Case Study of It Chargeback in a Government Agency

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A Case Study of IT Chargeback in a Government Agency Dana Edberg University of Nevada, Reno, USA William L. Kuechler, Jr. University of Nevada, Reno, USA

EXECUTIVE SUMMARY In 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 NDPS’s IT Division.

ORGANIZATION BACKGROUND The 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 Copyright 2004, Idea Group Copying or distributing in printTechnology or electronic forms without writtenby This chapter© appears in the book,Inc. Annals of Cases on Information 2004, Volume 6, edited permission of Idea Group Inc. is©prohibited. Mehdi Khosrow-Pour. 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 Agency 523

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

safety-related tasks are the responsibility of the state. Figure 1 depicts 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 Repository The 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 Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

524 Edberg & Kuechler

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 investigative agencies, both state and federal. This information is stored on a Unisys mainframe computer located in the Public Safety Technology Division (PSTD) offices and maintained by PSTD personnel. Inquiries by any state agency into information repositories outside 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 Division The Parole and Probation Division is the second largest user of IT. All records of activity of paroled criminal offenders, current and past, are the division’s 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 not been 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 Division The 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 states—primarily 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 custom software applications that track personnel development, specifically training and accreditation 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 administrative support staff, it is a practical necessity that HP management be sworn officers.

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A Case Study of IT Chargeback in a Government Agency 525

Investigation Division The 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 division—more than 9% of the total NDPS IT budget—has 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 Divisions The 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 some states, 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 of the PSTD was approved by the Nevada legislature in 1997 in order to produce better funding source integrity for technology costs and to consolidate information technology 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 to include 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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526 Edberg & Kuechler

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 in Figure 1, the four divisions described above bear about 80% of the total costs of the PSTD.

SETTING THE STAGE Information 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 don’t 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 IT manager 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 and control 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 determining 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 Case Study of IT Chargeback in a Government Agency 527

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 were able 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 an unfair, 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 aren’t “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

š

Encourages constrained use of scarce IT resources.

š

š

Encourages greater communication between IT professionals and the user community.

š

š

Makes IT costs visible and thus more controllable. Places responsibility for IT costs on the user group benefiting from those costs. Forces IT to be more accountable to the user community. Identifies applications with a specific owner in the user community.

š

š š š

š š š

Discourages experimentation with IT solutions to business problems unless the solution is immediately viewed as cost effective. Creates an adversarial relationship between IT professionals and the user community, forcing them to communicate almost exclusively on the cost of IT rather than the results of IT. Requires time-consuming budgeting and collecting of IT costs. Requires estimates of allocations that are frequently perceived as unfair by the user community. Creates accountability for dollars rather than delivered solutions. Discourages the development of integrated, shared applications.

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528 Edberg & Kuechler

users to carefully scrutinize proposals for automation, thus making better use of all resources (Ross et al., 1999). Table 1 summarizes the primary benefits and drawbacks of using chargeback systems for IT cost allocation.

How were the Chargeback Cost Categories Determined? 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 the Maximus Report after the consulting group) divided costs into three categories: • Development and Programming: User divisions are charged an hourly rate for programmer/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 and services 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/output accesses 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. The Maximus Report represented 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 recommendations of the Maximus Report could 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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A Case Study of IT Chargeback in a Government Agency 529

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 management 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 administrative personnel 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 DESCRIPTION After 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 PSTD’s 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 other divisions. 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 chief’s 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 coordinator from each division to identify the mission and objectives for the division and review all outstanding and potential IT projects. PSTD personnel ask specific predefined questions about the division’s use and satisfaction with IT services over the past year. • Create project requests: PSTD personnel create a project request form for each project 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 and chief 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 process—as 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 of system support and networking will be necessary to supply the required systems. System support and networking is then allocated to each division using past year 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 Agency 531

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 division’s budget. Each division’s budget (including PSTD’s 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 2 presents examples of common units used during budget calculations. As an example of accounting done within the budgeting process, Table 3 shows 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 Service

Unit of Measure

Category

Estimated Unit Cost

Programmer DBA (database administrator) PC/LAN Technician Help Desk Mainframe Usage

