Transcript www2.cit.cornell.edu

Developing a Cost Based Rate
Model for Telecommunications
Services
Rohit Ahuja
Patricia Nelson
Scott Sheavly
Cornell Overview
• Cornell is both a private endowed university and the
federal land-grant institution of New York State
• 260 major buildings on 745 acres
• 7 undergraduate units, plus 6 graduate and
professional units:
– 4 in Ithaca, NY (grad school, law, mgmt and vet med)
– Medical schools in New York City and Qatar
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Voice and Data Network Facts
• Students ~ 20,000 (14,000 undergrads, 6,000 graduate)
• Faculty ~ 3,100
• Staff ~ 8,700
• Cornell Data Network:
– Active Ports ~ 23,000 (6,000 student)
– Active IP’s: ~ 29,000
– Traffic: 60% intra campus; 40% internet
• Cornell Voice Network:
– Phones ~ 18,000
– Long Distance Minutes ~ 8 Million
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Charter of Cornell Information
Technologies
•
Cornell’s enterprise information systems, services and
support department
•
Approximately 1/3 of the university IT staff are part of CIT
•
Provides
– General Campus Services (E-mail, Helpdesk, Backup)
– Administrative Systems
– Distributed Learning Development and Support
(Academic Technology Center, Public Labs)
– Data Network Services
– Voice Services (Phones, Long Distance, Moves, Adds and
Changes)
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CIT Sources of Funding
IT
Funding FY94-FY03
(in $1,000's)
$60,000
Mainframe, Administrative Systems
Development and Maintenance
$50,000
$40,000
Special Funding (Distributed Learning,
Classroom Technologies...)
$30,000
Cost Recovered Services (Voice andData
Services, EZ Backup, ETV and WPG...)
$20,000
$10,000
General Appropriations (General Campus
Services...)
FY0 3
FY0 2
FY0 1
FY0 0
FY9 9
FY9 8
FY9 7
FY9 6
FY9 5
FY9 4
$-
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CIT FTE Growth
FTE
FY96 - FY03
290
280
FTE
270
260
250
240
230
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
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Problems and “Drivers”
• University administration’s perspective
– Where was all the money going???
– Lack of accountability and
understanding
– Perception of inefficiency
– Frustration in determining
optimal funding level and
continual requests for “more”
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Problems and “Drivers”
• Customers’ perspective
– Voice and data were too expensive
– No knowledge/understanding of how prices were
derived
– Viewed CIT as “empire builders”; too rigid,
disjointed and hierarchical
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Problems and “Drivers”
• CIT’s perspective
– Didn’t know what most of our services truly cost
– When we did know, we couldn’t explain it very
well to each other, let alone our customers and
the university administration
– Operated in a very division/unit-centric manner
rather than with product/service focus
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What Did We Do About It?
• At direction of VP for IT, VP for Finance, and VP
for Budget, we formed a university wide
committee to analyze IT costing methodology:
Cost Analysis Manager, Division of Financial Affairs
Director of Finance & Administration, Student & Academic Services
Indirect Cost Financial Analyst, Division of Financial Affairs
Assistant to the Vice President, IT
Accounting Manager, IT
Budget Director
Assistant Controller
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Objectives
• Needed to identify full costs for each service,
including staff effort expended in other CIT units
in support of services
• Identify all implicit and explicit subsidies and
allow university to determine if and when
subsidies were to be allowed
• Any permanent or temporary subsidies needed to
be explicit and sustainable
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Objectives
• To develop a preferred cost recovery
mechanism for CIT network costs
• To address ResNet and other student use as well
as academic and administrative use of IT
services
• To address labs, public areas, and classroom
ports cost recovery mechanisms
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7 Steps on the Road to Recovery
1.
2.
3.
4.
5.
6.
Define IT services
Define direct costs of services
Define indirect costs of services
Allocate indirect costs to services
Identify voice and data costs
Allocate voice and data common costs to
services
7. Recover costs
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1.Define IT services
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Step 1. How Do We Define IT Services?
