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522 Edberg & Kuechler

Copyright 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written

permission of Idea Group Inc. is prohibited.

A Case Study of IT

Chargeback in a

Government AgencyDana Edberg

University of Nevada, Reno, USA

William L. Kuechler, Jr.

University of Nevada, Reno, USA

EXECUTIVE SUMMARYIn 1997 the Nevada Legislature mandated the formation of an IT division for the

Nevada Department of Public Safety (NDPS). Prior to this time the 14 separate divisions

within the department had carried out their own IT functions. The legislature also

mandated that the full, actual costs for the IT department would be allocated to the

divisions on the basis of use, a form of IT funding known as hard money chargeback.

Complicating the issue considerably is the legal prohibition in Nevada of commingling

funds from multiple sources for any project, including interdivisional IT projects. Five

years after its creation, there is a widespread perception among users that the IT Division

is ineffective. Both the IT manager and the department chiefs believe the cumbersome

chargeback system contributes to the ineffectiveness. This case introduces the concept

of chargeback, and then details an investigation into the true costs of chargeback by

the chief of the NDPSs IT Division.

ORGANIZATION BACKGROUNDThe Nevada Department of Public Safety (NDPS) is a state-level government

agency responsible for coordinating all state responsibilities to protect the citizens of

the state of Nevada in the United States. Many public safety tasks, such as police, fire,

and emergency services, are left to city and county governmental agencies, but other

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IDEA GROUP PUBLISHING

This chapter appears in the book, Annals of Cases on Information Technology 2004, Volume 6, edited by

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forms without written permission of Idea Group Inc. is prohibited.

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A Case Study of IT Chargeback in a Government Agency 523



safety-related tasks are the responsibility of the state. Figure 1depicts the divisions

within the department. The short descriptions that follow, of the functions and cultures

of some of the individual divisions, will provide context for understanding the effect of

the chargeback scheme on the department as a whole.

Criminal History RepositoryThe Criminal History Repository (CHS) is the largest user of IT within the NDPS

(32% of the total budget) by a wide margin. This division collects, categorizes, and stores

Figure 1. Description of the Divisions within the Department of Public Safety

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all the information on criminal activities gathered by any investigative agency in the

state. It is also responsible for making this information accessible to all other investiga-

tive agencies, both state and federal. This information is stored on a Unisys mainframe

computer located in the Public Safety Technology Division (PSTD) offices and main-

tained by PSTD personnel. Inquiries by any state agency into information repositoriesoutside Nevada are also handled by the CHS. Although this division is primarily an

internal service division for the NDPS, managers of this division have historically been

sworn officers from one of the NDPS investigative divisions.

CHS is funded primarily through fees, which makes it different than the other

divisions in the department. While other divisions are funded extensively through state

and federal monies, CHS relies on user fees such as business license searches and

criminal records searches. For example, a person applying for employment in a casino

must provide information to the potential employer about his or her criminal history and

this information is generated for a fee from CHS. Since the population of Nevada has been

growing rapidly, CHS was able to count on a steady increase of fee revenue. In the wake

of the 9/11 tragedy, employment has decreased in many Nevada casinos and CHS is

experiencing a downward trend in expected revenues. Thus, funding for CHS has become

unpredictable, making it difficult to budget effectively for large, long-term IT projects.

Parole and Probation DivisionThe Parole and Probation Division is the second largest user of IT. All records of

activity of paroled criminal offenders, current and past, are the divisions responsibility.

From an IT function perspective, Parole and Probation has a large storage and retrieval

requirement, similar to the CHS. Unlike the CHS, most of the information stored by Parole

and Probation is used internally by that division to monitor compliance with parole

requirements, and secondarily to support the Parole Board in its decision-making. The

managers of this division have typically notbeen sworn officers, and many have had

advanced degrees in one of the sociological disciplines. This division is supported

almost completely by Nevada state general funds.

Highway Patrol DivisionThe Highway Patrol (HP) Division is the third largest IT user within the NDPS, and

serves the same function in Nevada as similarly named organizations in many other

statesprimarily highway safety law enforcement. However, the HP is one of the largest

divisions within the NDPS in terms of overall budget and number of personnel. As with

any organization with a large staff, the HP has achieved significant benefit from customsoftware applications that track personnel development, specifically training and ac-

creditation that in some instances is mandated by state law. The HP is also responsible

for a large vehicle fleet, and looks to computerized applications to track maintenance,

current location, and users of vehicles. The HP is very functionally oriented and places

high priority on the equipment, such as vehicles, used in its day-to-day operations. The

organizational structure is a quasi-military hierarchy: officer, sergeant, lieutenant,

captain, and ultimately, chief. Although there is an in-division, non-officer administra-

tive support staff, it is a practical necessity that HP management be sworn officers.