Per Hour Per Hour Per Hour Per Workstation Per CPU Minute/month Per 1,000 Per Connection/Month

Development Development Support Support Support

$80/hour $125/hour $50/hour $2/workstation $.25/minute

Support Network

$.05/operation $2.50/connection

Disk I/O VPN (virtual private network)

Table 3: Partial Budget for FY 2004 for Parole and Probation Project Description Strategic Planning Interviews Sex Offender Maintenance Parole Board and Prison Interface Website Development Mainframe Services VPN

New Development

Mandated/Maintenance

Budget UOM

Estimate $

Budget UOM 30 Hours 202 Hours

Estimate $ $2,400 $16,160

404 Hours 270 Hours

$32,320 $21,600 8,000 CPU Minutes 235 connections

$24,000 $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 year at $70 per hour. Assume all of the hours for Parole and Probation were expended; however, several other large 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 isn’t able to quickly fire or hire programmers to compensate for changes in other division’s 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 governor’s office budget analysts to guarantee that legislative decisions are upheld, funding source integrity is maintained, and the governor’s strategic objectives are supported. Any deviation from the original budget over $1,000 must be approved by both legislative and the governor’s 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 coordinator. 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 database specialist, 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 PSTD’s 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 throughout the department. The Committee consisted of the chief of PSTD, selected IT personnel, Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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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 specifically, 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 Probation The Division of Parole and Probation was headed by a professional penologist who had a master’s degree in sociology.1 Parole 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 offthe-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, he had 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 Repository The CHS is the largest user of IT within the NDPS and its chief voiced the most criticism of the PSTD. The CHS chief was a sworn officer who had been transferred to the position only nine months prior to the PSTD chief’s 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 Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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of time he spent performing oversight on IT projects, approximately 25%, was excessive. He expressed the opinion that as the largest user by dollars of IT services, his projects deserved a higher priority than they received.2

Highway Patrol At the time the PSTD chief began the chargeback study, the HP chief was the third sworn officer to hold that post in a span of two years. Like most division chiefs, he was dissatisfied with the performance of the PSTD, but also like most, he attributed the perceived ineffectiveness to the effects of the chargeback system, which he understood made it extremely difficult for the PSTD to staff effectively. The large size of HP made it possible for the division to initiate in-division IT projects, implemented by sworn officers who had knowledge of computer systems and an interest in developing information systems. This created a significant jurisdictional problem and was an additional source of contention between the PSTD and the HP. Just as in the many documented industry cases of software projects developed outside the formal IT structure (Guimaraes, 1997), the HP internal systems raised the following issues: • Responsibility: Who would assume the support and long-term maintenance of the system once developed? • Quality: Would the system be developed and documented to PSTD standards? • Interactions: Would the system integrate correctly with the existing network infrastructure? Would the system create security problems for the department? • Resource allocation: If the resources given to the projects had been allocated to PSTD, could the systems have been developed more efficiently and within departmental IT specifications? PSTD brought the independent systems and the potential for significant problems to the attention of NDPS senior management. HP managers contended that the projects were vital and could be completed more quickly in-house. Following a considerable number of memoranda and meetings, the HP chief decided to remove the sworn officers from software systems development and return them to field positions. Negotiations are now underway between the HP, the state budget office, and the PSTD to have one or more positions in the PSTD dedicated to and paid for by the HP, while supervised by the PSTD.

Investigations The chief of the Investigations Division was a sworn officer who delegated the majority of the responsibility for IT to one of his subordinates, also a sworn officer. The chief was aware that IT was a key component for effectively managing his division, and mentioned specifically the increasing number of mandated reports that were very costly to compile manually, notably, arrests per month, and details on new cases per month and per year. The chief hoped to see more casework entered online, and wanted personnel accreditations and training tracked by computer. The Investigations lieutenant to whom budget and IT details had been assigned by the chief was, like personnel in several other divisions, apologetic about his “desk job.” “I used to work for a living,” he commented, alluding to prior field positions. When asked about a long-range IT plan for his division, the lieutenant indicated that the high visibility Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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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 responsible for 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 concerning 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 IT for 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 inexpensive 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 of the 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 small amount of the actual expenditures (development and programming time), so they didn’t 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 don’t 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 chiefs felt 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 decision-making, but didn’t want to have to actually see the price tag for that technology and information. They certainly didn’t want those dollars transferred from their budgets to

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536 Edberg & Kuechler

the budget of PSTD. Each believed that it seemed extraordinarily expensive to receive those services from PSTD, but they weren’t aware of market prices for similar services and didn’t have ideas about how to comparison shop for information technology.