• General Campus Services
(E-mail, Backup, …)
• Administrative Systems
(Payroll, Student Systems, Mainframe, …)
• Distributed Learning and Development Support
(Academic Technology Center, Public Labs…)
• Data Network Services
• Voice and Other Telecommunications (Telephones, Long
Distance, Moves, Adds and Changes,…)
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2. Define direct
costs of services
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Step 2. How We Define IT Direct Costs?
• Direct costs: Cost which can be identified to a specific service
• Examples of Direct costs include:
–
–
–
–
E-Mail servers (e-mail)
PeopleSoft Site License (payroll)
PBX maintenance (voice services)
Routers (data services)
• We reviewed an entire year of expenses recorded in the general
ledger
– HR, staff support costs, capital, and general expenses
– Identified direct expenses
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Mainframe and Production Control-Direct
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PBX-Direct Cost
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Student Lab-Direct Cost
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Server Farm-Direct Cost
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NOC-Direct Cost
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Public Facility: Direct Cost
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3. Define indirect
costs of services
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Step 3. How Do We Define Indirect Costs?
Indirect costs: Costs which
cannot be identified to a
particular service (internal IT
costs only)
•
•
•
•
•
•
Technical Management
Administration and Finance
Internal IT Desktop Support
IT Publications
Help Desk
IT Server Management
IT Indirect
costs
15%
IT Programs
and Services
(~60 )
85%
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IT Facilities-Indirect
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Help Desk-Indirect
30
Business Admin Center-Indirect Cost
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HR Administration-Indirect
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Total Cost of Each IT Service
Direct Costs
Indirect Costs
General Campus Services
Technical Management
Administrative Systems
Distributed Learning and
Development Support
Data Network Services
Voice and Other
Telecommunications
+
Administration and
Finance
=
Total cost of
each service
Internal IT Desktop
Support
IT Publications
Help Desk
IT Server Management
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4. Allocate indirect
costs to services
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Step 4: How Are Support Costs
Allocated to Services?
Allocation Method
Finance and Administration
Internal IT Desktop Support
Technical Management
IT Publications
HelpDesk
IT Server Management
FTE's
% of time
# of trouble calls
# of servers
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Total Cost of Each IT Service
Direct Costs
Indirect Costs
General Campus Services
Technical Management
Administrative Systems
Distributed Learning and
Development Support
Data Network Services
Voice and Other
Telecommunications
+
Administration and
Finance
=
Total cost of
each service
Internal IT Desktop
Support
IT Publications
Help Desk
IT Server Management
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Total IT Services Costs After
Allocation of Support Costs
General Campus Services
(E-mail, CU Info, Help Desk, EZ Backup, …)
3%
19%
Administrative Systems
(Payroll, Student Systems, Mainframe,
Authentication, …)
20%
Distributed Learning and Development Support
(Academic Technology Center, Public Labs,
Faculty Fellowships, …)
Data Network Services
29%
19%
10%
Voice and Other Telecommunications
(Telephones, Long Distance, Moves, Adds and
Changes,…)
OIT Campus/National Programs
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Accounting Challenges
• Identifying costs of IT services
• Educating IT staff about required accounting
• Communications with university financial offices
• Maintaining accounting structure
• Keeping up with changing technical environment
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Total Cost of Voice and Data Services
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Total Cost of Voice and Data
Services
Direct Costs
Costs Directly
Assigned to Voice
Services
Indirect Costs
+
Technical Management
Administration and Finance
Costs Directly
Assigned to Data
Services
Costs Common to
Both Voice and Data
Services
=
Total cost of
each service
Internal IT Desktop Support
IT Publications
Help Desk
IT Server Management
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5. Identify voice and
data costs
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Step 5: How Do We Define Voice and
Data Costs?
• Direct Costs of Voice Services:
– PBX costs, maintenance, and staff
– Long distance usage
• Direct Costs of Data Services:
– Data electronics, maintenance, staff
– Data usage billing
– Security
• Costs Supporting Both Voice and Data Services
–
–
–
–
–
Network Operations Center (NOC)
Plant maintenance (cable and fiber)
Inventory supplies and management
Utilities
Billing, work order, and trouble tracking systems
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Costs Common to Voice and Data
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Costs Common to Voice and Data
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6. Allocate voice
and data common
costs to services
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Step 6: How are Costs Supporting Both
Voice and Data Services Allocated?