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Investigation DivisionThe Investigation Division of NDPS functions as a support arm to local (city and

county) law enforcement, and increasingly coordinates statewide initiatives in drug

enforcement and national security. Historically most of the IT cost borne by the

divisionmore than 9% of the total NDPS IT budgethas been for telecommunications

and the infrastructure necessary to support the large number of information requests to

external repositories. Beyond its use in information collection and retrieval, IT is not

salient within the division. Similar in organizational structure to the HP, the division is

managed by sworn officers.

Other DivisionsThe remaining divisions within the NDPS are small, both in overall budget and IT

usage. IT provides mainly help desk, networking, and telecommunications support for

these organizations. While the functions of some of the divisions such as Fire Marshal,

Emergency Management, and Emergency Response are highly IT dependent in somestates, IT has relatively limited participation in these services in the Nevada DPS.

Public Safety Technology Division (PSTD)Prior to 1997, there was no separate division to handle IT for the Public Safety

department. IT personnel were assigned to functional divisions within the department,

and each division was responsible for its own programming efforts. Technology

infrastructure, such as networking and mainframe operations, were handled by an

information technology group in the Administrative Division. Programmers in the

functional divisions reported through a matrix structure to both the technology group

in the Administrative Division and to the chief of their respective divisions. Creation ofthe PSTD was approved by the Nevada legislature in 1997 in order to produce better

funding source integrity for technology costs and to consolidate information technol-

ogy costs across the department.

There are 33 employees in the PSTD serving 1,252 employees in the Department of

Public Safety. The employees in PSTD are broken down as follows: 10 employees in

application development, 10 in operations and help/desk, 11 responsible for network and

systems management, and two in administration.

The mission of the PSTD is to: (1) provide technical support and computer resources

to criminal justice and public safety agencies throughout the state of Nevada; and (2)

to provide technical support and resources to the divisions within the department toinclude local area networks, wide area networks, programming, help desk, field support,

and technical planning.

Since PSTD is a separate division within the department, the chief of the division

is a member of the departmental executive decision-making committee. The executive

committee meets monthly to appraise performance of the department and make sure that

strategic goals are being met. There is no separate committee to evaluate technology

decisions or establish overall strategy for the use of technology within the department.

Most technology strategy is left to the individual divisions; there is no strategic

technology plan for the department as a whole.

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Each division is responsible for purchasing its own PC and workstations directly

from its individual budget, but all other technology-related costs are incurred by the

PSTD and then charged back to the division. While the PSTD serves all the divisions

shown inFigure 1, the four divisions described above bear about 80% of the total costs

of the PSTD.

SETTING THE STAGEInformation technology (IT) managers of government agencies struggle to provide

effective service for their users, while at the same time minimizing costs and coping with

a salary structure for their employees that is frequently much less generous than their

industry counterparts. While a standard industry criticism is that government agencies

dont have to cope with the strenuous pace of change inspired by for-profit competition,

management priorities in governmental operations can change with each election cycle,

resulting in fluctuations in project emphases that are rare in industry. A government ITmanager must be able to deliver much with few resources, inadequate and frequently

poorly equipped staff, and in an environment of dynamic management priorities. While

this situation is much like what their counterparts deal with in industry, government IT

managers are also constrained by arcane budgeting and accounting control mechanisms,

which are often a result of both federal and state legislation. In addition, IT managers in

government agencies are frequently legally obligated to allow public review of even the

most minor decisions and expenditures.

What is a Chargeback System?

An important issue for many government agencies is how best to manage andcontrol IT budgeting and actual expenditures. Some government agencies choose to

address this through a form of cost allocation or internal billing system, also referred to

as a chargeback system. A chargeback system is a way to allocate the costs for

delivering IT services directly to the group using those services.

Two general forms of cost chargebacks have been described in the literature: (1) a

soft money approach that summarizes costs in a memo for informational purposes; and

(2) a hard money method that allocates costs to the user area and transfers funds to the

IT group from the user area (Lin, 1983). The hard money approach can be used to allocate

all costs (fixed and variable), just variable costs, or only those costs that the organization

seeks to control. Most organizations tend to allocate all costs (Drury, 2000). An important

issue in chargeback systems is determining how much of the total cost of IT to allocate

to any one group of users and what kind of pricing mechanism to use for the charges.

While some costs, such as programming time, can be directly attributed to a group of

users or a specific application, other costs, such as network infrastructure and server

support, are more problematic to allocate. Much research has been devoted to determin-

ing optimal rates for the chargeback of these costs, with suggestions to use such metrics

as amount of processor time, number of applications, number of workstations, amount

of generated output (bills, checks, reports, etc.), amount of server access, and bandwidth

(Bergeron, 1986; Allen, 1987; Sen & Yardley, 1989; Drury, 1997).

