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NC Shared Services Funding Model Evolution
North Carolina Office of Information Technology Services
Agenda
Background
Objectives of NC Rate Transformation
Approach
Baseline Budget
Cost Methodology
Keys to Implementation
Future Phases
OFFICE OF INFORMATION TECHNOLOGY SERVICES 2
3/12/15
Background
Reference Summary of Legislation
§ 147-33.82 OITS shall submit rates to Ofc of State Budget & Mgmt
§ 147-33.83 OITS may establish shared services and charge for them
§ 147-33.87 Ofc of State Budget & Mgmt and OITS establish method to budget and account for IT
SB 744 – 7.2(c)
Transparent rates, with report due Oct 1, 2014
SB 744 – 7.2 (c1)
Establish rates for Criminal Justice System
HB 950 - 6A.8(b)
Rates: setting according to industry standards, apply overhead consistently
NC technology services are provided via shared services through the Office of Information Technology Services (OITS) and 3rd party vendors
NC OITS rates had been frozen for three years because of untraceable methodology and numbers
OFFICE OF INFORMATION TECHNOLOGY SERVICES 3
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OITS
State Chief Information Officer
Was funded through overhead allocation on Shared Services
Shared Services Team
Funded 100% by chargeback (net-zero cost recovery)
Statewide Team
Funded 100% by appropriation
Administration and Finance Team
Was funded by a combination appropriation and shared
services (overhead allocation)
Objectives of NC Rates Transformation
Propose any recommended changes in funding methods
Create an updated rate-setting methodology that: Is consistent and easily understandable Creates more transparent budget and rates Simplifies the process Removes intra-agency cross billing Provides clear cost allocations Validates and updated rates Ensures cost recovery & funding of IT priorities Identifies operational areas for business process review and
improvement
OFFICE OF INFORMATION TECHNOLOGY SERVICES 4
"SECTION 7.2.(c) Rate Setting. – By October 31, 2013, October 31, 2014, the State Chief Information Officer shall establish consistent, fully transparent, easily understandable rates that reflect industry standards for each service for which any agency is charged.
3/12/15
Third-Party Validation
GT associates helped unravel the areas of confusion: Personnel were accounted for across multiple
cost centers/services Rates calculations were circular (Server costs
depend on e-mail rates; e-mail costs depend on server rates)
NCAS is not designed for cost basis accounting
Inconsistent application/tracking of funds for IT Facilities and Equipment (ITF&E) expenses
Inconsistent application of rates to consumers Cost centers included in their budgets “intra-
agency cross charges,” which created complexity and confusion
OFFICE OF INFORMATION TECHNOLOGY SERVICES 5
OSBM and OITS co-sponsored for third-party validation of rates
Internal cross-billing
Provisioning teams split
across multiple cost centers
Multiple intra-fund overhead spreads
Admin overhead
allocations
ITF&E costs
Cross-budgeting
3/12/15
Continue to
Streamline Service Catalog
Update ITF&E plans,
budgets, and rates
model
Separate Core IT
Costs and Recovery methods
Set Rates and Fees
Recover Cost
Organize around
services, not
technologies
Update ITF&E
plans and budgets
Update cost
centers and
recovery model
Set Rates and Fees
Recover Cost
Phased Approach to Get Well
OFFICE OF INFORMATION TECHNOLOGY SERVICES 6
Streamline Service Catalog
Develop True
Baseline Budget
Develop Cost
Methodology
Set Rates and Fees
Recover Cost
First zero-based budget in recent past Service Catalog reductions/improvements Created funds to track personnel previously split among many cost centers
Aligned with IT Restructuring Effort
PH
AS
E 2
(T
BD
)
Aligned with ERP ImplementationPH
AS
E 3
(T
BD
)P
hase
0
PH
AS
E 1
(for
FY
15/1
6)
Streamlined rate categories where able Separated SCIO operations support costs and identify funding options Re-established baseline budget, eliminate cross charges, capture costs executed,
and conduct ITF&E planning Updated Rates
3/12/15
Service Catalog Improvements
OFFICE OF INFORMATION TECHNOLOGY SERVICES 7
Continued efforts to improve service catalog
Phase 1 (FY15-17)
Streamline Service Catalog
Develop True
Baseline Budget
Develop Cost
Methodology
Set Rates and Fees
Recover Cost
Service catalog improvements are continual as we improve business processes, modernize equipment, and remove unused service codes All Service Catalog changes affect billing systems for telecom and/or computing
services as well as account tracking and budgeting
Moving towards customer-facing services (Phase II and III) will completely revamp the service catalog
Telephony and voice are largely pass-through and consistent year-over-year; left mostly as-is for Phase I
3/12/15
Variables to accuracy:• Hardware & Software• Maintenance• Contract renegotiations
• Price inflation• Turnover of personnel
Baseline Budget
Worked with agencies to verify as-is consumer base and potential demand changes
Worked to identify “internal consumption” between services
Verified and documented as-is resources and potential changes for FY15-17
Identified the clear “cost of doing business” by removing intra-agency cross-charges and clarifying operational budgets
Captured and validated overhead costs
Provided new vision and plan for ITF&E funding
OFFICE OF INFORMATION TECHNOLOGY SERVICES 8
Separated budgeting and cost recovery process
Phase 1 (FY15-17)
Streamline Service Catalog
Develop True
Baseline Budget
Develop Cost
Methodology
Set Rates and Fees
Recover Cost
HAZARDS!!