Plant Maintenance
Inventory
Utilities
Network Operations Center
Billing, work order,
and trouble tracking
50%
Data
80%
Data
50%
Voice
20%
Voice
Data
Voice
Services Services
Based on Revenue
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Total Cost of Voice and Data Services
Direct Costs
Costs Directly
Assigned to Voice
Services
Indirect Costs
+
Technical Management
Administration and Finance
Costs Directly
Assigned to Data
Services
Costs Common to
Both Voice and Data
Services
=
Total cost of
each service
Internal IT Desktop Support
IT Publications
Help Desk
IT Server Management
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Elements of Voice Services Costs
4% 4%
Direct Costs
IT Indirect costs
31%
50%
Plant Maintenance,
Inventory, Utilities
Network Operations Center
Billing, work order, and
trouble tracking
11%
Elements of Data Services Costs
4%
14%
Direct Costs
37%
IT Indirect costs
Plant Maintenance,
Inventory, Utilities
27%
Network Operations Center
18%
Billing, work order, and
trouble tracking
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STEP 7. Recover Costs
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Step 7. Recover Costs
Total
Cost of
Service
÷
# of
Units
=
Rate Per
Unit
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Rate Calculation
Service
Annual
Cost
# of Units
Unit Rate
Analog
$3.9M
15,000 phones
~$22/month
Digital
$1.6M
3,500 phones
~$38/month
avg
Long
Distance
$0.4M
8,000,000
Minutes
~5.5 cents per
minute add on
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Data Network Recovery
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What’s Next?
4%
14%
37%
Direct Costs
IT Indirect costs
Plant Maintenance,
Inventory, Utilities
How do we recover
costs of Data Services?
Network Operations
Center
27%
Billing, work order, and
trouble tracking
18%
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Data Network Cost Recovery
Background
• In prior years phone service had subsidized data service
• CIT implemented cost based rates on July 2001
• This cost recovery mechanism was based upon an assumption that
there is one user for each data port network connection; no longer true
• The mechanism was based upon average cost recovery per port which
does not recognize the variation in individual usage
• As a result some users elected to increase number of devices per data
port via hublets
• Internet usage was growing dramatically
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WAN Consumption by IP: All Users
WAN Consumption: All Users
4%
12%
40%
80% of all IP addresses
15% of all IP addresses
5% of all IP addresses
Academic/Administrative
ResNet
60%
84%
WAN Consumption by IP:
Academic and Administrative Users
WAN Consumption by IP: ResNet
9%
3%
11%
80% of all IP addresses
15% of all IP addresses
5% of all IP addresses
25%
80% of all IP addresses
15% of all IP addresses
5% of all IP addresses
66%
86%
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How Did We Address the Problems?
• Formed a cross campus Network Task Force
Director, Finance and Budget, Office of Information Technologies
Manager, Indirect Cost, Division of Financial Affairs
Associate Director, University Budget Office
Assistant Vice President, Student & Academic Services
Associate Dean for Business Administration, Hotel Administration Accounting Services
Director, Computing Facility, Laboratory of Nuclear Studies
Customer Services Director, Cornell Information Technologies
Computing Facilities Director, Computer Science Department
Business Operation Director, Facilities Services
Business Services Director, Campus Life
Communications Products Director, Cornell Information Technologies
Dean, Johnson Graduate School of Management
Director, IT Architecture, Office of Information Technologies
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Data Network Cost Recovery
Guiding Principles
•
•
•
•
•
•
Cost to the cost causer
Rate structure should support unified campus network architecture
Affordable access to basic services for all
Premium services to allow world-class research and education
Competitive network with our peer institutions in features
Competitive network with commercial service providers in cost
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Associated Conditions
• Campus rewire cost should not be reflected in
network costs charged to colleges and departments
• ResNet expenses should not be recovered through
inflated general campus network cost recovery
charges
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How Did We Address the Problems?