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A key point in determining whether any of these systems is perceived as fair by

those being charged is whether the user group has any real control over the costs

incurred (Hufnagel & Burnberg, 1994). Many of the costs associated with IT are relatively

fixed over the medium to long-term time period, making it difficult for the user to truly

control usage (Ross, Vitale, & Beath, 1999). Even if a portion of the user community wereable to stop using the server or network infrastructure, the costs of providing that service

cannot be immediately cut, so the result would be higher rates for the ongoing users. One

group of users might benefit financially, but the other groups would be hurt, given a

system that required all IT costs to be allocated by usage. The organization as a whole

would continue to have the same overall expenditure for IT in the short term.

What are the Benefits and Drawbacks of Chargeback

Systems?Chargeback systems have been lauded as an excellent way to control costs by

making them more visible (Allen, 1987). At the same time, they have been criticized as anunfair, time-consuming waste of resources (Stevens, 1986). At the most elementary level,

chargeback provides a way to categorize IT costs and allocate those costs back to the

responsible user group. At a more complex level, chargeback is a way to modify the

behavior of the consumers and producers of IT. By making the costs visible, the

producers of IT could be more accountable to the user community, producing greater

communication between IT and users. On the other hand, chargeback could also make

the relationship more contentious if users believe that the charges arent fair.

Chargeback, by making costs immediately salient, might prematurely discourage IT

usage, possibly leaving unexplored creative methods of facilitating operations through

the use of technology. On the other hand, having visible costs allocated might motivate

Table 1: General Benefits and Drawbacks of Chargeback Systems

Benefits of Chargeback Systems Drawbacks of Chargeback Systems

Encourages constrained use ofscarce IT resources.

Discourages experimentation with ITsolutions to business problems unless the

solution is immediately viewed as cost

effective.

Encourages greater communicationbetween IT professionals and the

user community.

Creates an adversarial relationshipbetween IT professionals and the user

community, forcing them to

communicate almost exclusively on thecost of IT rather than the results of IT.

Makes IT costs visible and thusmore controllable.

Requires time-consuming budgeting andcollecting of IT costs.

Places responsibility for IT costs onthe user group benefiting from

those costs.

Requires estimates of allocations that arefrequently perceived as unfair by the user

community.

Forces IT to be more accountable tothe user community.

Creates accountability for dollars ratherthan delivered solutions.

Identifies applications with aspecific owner in the user

community.

Discourages the development ofintegrated, shared applications.

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users to carefully scrutinize proposals for automation, thus making better use of all

resources (Ross et al., 1999). Table 1summarizes the primary benefits and drawbacks of

using chargeback systems for IT cost allocation.

How were the Chargeback Cost CategoriesDetermined?

The Nevada Department of Public Safety Information Technology Division began

using a hard money chargeback system for full cost allocation at its inception in 1997.

The PSTD chief worked for the Department of Public Safety prior to 1997 as the manager

of data processing when that function was part of the Administrative Division. He

supported the development of a separate division and helped craft the structure of the

new division. It was also his responsibility to determine a method of allocating IT costs

to the other divisions in order to preserve the integrity of funding sources. He worked

with budget analysts from the legislative and executive branches of the state government

as well as an outside consulting firm to determine a method that was technically feasible,while also as accurate as possible. The resulting study (referred to as theMaximus Report

after the consulting group) divided costs into three categories:

Development and Programming: User divisions are charged an hourly rate forprogrammer/analyst time to develop and maintain systems. These costs represent

about 20% of the overall IT budget and are the most variable of the costs.

Networking:User divisions are charged per PC and workstation for software andservices necessary to support the LANs. These costs are about 30% of the IT

budget.

System Support: User divisions are charged by the number of input/outputaccesses they make to the law enforcement system. These charges cover the cost

of the law enforcement message switch, which includes mainframe hardware/

software, telecommunication costs, operation analysts, and help desk support.

These costs are about 50% of the IT budget and represent primarily fixed costs.

TheMaximus Reportrepresented a highly visible and significant amount of cost

and effort to the parties involved, and as a result has achieved a quasi-legal status within

the Nevada Legislative Budget office. The PSTD chief discovered that the recommenda-

tions of theMaximus Reportcould be revised only through another study of equivalent

stature and depth, and that another such study was unlikely in the near term.

