where was all the money going??? • Lack of accountability and understanding • Perception of inefficiency • Frustration in determining optimal funding level and continual requests for “more”

11. Problems and “Drivers” • Customers’ perspective • Voice and data were too expensive • No knowledge/understanding of how prices were derived • Viewed CIT as “empire builders”; too rigid, disjointed and hierarchical

12. Problems and “Drivers” • CIT’s perspective • Didn’t know what most of our services truly cost • When we did know, we couldn’t explain it very well to each other, let alone our customers and the university administration • Operated in a very division/unit-centric manner rather than with product/service focus

13. What Did We Do About It? • At direction of VP for IT, VP for Finance, and VP for Budget, we formed a university wide committee to analyze IT costing methodology: Cost Analysis Manager, Division of Financial Affairs Director of Finance & Administration, Student & Academic Services Indirect Cost Financial Analyst, Division of Financial Affairs Assistant to the Vice President, IT Accounting Manager, IT Budget Director Assistant Controller

14. Objectives • Needed to identify full costs for each service, including staff effort expended in other CIT units in support of services • Identify all implicit and explicit subsidies and allow university to determine if and when subsidies were to be allowed • Any permanent or temporary subsidies needed to be explicit and sustainable

15. Objectives • To develop a preferred cost recovery mechanism for CIT network costs • To address ResNet and other student use as well as academic and administrative use of IT services • To address labs, public areas, and classroom ports cost recovery mechanisms

16. 7 Steps on the Road to Recovery • Define IT services • Define direct costs of services • Define indirect costs of services • Allocate indirect costs to services • Identify voice and data costs • Allocate voice and data common costs to services • Recover costs

17. Define IT services

18. Step 1. How Do We Define IT Services? • General Campus Services(E-mail, Backup, …) • Administrative Systems(Payroll, Student Systems, Mainframe, …) • Distributed Learning and Development Support (Academic Technology Center, Public Labs…) • Data Network Services • Voice and Other Telecommunications(Telephones, Long Distance, Moves, Adds and Changes,…)

19. 2. Define direct costs of services

20. Direct costs: Cost which can be identified to a specific service Examples of Direct costs include: E-Mail servers (e-mail) PeopleSoft Site License (payroll) PBX maintenance (voice services) Routers (data services) We reviewed an entire year of expenses recorded in the general ledger HR, staff support costs, capital, and general expenses Identified direct expenses Step 2. How We Define IT Direct Costs?

21. Mainframe and Production Control-Direct

22. PBX-Direct Cost

23. Student Lab-Direct Cost

24. Server Farm-Direct Cost

25. NOC-Direct Cost

26. Public Facility: Direct Cost

27. 3. Define indirect costs of services

28. Step 3. How Do We Define Indirect Costs? Indirect costs: Costs which cannot be identified to a particular service (internal IT costs only) • Technical Management • Administration and Finance • Internal IT Desktop Support • IT Publications • Help Desk • IT Server Management

29. IT Facilities-Indirect

30. Help Desk-Indirect

31. Business Admin Center-Indirect Cost

32. HR Administration-Indirect

33. Total Cost of Each IT Service

34. 4. Allocate indirect costs to services

35. Step 4: How Are Support Costs Allocated to Services?

36. Total Cost of Each IT Service

37. Total IT Services Costs After Allocation of Support Costs

38. Accounting Challenges • Identifying costs of IT services • Educating IT staff about required accounting • Communications with university financial offices • Maintaining accounting structure • Keeping up with changing technical environment

39. Total Cost of Voice and Data Services

40. Total Cost of Voice and Data Services

41. 5. Identify voice and data costs

42. Step 5: How Do We Define Voice and Data Costs? • Direct Costs of Voice Services: • PBX costs, maintenance, and staff • Long distance usage • Direct Costs of Data Services: • Data electronics, maintenance, staff • Data usage billing • Security • Costs Supporting Both Voice and Data Services • Network Operations Center (NOC) • Plant maintenance (cable and fiber) • Inventory supplies and management • Utilities • Billing, work order, and trouble tracking systems

43. Costs Common to Voice and Data

44. Costs Common to Voice and Data

45. 6. Allocate voice and data common costs to services

46. Step 6: How are Costs Supporting Both Voice and Data Services Allocated?

47. Total Cost of Voice and Data Services

49. STEP 7. Recover Costs

50. Step 7. Recover Costs