•
Spent six months examining the issue
–
–
–
•
Spent six months getting campus feedback
–
–
–
–
–
–
•
Analyzed options
Financial analysis
Network usage analysis
Faculty Senate
Student Assemblies
Campus IT Directors
Faculty Advisory Board on Information Technology
Executive Budget Group
Executive Cost Committee
Estimated financial impact on departments based on revised rate
structure
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Scenarios Considered
Full Recovery Options
Advantages
Disadvantages
Fixed Network Port
•Operational simplicity
•Continuity with current
practice
•Near term revenue and
expense predictability
•No feedback for excessive
consumption
•Creates economic incentive to
install hublets
Headcount Tax
•Operational simplicity
•Near term revenue and
expense predictability
•No economic incentive to
disconnect ports
•No feedback for excessive
consumption
•Does not document and justify
expansion for CIT resources
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Scenarios Considered
Full Recovery Options
Advantages
Disadvantages
Usage-based Billing
•Feed back to consumer
•No economic incentive to
disconnect ports
•Fully documents fees based
on consumption
•Allows demand to justify
expansion
•Unpredictable revenue
stream
•Operationally complex and
expensive
•Limited ability to reduce
cost due to decline in
consumption in the short
term
Hybrid
•Feed back to consumer
• Less economic incentive to
disconnect ports
•Allows demand to justify
expansion
•Some revenue stability
•More operationally
complex than fixed port fee
or headcount tax based
systems but less complex
than pure usage-based
billing system
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How We Define Data Services?
LAN (Local Area Network)
Provides in the building connections to end user equipment in offices using
structure wire, fiber optics, and network electronics. Provides physical and link
layer for end users and departments.
CAN (Campus Area Network)
Provides a gigabit Ethernet based campus network monitored 7 x24 by the
Network Operations Center. This makes network based services reliable
available to the Cornell community.
WAN (Wide Area Network)
Wide area network connections which provide worldwide access to and from
the University.
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LAN
In the building Network & Communication
Services provide local area network
connections to end user equipment in offices
using structure wire, fiber optics and network
electronics. Provide physical and link layer
networking for end users and departments.
CAN
Across campus Network &
Communication Services provides a
Gigabit Ethernet based campus area
network monitored by 7*24 by the
Network Operation Center making
network based servcies digitial assets
and service reliably available to the
Cornell campus community.
WAN
Network & Communication Services
establishes wide area network
connections to provide world access to
and from the University for information
resources.
Commodity
Internet
Service
IDF
NOC
IDF
WAN Router
Internet2
and
NYSERNet
Backbone Switch
Local printer
Ethernet Switch
Router
IDF
Local Internet
Providers
IDF
WAN Router
Router
Backbone Switch
Local File server
Ethernet Switch
Off Campus
Cornell Sites
BDF
Ethernet Switch
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How Do We Recover the Costs of Data
Services?
4%
14%
37%
Direct Costs
IT Indirect costs
Plant Maintenance,
Inventory, Utilities
How do we recover
costs from the LAN,
CAN and WAN?
Network Operations
Center
27%
Billing, work order, and
trouble tracking
18%
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Allocation to LAN, CAN, and WAN
LAN
DIRECT DATA
COSTS
LAN Direct Costs
CAN Direct Costs
WAN Direct Costs
ALLOCATED
COSTS
WAN
X
X
X
Security
Data Usage Billing
IT INDIRECT
COSTS
CAN
X
X
IT Support
X
X
X
Plant Maintenance
Inventory
Utilities
Billing, Work Order,…
X
X
X
X
X
X
X
X
X
Network Operations Center
X
X
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Focus Group Findings
ResNet WAN Use
•
•
•
•
Frequently mentioned online activities included instant messaging, email, downloading songs
and videos, Web surfing for fun, and research for school
ResNet subscribers will change their habits under the new billing model and be more aware of
ways they transfer data across the Internet
Students will not be willing to pay for additional WAN usage over and above included in the
base charge
In marketing the new billing model, students suggest emphasizing a majority of ResNet
subscribers will save money
Academic and Administrative WAN Use
•
•
Personal (non-business) use and worms/viruses infecting network computers is behind much
of the high volume WAN use on campus. Better detection and prevention of worms/viruses
will be necessary
Administrators do not anticipate users exceeding the billing threshold established under the
billing model
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Projected WAN Consumption
•
The feedback from 38 administrators representing some of the top 300 academic and
administrative WAN users suggests that under the new billing model data volume
transferred by the large users is likely to decrease by 70%
•
Based on students input it is estimated that their consumption will drop by 75%
•
These findings are consistent with empirical evidence from a similar study (Berkeley
INDEX Project) which shows that 75% of users managed their needs within basic
service charges rather than paying extra for premium services
•
With introduction of new rate structure the composite of students, academic, and
administrative WAN consumption is likely to drop by 72%
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How Do We Recover?
