Dana Edberg, William L. Kuechler-Case Study of It Chargeback in A Government Agency PDF

522 Edberg & IDEA
Kuechler GROUP PUBLISHING

701 E. Chocolate Avenue, Suite 200, Hershey PA 17033-1240, USA
Tel: 717/533-8845; Fax 717/533-8661; URL-http://www.idea-group.com
IT5720
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 NDPSs 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. isprohibited.
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 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 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
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 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.
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
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 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.
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
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 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).
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 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 of

scarce IT resources.
Encourages greater communication

between IT professionals and the
user community.
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.
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.
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
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
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 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 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 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 divisions 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 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 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
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 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
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 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 objectives 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 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 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 throughout the department. The Committee consisted of the chief of PSTD, selected IT personnel,
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 masters 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 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
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
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
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 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 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
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 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
System relates costs back to

appropriate accounts.
Division chiefs are aware of the
funding required to support IT.
Enhance level of
communication
between PSTD and
other divisions
Create better
accountability for IT
projects
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.
Enhance the ability to

plan IT projects
System forces PSTD to plan projects

for an annual cycle.
Increase the efficiency

of PSTD
IT is held accountable for the funds it

spends.
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 moneys 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.
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.
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.
Requires long-range planning.
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 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.
Resources for managerial training are not available.
Sworn officers are usually considered better candidates for managing other
sworn officers.
Short-term planning is reinforced by the biannual budget cycle.
Management turnover is considered a way to keep sworn officers fresh in
the culture of the department.
Nevada legislature is conservative and unwilling to lightly pursue change.
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 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. 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 whichextremely common in industryis
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
constraintsa significant challenge indeed!
ENDNOTES
1
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
systemsan 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
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.

Dana Edberg, William L. Kuechler-Case Study of It Chargeback in A Government Agency PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Dana Edberg, William L. Kuechler-Case Study of It Chargeback in A Government Agency PDF

Uploaded by

Copyright:

Available Formats

522 Edberg & IDEA

Kuechler GROUP PUBLISHING

A Case Study of IT Chargeback in a Government Agency 523

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

Criminal History Repository

524 Edberg & Kuechler

Parole and Probation Division

Highway Patrol Division

A Case Study of IT Chargeback in a Government Agency 525

Public Safety Technology Division (PSTD)

526 Edberg & Kuechler

SETTING THE STAGE

What is a Chargeback System?

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

What are the Benefits and Drawbacks of Chargeback

Drawbacks of Chargeback Systems

Encourages constrained use of

Encourages greater communication

Makes IT costs visible and thus

Discourages experimentation with IT

528 Edberg & Kuechler

How were the Chargeback Cost Categories

System Support: User divisions are charged by the number of input/output

How is the Department of Public Safety Funded?

A Case Study of IT Chargeback in a Government Agency 529

What are the Special Issues for NDPS Divisions?

530 Edberg & Kuechler

What is the Process for Budget Allocation?

A Case Study of IT Chargeback in a Government Agency 531

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

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

532 Edberg & Kuechler

What is the Process for Reviewing IT Development?

A Case Study of IT Chargeback in a Government Agency 533

What are Stakeholder Reactions to PSTD and

Parole and Probation

Criminal History Repository

534 Edberg & Kuechler

of time he spent performing oversight on IT projects, approximately 25%, was excessive.

Quality: Would the system be developed and documented to PSTD standards?

A Case Study of IT Chargeback in a Government Agency 535

Common User Reactions to the Chargeback Process

536 Edberg & Kuechler

Is Chargeback an Effective IT Management Tool for

Table 4: Benefits and Drawbacks of Chargeback System for NDPS

Benefit of Chargeback System

Drawback of Chargeback System

Protect funding source

System relates costs back to

Forces PSTD to communicate with

Enhance the ability to

System forces PSTD to plan projects

Increase the efficiency

IT is held accountable for the funds it

Requires estimates of resources that

A Case Study of IT Chargeback in a Government Agency 537

Table 5: Challenges to IT Effectiveness Within the NDPS

Issues Underlying the Challenges

Most divisions are funded by distinct revenue sources related to their

Integrated systems are

538 Edberg & Kuechler

A Case Study of IT Chargeback in a Government Agency 539