Is Chargeback an Effective IT Management Tool for NDPS? 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 4 describes 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 Objective

Benefit of Chargeback System

Drawback of Chargeback System

Protect funding source integrity Provide greater visibility of IT costs

š

š

š

System relates costs back to appropriate accounts. Division chiefs are aware of the funding required to support IT.

š š

Enhance level of communication between PSTD and other divisions Create better accountability for IT projects

š š š

Forces PSTD to communicate with other divisions about resources required to complete projects. A well-documented planning process is in place for all IT projects. Each project is accounted for completely down to the last penny.

š

š

š Enhance the ability to plan IT projects

š

System forces PSTD to plan projects for an annual cycle.

š š š

Increase the efficiency of PSTD

š

IT is held accountable for the funds it spends.

š

Requires estimates of resources that may not be completely accurate. System does not make individual costs, such as help desk and troubleshooting, more visible. Most costs are perceived as overhead, or fixed. Division chiefs did not know whether they were getting their money’s worth, so providing more information about the financial outlay was not helping their understanding. Other metrics, such as project duration and value to the organization, are less visible due to the high stress on chargeback. Actual success/failure of projects is less visible. Projects are planned only within division; there is no cross-division planning encouraged by the system. System has created a short-term mentality for planning. Cost accountability replaced the use of a departmental IT steering committee. PSTD must spend hours accounting for funds.

CURRENT CHALLENGES/PROBLEMS FACING THE ORGANIZATION At this time both the PSTD chief and the PSTD user divisions agree that IT services need to be improved. Table 5 lists 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. Copyright © 2004, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.

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Table 5: Challenges to IT Effectiveness Within the NDPS Challenges to IT Effectiveness

Issues Underlying the Challenges

Difficult to implement department-wide projects

š Most divisions are funded by distinct revenue sources related to their function, and commingling of funds is prohibited by law. š Difficult to estimate the percentage use of a system that isn’t even developed, must less installed and used. š In addition to the impediments associated with department-wide projects, this challenge 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. š Requires long-range planning. š Some divisions are dependent on fluctuating fees and grants, and cannot predict the availability of funds. š PSTD cannot give a completely accurate dollar amount for users until the actual 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 save funds. š Resources for managerial training are not available. š Sworn officers are usually considered better candidates for managing other sworn officers. š Short-term planning is reinforced by the biannual budget cycle. š Management turnover is considered a way to keep sworn officers “fresh” in the culture of the department. š Nevada legislature is conservative and unwilling to lightly pursue change. š Nevada legislature analysts require a costly study to modify the current chargeback system.

Integrated systems are necessary for management reporting

Abrupt cancellation of projects

Functional, event-driven managerial culture

Frequent turnover of management at all levels Funding source integrity must be maintained

Some of the challenges from Table 5 merit a final discussion. Beyond general dissatisfaction 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 can’t 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. Unfortunately 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. This makes a practice that could be helpful and which—extremely common in industry—is very difficult to implement. In summary, the perceived immediate causes 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 constraints—a significant challenge indeed!

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538 Edberg & Kuechler

ENDNOTES 1

2

As of this writing the Parole and Probation chief had taken another position within the state. 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 Review, (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 systems—an empirical investigation. MIS Quarterly, (June), 47-60.

BIOGRAPHICAL SKETCHES Dana Edberg is 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 University. Prior to joining UNR, she performed software engineering project management in 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 Agency 539

government and industry. The major focus of her research is on the long-term relationship between users and information systems developers, but she has also published articles discussing the virtual society and global information systems. She has published in the Journal of Management Information Systems, Information Society, Information Systems Management, Government Finance, and other international conferences 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 coordination, Web-based supply chain integration, and the organizational effects of interorganizational 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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