How is the Department of Public Safety Funded?The NDPS is funded from a variety of different sources, and legislatively those

sources must be budgeted and used separately. For example, the Highway Division is

funded primarily through highway funds. Those funds must be used only for highway

projects, as laid out by law through the Nevada Revised Statutes, and any attempt to use

those funds to support other divisions in the Department of Public Safety would be

illegal. The four major funding sources for the department are highway funds, general

state funds, federal grants, and court assessment fees. The only funding source without

legal restrictions is the general state fund, and that fund is watched closely. The

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legislature participates actively in all decisions regarding general state funds through its

bi-annual line-item budget review process.

What are the Special Issues for NDPS Divisions?There are three interrelated non-economic issues that are unique to IT management

in the arena of governmental public safety, an understanding of which is essential to a

full appreciation of this case. These extraordinary issues also provide a context for

understanding the reactions of the individual stakeholder departments to the manage-

ment and budgeting of information technology. They are: (1) sworn vs. non-sworn

personnel categories; (2) short term, incident, and function focus for management; and

(3) deliberate rotation of management personnel.

Sworn personnel are badge- (and frequently gun-) carrying law enforcement

officers who are formally charged with upholding the laws of the state. The NDPS culture

draws a considerable distinction between sworn and non-sworn personnel; the primary

job of NDPS divisions such as HP and Investigation is enforcement, and administrativepersonnel and functions, including IT, exist solely to support the primary function.

Sworn and non-sworn employees fall under different pay scales, with sworn personnel

generally receiving higher pay and better benefits.

All higher management positions in the NDPS divisions that use sworn personnel

are held by sworn personnel who have risen through the ranks of action-oriented law

enforcement. The culture is one that emphasizes action over reflection, and rewards

short-term, field-level problem solving. An effect of the action orientation that impacts

IT is the notable lack of administrative training for sworn department management. Most

managers receive only informal on-the-job training as they are promoted to higher

positions. Frequently an officer may assume a position for which the prior manager has

been quickly moved across the state or to another division, and thus may be available

only for a minimal briefing of his predecessor. As a result, though they understand the

functional side of their jobs very well, sworn division managers can be less than optimally

effective in long-range administrative duties.

Exacerbating the difficulties with administrative management is the habit of moving

top division managers to other positions after relatively brief tenures. It is not unusual

for an NDPS division to have had three senior managers in the course of two years. Such

frequent shifts of senior management bring shifts in attitudes toward IT and toward

existing IT projects as the details of the case illustrate.

CASE DESCRIPTIONAfter five years using a chargeback system, the PSTD chief began to wonder if there

might not be a better way to account for IT costs. While preparing for a new legislative

session and spending weeks gathering the data required to justify his budget, he decided

to investigate the true cost of a chargeback system for the PSTD and whether there

might be a better way to manage the costs of technology within the Department of Public

Safety. Some of the hidden costs that he suspected were incurred by the chargeback

process were: excessive IT planning and budgeting time, excessive user department

planning and budgeting time (for IT), and inefficiency costs resulting from the deferral

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or cancellation of projects due to the mid-budget IT rate fluctuations that are inevitable

under current chargeback rules.

The PSTDs chief believed that charging back costs to the divisions was an

expensive and time-consuming process. PSTD personnel spent approximately 375 hours

a year gathering the information they required to help forecast the needs of the otherdivisions. While the division chief believed this was an excellent planning mechanism,

he felt that much time was spent looking at projects that would not come to fruition

because of budgeting constraints. For some divisions, a greater percentage of PTSD time

was spent planning than actually producing IT work for the division.

He also found it difficult to accurately define a system support allocation to the

departments. This was the largest portion of the budget (50%), was a relatively fixed cost,

and was required to support all users. Allocating system support became especially

problematic when trying to determine which funding source to charge, since not all the

system transactions (the billing basis for this cost) from a department were directly

related to that single department. The PSTD chiefs last major concern was the difficulty

in developing integrated, department-wide applications. One of the primary needs of the

department was to have access to information across division lines, yet funds must be

committed from different divisions and differing funding sources in those divisions to

produce the applications that would generate that information.

What is the Process for Budget Allocation?All divisions in the Department of Public Safety submit formal budgets to the

Nevada State Legislature, which meets bi-annually. Every year, all divisions review

budgets and update them as necessary. The PSTD takes advantage of this yearly

opportunity to review the objectives of each division and determine whether the use of

information technology is strategically aligned with the objectives of the division. PSTD

personnel spend about 15-30 hours with each division on this process encompassing

these steps:

Interview and evaluation:PSTD personnel interview a pre-determined IT coordi-nator from each division to identify the mission and objectives for the division and

review all outstanding and potential IT projects. PSTD personnel ask specific pre-

defined questions about the divisions use and satisfaction with IT services over

the past year.

Create project requests:PSTD personnel create a project request form for eachproject identified in the interview. High level specifications are defined in order to

determine the amount of time each project will take.