LAN- Recovered thru port charge
-ResNet port charge included in
room rate
CAN-Recovered thru departmental
tax
-Includes public ports, wireless,
intranet traffic
WAN-Recovered thru usage charge
-Off campus traffic, to and from
-$4 per IP/month, includes 2000mb
-3/10th’s of a cent/mb >2000mb
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Data Costs and Recovery
18%
22%
4%
LAN
14%
CAN
37%
Direct Costs
WAN
IT Indirect costs
60%
Plant Maintenance,
Inventory, Utilities
Network Operations
Center
27%
Billing, work order, and
trouble tracking
20%
18%
ResNet
Academic and
Administrative
80%
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Some of the Challenges of Usage
Based Billing
• Perceived conflict with academic mission
• Requires significant investment of administrative time to
assign usage to users for billing
• Worms/Viruses causing unintended usage
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Student WAN Usage
(in MB)
70,000,000
60,000,000
MB
50,000,000
40,000,000
FY2003
FY2004
30,000,000
20,000,000
10,000,000
0
July
August
September
Academic/Administrative WAN Usage
(in MB)
35,000,000
30,000,000
MB
25,000,000
20,000,000
FY2003
FY2004
15,000,000
10,000,000
5,000,000
0
July
August
September
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Customer Commentary
• Department will pay for one jack and base usage charge for each faculty office;
for labs, no more than two base usage charges. Costs will likely increase where
existing hublets are in use; no new ones will be allowed.
• Department will pay for one base usage charge for each grad student; overages
must be reimbursed from personal or adviser funds.
• 2 gigabyte baseline will be exceeded if user is downloading MP3s and/or
videos; this is NOT an allowable expense to the University, so please use home
connection for this activity.
ANGRY
This is bull****. I have downloaded about 1 gig
of information yet I’m being charged for 7 gigs.
I understand small amounts of memory are
transferred while being on the web, but not 6
gigs. Furthermore, I have not uploaded any
information. Many people on my floor share my
concerns . . . I was wondering if you could
comment.
CONTRITE
In August I was billed $400+ due to my
careless use of Kazaa . . . I have now
disabled the supernode and limited my
sharing to one person at a time. It would
be greatly appreciated if you could give
me relief for my ignorance in bandwidth
and give me a credit for August and
September.
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Voice and Data Price Migration
Rates shown are representative
estimates not actual prices
FY 01
FY 02
FY 03
FY 04
$35
$21
$22
$22
Digital phone
$45-$65
$35-$50
$35-$55
$35-$50
Domestic LD
~15¢ per minute
(average)
~12¢ per minute
(average)
~11¢ per minute
(average)
~8¢ per minute
(flat rate)
International LD
~$1.00 per min
(average)
~90¢ per minute
(average)
~80¢ per minute
(average)
Cost + 5.5¢/min
(down 30-40%)
Voice Mail
$4
$4
$4
$3
10/100 Mb Data port
$10
$28
$30
$8 + usage
Single-port gateways:
10 Mb
100 Mb
1 Gb
$100
$400
N/A
$450
$1,500
$3,000
$700
$2,000
$3,700
N/A
ResNet
~$150 per year
(student billed)
~$200 per year
(student billed)
~$400 per year
(student billed)
~$250 in room
rate + usage
billed to student
Wireless
$10
(+ data port)
$10
(+ data port)
$10
(+ data port)
Included in CAN
tax
Analog phone (admin & student/in room rate)
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Contacts/Information
Rohit Ahuja
Pat Nelson
Financial
Financial
607-255-5954
[email protected]
607-255-5525
[email protected]
Scott Sheavly
Financial
607-255-1363
[email protected]
Dave Vernon
Network
Architecture
607-255-6461
[email protected]
Rick Jones
607-255-8458
Billing
Software
Development
[email protected]
Network Task Force Report
http://www.cit.cornell.edu/oit/Arch-Init/papers.html
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