3/12/15
Cost Methodology
Costs budgeted and communicated in five (5) distinct areas (below)
Options included Appropriation, Subscription Rate, Allocated across services via causal driver(s), rates (fee-for-service)
OFFICE OF INFORMATION TECHNOLOGY SERVICES 9
Shared Services Direct Support (Help Desk, etc.) – Spread across rates via causal drivers
Recovering Services – developed rates for cost recovery
OITS Support Functions (HR, Finance, Legal, etc.) – Agency Subscription (incl. OITS)
SCIO and Direct Staff - Appropriated
ITF&E Costs – created a spend plan and refurbish plan
Phase 1 (FY15-17)
Streamline Service Catalog
Develop True
Baseline Budget
Develop Cost Methodology
Set Rates and Fees
Recover Cost
3/12/15
Allocation Methodology
OFFICE OF INFORMATION TECHNOLOGY SERVICES 10
3/12/15
Cost Stack Example
The cost of providing each service is now represented by a “cost stack” of all allocations and distributed costs that provide the service
Helps identify the true costs associated with a service and identify areas that require more specific analysis
All rates calculated on the cost stack vs. external demand
OFFICE OF INFORMATION TECHNOLOGY SERVICES 11
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Keys to Implementation of Phase I and Next Steps
Reviewed legacy Memoranda of Understanding (MOUs) with agencies that paid for services outside of the current rate structure
Identified key demand drivers and defendable allocation methodologies as keys to rates setting
Secured agreement on how to deal with ITF&E purchases and funding
Will update service catalog to establish new services and cost centers for FY15-17 (Affects billing systems)
Through the process, identified areas of concern and areas that require further operational and strategic review
OFFICE OF INFORMATION TECHNOLOGY SERVICES 12
3/12/15
Future Phase II
Better define processes, tools and governance models
Refine sophisticated cost model to allocate accurate costs to services
Fully implement activity-based cost modeling capabilities to automate the administration of the cost model
Separate Core IT costs and recovery methods
OFFICE OF INFORMATION TECHNOLOGY SERVICES 13
Mature capability that reflects the state’s core IT costs
Phase 2 (Aligned with IT
Restructuring)
Continue to Streamline
Service Catalog
Update ITF&E plans, budgets, and rates model
Separate Core IT
Costs and Recovery methods
Set Rates and Fees
Recover Cost
3/12/15
Future Phase III
Redefine Shared Services Division catalog centered around customer-facing services, not technologies Moves SSD towards a service consumption model Consumers pay for a service, not a collection of technologies
Should integrate with ERP, cost allocation, and budgeting systems
OFFICE OF INFORMATION TECHNOLOGY SERVICES 14
Fully mature, integrated capability that reflects offerings and bundles
Phase 3 (aligned with ERP
Implementation)
Organize around
services, not technologies
Update ITF&E plans and budgets
Update cost centers and
recovery model
Set Rates and Fees
Recover Cost
3/12/15
Questions??
OFFICE OF INFORMATION TECHNOLOGY SERVICES 15
3/12/15