Prioritize projects:PSTD personnel work with the divisional IT coordinator andchief to prioritize the identified projects. Maintenance projects and applications

that are a result of legislative mandate are always the first priority. Prioritization is

an iterative processas more information becomes available about the projected

budget, the coordinator and PSTD personnel work together to cut projects and

focus resources to work within the budgetary constraints.

Summarize amounts:PSTD analyzes the projects and determines what level ofsystem support and networking will be necessary to supply the required systems.

System support and networking is then allocated to each division using past year

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percentages. Estimated programming hours for the prioritized projects are finalized

and each division chief is sent the breakdown of costs in the three chargeback

categories discussed earlier. These amounts are summarized into a total which is

included as a line item in each divisions budget.

Each divisions budget (including PSTDs budget) is submitted to the legislative

budget committee, which evaluates the requested amounts and frequently cuts a

percentage point or two. As the cuts are made, the PSTD budget is modified to reflect

the changes. All IT costs from all other divisions must be accounted for in the PSTD

budget.

Budget allocation is an iterative process requiring personnel from PSTD and user

divisions to work together to refine a budget that will be acceptable to the Nevada

legislature. To determine the estimated costs for budgeting, the PSTD division chief uses

varying units of measure depending on the required task. Table 2presents examples of

common units used during budget calculations.

As an example of accounting done within the budgeting process, Table 3shows

some of the budgeted amounts for the Parole and Probation Division for Fiscal Year 2004.

Amounts are categorized by both project and type of use based on the unit of measure

specified for the given area.

The estimated per unit cost is based on historical information and anticipated yearly

costs. Since the PSTD is not a profit center, the actual costs for the division must balance

Table 2: Charged Services, Billing Units, and Service Category

Table 3: Partial Budget for FY 2004 for Parole and Probation

Service Unit of Measure Category Estimated UnitCost

Programmer Per Hour Development $80/hour

DBA (database administrator) Per Hour Development $125/hour

PC/LAN Technician Per Hour Support $50/hour

Help Desk Per Workstation Support $2/workstation

Mainframe Usage Per CPUMinute/month

Support $.25/minute

Disk I/O Per 1,000 Support $.05/operation

VPN (virtual private network) PerConnection/Month

Network $2.50/connection

Project Description New Development Mandated/MaintenanceBudget UOM Estimate $ Budget UOM Estimate $

Strategic Planning Interviews 30 Hours $2,400

Sex Offender Maintenance 202 Hours $16,160

Parole Board and Prison Interface 404 Hours $32,320

Website Development 270 Hours $21,600

Mainframe Services 8,000 CPUMinutes

$24,000

VPN 235 connections $7,050

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to zero at the end of the year with all costs allocated to the user divisions. As an example

of how this budgeting policy can produce fluctuating charges, consider the following

representative illustration: 4,888 programmer hours were budgeted in total for Parole and

Probation for FY 2001, at a charge estimated at the beginning of the yearat $70 per hour.

Assume all of the hours for Parole and Probation were expended; however, several otherlarge IT user divisions cut back on projects during the year reducing total PSTD

chargeable hours by 10%. The total salary load for the PSTD during the fiscal year

remained constant, so charges per hour had to increase by 10% to $77 per hour because

PSTD isnt able to quickly fire or hire programmers to compensate for changes in other

divisions use of programmer resources. Thus at year end, Probation and Parole faced

an unanticipated increase in over budget programming charges of 4,888 hours * $7/hour

= $34,216.

After the budget has been approved by the legislature, division chiefs use the

finalized document to guide their decisions and financial expenditures throughout the

year. Budgets and actual expenditures from PSTD reports are reviewed quarterly by both

legislative and governors office budget analysts to guarantee that legislative decisions

are upheld, funding source integrity is maintained, and the governors strategic objec-

tives are supported. Any deviation from the original budget over $1,000 must be

approved by both legislative and the governors budgeting committees.

What is the Process for Reviewing IT Development?The development, implementation, and project review processes followed by PSTD

and its consumer divisions follows a conventional structured systems development life

cycle (Marakas, 2001). Every division chooses an IT liaison, who serves both as the

requirements designator for custom development projects and IT infrastructure coordi-

nator. As projects progress, the division IT liaisons participate most heavily in reviews,

testing, and implementation.

The PSTD chief found that some of the tension introduced by the chargeback

system was evident in the review process because the constant visibility of IT costs made

divisions extremely sensitive to billings for IT analyst time, which show up in monthly

statements from IT. Relations with the PSTD had reached the point where the division

chiefs attempted to minimize meetings with IT. For those meetings that were agreed to

be necessary, division chiefs frequently explicitly asked that the number of IT personnel

in attendance be minimized. How many analysts does it take to figure this out? one of

them asked. In response, the PSTD chief tried to foster understanding of the specialized

nature of IT expertise, indicating, for example, that a project may require a databasespecialist, a senior systems architect, and the primary programmer for the project to

attend a meeting for the most effective understanding of requirements. For the most part

this effort had been unsuccessful. The chargeback system became the scapegoat for this

contention, since division chiefs did understand the mandate to account for all IT costs,

and most were to some degree sympathetic to PSTDs need to satisfy the mandate.

The Technical Affairs Committee (TAC) is a mechanism that evolved within the

NDPS for the department-wide tracking of projects, infrastructure developments, and

knowledge sharing between IT and its user divisions. TAC was created to serve as an

overall steering committee for planning and coordinating information systems through-

out the department. The Committee consisted of the chief of PSTD, selected IT personnel,

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the IT liaisons from all divisions, and other divisional personnel as required. TAC meets

once a month. The PSTD chief recalled that when the Director of the NDPS first mandated

the TAC, the meetings were attended by the chiefs of the divisions. However, within a

span of a few months, the chiefs delegated TAC matters to their seconds-in-command

or their IT liaisons.

What are Stakeholder Reactions to PSTD and

Chargeback?Attitudes toward information technology in general, and toward the PSTD specifi-

cally, vary considerably between divisions. This section provides details on the

approaches to IT and its management from the four largest user divisions of IT within

the DPS. It concludes with a summarization of NDPS division managers attitudes toward

the chargeback system itself, notably one of the areas of widespread agreement on IT

between divisions.

Parole and ProbationThe Division of Parole and Probation was headed by a professional penologist who

had a masters degree in sociology.1Parole and Probation is the largest IT user division

not headed by a sworn officer. The chief had been head of the division for six years and

felt the performance of the PSTD could be improved, primarily through better justification

of costs. His division was being charged for a full-time programmer by PSTD, and the chief

was unsure whether or not higher value could be obtained by the use of commercial off-

the-shelf programs or outsourcing development. Although he felt the performance of the

systems developed for him was good, he wanted a third party (auditor) to investigate

costs relative to alternatives. Through national conferences on parole and probation, hehad become aware that equivalent divisions in other states were successfully using

commercial software packages. His suspicion that in-house development was inefficient

predated the establishment of the PSTD; he recalled several bad experiences with

costly projects when software development was handled by a division of Administrative

Services. He disliked the budgeting process, as he understood it, because it caused

radical shifting of funds at year-end, as all accounts across the department and between

divisions were forced to zero. The prior year he had been surprised after the end of the

fiscal year by a $31,000 over-budget amount in IT charges.

Criminal History RepositoryThe CHS is the largest user of IT within the NDPS and its chief voiced the mostcriticism of the PSTD. The CHS chief was a sworn officer who had been transferred to

the position only nine months prior to the PSTD chiefs chargeback cost investigation;

his prior assignments had been primarily field investigations and he expressed some

discomfort over this desk assignment. However he had reviewed all prior in-progress IT

projects in considerable depth and understood their intended functions quite well.

Within the Records and Identification Bureau, there is a perpetual backlog of information

to be entered into the systems, and automation was considered a key component in

relieving the backlog. The CHS chief had attended several conferences, which had made

him aware of the potential benefit of IT to his division. However, he felt that the amount

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inter-division IT project called IRIS served in lieu of a formal plan, since, as he understood

the project, virtually all the divisions information would be entered into IRIS and the

system would in turn produce all necessary reporting, both internal management reports

and mandated inter-departmental reports. Like many in the NDPS, the lieutenant felt the

cumbersome IT budgeting process (the chargeback process) was partially responsiblefor shortcomings in PSTD performance. The burden it created was seen to lie within the

PSTD however, as Investigations spent very little of its resources in IT budgeting. The

PSTD division chief tells us what to spend was one comment. Later this was clarified

as meaning that after PSTD personnel talked with the Investigations IT liaison concern-

ing IT needs at the start of the budget process, PSTD would return with a cost figure for

the division for the indicated requirements. The Investigations Division did not have the

expertise to question the cost, and so accepted it without comment.

Common User Reactions to the Chargeback Process

Despite notable differences in the perceptions of the PSTD and in the utility of ITfor their functional units, the user divisions were consistent in their reactions to the

current IT budgeting and chargeback process:

The process was cheap.Budgeting and chargeback allocations were very inexpen-sive to the user departments. Most of the onus for developing the budget and

performing actual chargeback allocations was on the PSTD.

Time spent budgeting yearly was wasted.The user divisions believed that most ofthe projects that the IT coordinators identified as important will be cut back

because of limited IT resources, so it was a waste of time for them to perform

extensive yearly planning. I think they (PSTD) could use their time more wisely,

with fewer meetings and fewer people in meetings was a frequent comment from

the user divisions.

There was no user control.The user divisions felt they had control over only a smallamount of the actual expenditures (development and programming time), so they

didnt oversee or manage the remaining IT costs closely. PSTD always gets paid

first, and they get paid what they tell us to pay, so I dont see it as any kind of

expense I can control was a comment from one division chief.

IT prices and services were abstract.None of the IT coordinators or division chiefsfelt capable of evaluating the effectiveness of IT services. The user stakeholders

consistently said that they were uncomfortable trying to oversee a process and

product of which they had so little knowledge. They tell me it will take five years

and cost $1 million. How do I know if that is a fair price? It might be, but I have no

way of checking it out without having it cost me even more money just to check

it out was an observation from a division chief.

The user divisions stakeholders uniformly believed it would be better to allocate

a certain dollar amount to PSTD and then make the division accountable for its

performance, rather than its budgeted dollars. A common reaction was that everyone

wanted more technology capabilities and wanted more information available for deci-

sion-making, but didnt want to have to actually see the price tag for that technology and

information. They certainly didnt want those dollars transferred from their budgets to

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the budget of PSTD. Each believed that it seemed extraordinarily expensive to receive

those services from PSTD, but they werent aware of market prices for similar services

and didnt have ideas about how to comparison shop for information technology.

Is Chargeback an Effective IT Management Tool forNDPS?

Using a chargeback cost allocation scheme has benefits and drawbacks for the

Department of Public Safety specifically related to the objectives for initially installing

the system. Table 4describes the primary objectives for the system and then summarizes

the benefits and drawbacks currently experienced within the department.

Table 4: Benefits and Drawbacks of Chargeback System for NDPS

CURRENT CHALLENGES/PROBLEMS

FACING THE ORGANIZATIONAt this time both the PSTD chief and the PSTD user divisions agree that IT services

need to be improved. Table 5lists the challenges to PSTD effectiveness, and for each,

includes the impediments and constraints to overcoming those challenges. At a higher

level, the major challenges facing the PSTD today are implementing the high-level policy

changes that will enable these issues to be successfully addressed.

Objective Benefit of Chargeback System Drawback of Chargeback SystemProtect funding source

integrity System relates costs back to

appropriate accounts.

Requires estimates of resources thatmay not be completely accurate.

Provide greater

visibility of IT costs Division chiefs are aware of the

funding required to support IT.

System does not make individual costs,such as help desk and troubleshooting,

more visible.

Most costs are perceived as overhead,or fixed.

Enhance level ofcommunication

between PSTD and

other divisions

Forces PSTD to communicate withother divisions about resources

required to complete projects.

A well-documented planning process isin place for all IT projects.

Division chiefs did not know whetherthey were getting their moneys worth,

so providing more information about

the financial outlay was not helping

their understanding.

Create betteraccountability for IT

projects

Each project is accounted forcompletely down to the last penny.

Other metrics, such as project durationand value to the organization, are less

visible due to the high stress onchargeback.

Actual success/failure of projects isless visible.

Enhance the ability to

plan IT projects System forces PSTD to plan projects

for an annual cycle.

Projects are planned only withindivision; there is no cross-division

planning encouraged by the system.

System has created a short-termmentality for planning.

Cost accountability replaced the use ofa departmental IT steering committee.

Increase the efficiency

of PSTD IT is held accountable for the funds it

spends.

PSTD must spend hours accounting forfunds.

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Some of the challenges from Table 5merit a final discussion. Beyond generaldissatisfaction with PSTD, the most critical issue faced by the department is the inability

to integrate data and provide salient information for departmental administration. The

Deputy Director of the NDPS expressed the view that, Examining data across the

division is the single most important thing we cant do. User divisions were cognizant

of the scarce resources provided to IT, and believe this to be a key cause of service

problems.

One technique that the PSDT chief considered to eliminate radical end-of-year rate

adjustments was to keep billings at a constant rate for each year, correcting over- or

under-estimates by imposing higher or lower fixed rates the following year. Unfortu-

nately the state legislature currently forbids accounts that do not balance to zero at the

end of a year, unless each such account is specifically authorized by the legislature. Thismakes a practice that could be helpful and whichextremely common in industryis

very difficult to implement.

In summary, the perceived immediatecauses of PSTD ineffectiveness appeared to

the PSTD chief to be immutable constraints in the state government environment:

funding for the NDPS divisions is unlikely to change, and the need to account for IT costs

by fund is required by law. Further, the basic culture of the NDPS (or any state public

safety department) is deeply rooted in the primary functions of the department. Thus, the

chief must find methods to improve IT service delivery while operating under these

constraintsa significant challenge indeed!

Table 5: Challenges to IT Effectiveness Within the NDPS

Challenges to IT

Effectiveness

Issues Underlying the Challenges

Difficult to implement

department-wide projects

Most divisions are funded by distinct revenue sources related to their

function, and commingling of funds is prohibited by law. Difficult to estimate the percentage use of a system that isnt even developed,

must less installed and used.

Integrated systems are

necessary for management

reporting

In addition to the impediments associated with department-wide projects, thischallenge faces problems in prioritizing projects for integrated systems. Each

division chief has to buy into the idea of creating an integrated system and

provide funding resources.

Requires long-range planning.

Abrupt cancellation of

projects Some divisions are dependent on fluctuating fees and grants, and cannot

predict the availability of funds.

PSTD cannot give a completely accurate dollar amount for users until theactual usage rates are determined. Since usage rates fluctuate, but the dollars

are relatively fixed, different divisions may become responsible for a larger

percentage of the costs than originally budgeted. Thus, users may be

surprised at the expense and cancel any projects they possibly can to savefunds.

Functional, event-drivenmanagerial culture

Resources for managerial training are not available.

Sworn officers are usually considered better candidates for managing othersworn officers.

Short-term planning is reinforced by the biannual budget cycle.

Frequent turnover of

management at all levels Management turnover is considered a way to keep sworn officers fresh in

the culture of the department.

Funding source integrity must

be maintained Nevada legislature is conservative and unwilling to lightly pursue change.

Nevada legislature analysts require a costly study to modify the currentchargeback system.

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ENDNOTES1 As of this writing the Parole and Probation chief had taken another position within

the state.2 As of this writing the head of CHS had taken another job, outside the state

administration.

REFERENCES

Allen, B. (1987). Make information services pay its way.Harvard Business Review,

(January-February), 57-63.

Bergeron, F. (1986). Factors influencing the use of DP chargeback information. MIS

Quarterly, 10(3), 225-237.

Drury, D.H. (1997). Chargeback systems in client/server environments.Information and

Management, 32(4), 177-186.Guimaraes, T. (1997). The support and management of user computing in the 1990s.

International Journal of Technology Management, 14(6), 766-788.

Hufnagel, E., & Birnberg, J. (1994). Perceived chargeback system fairness: A laboratory

experiment.Accounting, Management and Information Technology, 4(1), 1-22.

Marakas, G.M. (2001). Systems analysis and design: An active approach (pp. 22-25).

Englewood Cliffs, NJ: Prentice-Hall.

Ross, J.W., Vitale, M.R., & Beath, C.M. (1999). The untapped potential of IT chargeback.

MIS Quarterly, 23(2), 215-237.

Sen, T., & Yardley, J.A. (1989). Are chargeback systems effective? An information

processing study.Journal of Information Systems, volume, 92-103.

Stevens, D.F. (1986). When is chargeback counterproductive? EDP Performance Re-view, (July), 1-6.

FURTHER READING

Drury, D.H. (2000). Assessment of chargeback systems in IT management.Infor, 38(3),

293-313.

Holstrom, B., & Milgrom, P. (1994). The firm as an incentive system. The American

Economic Review,(September), 972-991.

Nolan, R. (1977). Effects of chargeout on user/manager attitudes. Communications of the

ACM, 20(3), 177-185.Olson, M., & Ives, B. (1992). Chargeback systems and user involvement in information

systemsan empirical investigation.MIS Quarterly,(June), 47-60.

BIOGRAPHICAL SKETCHES

Dana Edbergis an Associate Professor of Information Systems and the Chair of the

Department of Accounting and Information Systems at the University of Nevada, Reno.

She has a PhD in Management Information Systems from Claremont Graduate Univer-

sity. Prior to joining UNR, she performed software engineering project management in

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government and industry. The major focus of her research is on the long-term relation-

ship between users and information systems developers, but she has also published

articles discussing the virtual society and global information systems. She has pub-

lished in the Journal of Management Information Systems, Information Society,

Information Systems Management, Government Finance, and other internationalconferences and journals.

William L. Kuechler, Jr., is an Assistant Professor of Information Systems at the

University of Nevada, Reno. He holds a BS in Electrical Engineering from Drexel

University and a PhD in Computer Information Systems from Georgia State University.

His 20-year career in business software systems development provides insights to his

research projects, which include studies of inter-organizational workflow and coor-

dination, Web-based supply chain integration, and the organizational effects of inter-

organizational systems. He has published in IEEE Transactions on Knowledge and

Data Engineering, IEEE Transactions on Communications, Decision Support Systems,

Information Systems Management, Journal of Electronic Commerce Research, and

other international conferences and journals.

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9780585480381 Case Study IT