1 MIT Information Systems 1/10/2002 JADE A Telecommunications Cost Model Common Solutions Group 1/10/2002 Dennis Baron Massachusetts Institute of Technology

1

MIT Information Systems 1/10/2002

JADEA Telecommunications Cost Model

Common Solutions Group

1/10/2002

Dennis Baron

Massachusetts Institute of Technology

2


• Background - why the model was needed

• Generic cost model and Product Families

• Examples of cost allocation methodologies

• Output measures and product pricing

• Questions and answers

• Future benchmarking opportunities

Topics

3


Context: A Triad of Interests

Institute Institute– Complies with Federal Regulations– Complies with Institute policies– Auditable– Based on true cost of services– Ensures effective cost recovery– Ensures effective use of resources– Ensures equitable access across the Institute– Avoids subsidies and cross-subsidies

ISDLCs

DLCs (Departments, Labs, and Centers)– Affordable– Stable– Predictable– Understandable

IS– Scaleable– Fully recovers appropriate costs– Simple to administer– Simple to explain

4


JADE Cost Model

Assess to products based activity based percentagesTeam

Activity Costs

Direct to Product Costs

Assess to related products

Capital Amortization

Assess to products based on

asset related percentages

Other Costs

Assess to products based on

overall product cost percentages

NewProduct Families

Business Telephone

Service

Student Telephone

Service

Business Networking

Dormitory Networking

% % % %

% % % %

% % % %

% % % %

$ $ $ $

$ $ $ $

Cost Allocation Matrix

5


Product Families

• Business Telephone ServiceIncluding ISDN and analog telephones

• Business Telephone UsageIncluding domestic and international calling and calling cards

• Student Telephone Service

• Student Telephone Usage“Local” usage bundled with monthly rates“Long Distance” usage outsourced

• Telephone Installation

• CircuitsCopper and fiberIncluding installation

• Miscellaneous Carrier ServicesIncluding cell phones, pagers, telex and FAX and non-5ESS lines and usage

6


Product Families (continued)

• Business NetworkingIncluding individual hosts and private subnets

• Dormitory Networking

• FSILG NetworkingFraternities, sororities and other independent living groups

• Network InstallationEthernet drop installation

• TetherDialup PPP serviceIncluding start-up and overtime

• Jack InstallationDual 4-pair communications outlets

• Hourly Project LaborBillable hours only

7


Team/Product Family Matrix

Bus

ines

s T

ele

pho

ne

Ser

vice

Bus

ines

s T

ele

pho

ne

Usa

ge

Stu

dent

Tel

epho

ne

Ser

vice

Stu

dent

Tel

epho

ne

Usa

ge

Tel

epho

ne In

stal

latio

n

Bus

iens

s N

etw

orki

ng

Do

rmito

ry N

etw

orki

ng

FS

ILG

Net

wor

king

Ne

twor

k In

sta

llatio

n

Tet

her

Cir

cuits

Msc

ella

neou

s C

arrie

r S

ervi

ce

Jack

Inst

alla

tion

Pro

ject

Hou

rly L

abor

5ESS Service

Network Operations

Network Security

VDIST HQ

VDIST Installations

VDIST Projects

5ESS Support

Telephone Operators

Computing Help Desk

Athena/RCC Help

Team Activity Costs

Direct Product Costs

8


• Team Name and Cost Center• Purpose• Vision• Customers• Work

– What is the work done by the team?

– Measures quantifying the work done

• Resources– Staffing requirements for team’s work

– Other resources required for team’s work

• Budget– Salaries and Benefits

– Amortization

– Equipment

– Materials and Services

– Software

Team Templates

9


Team/Product Cost Assessment Example

Network Operations

Business Networking

Dormitory Networking

FSILG Networking Tether

Activities

Maintain Backbone 60% 66% 18% 10% 6%

Maintain Servers 30% 66% 18% 10% 6%

Maintain Tether 10% 100%

Direct to Products

External Connectivity $ 65% 18% 7% 10%

Tether Trunks $ 100%

Backbone $ 65% 18% 7% 10%

Building Service $ 72% 20% 8%

Remote Sites $ 20% 80%

Servers $ 65% 18% 7% 10%

$ $ $ $

10


Asset/Product Family Matrix

Bus

ines

s T

ele

pho

ne

Ser

vice

Bus

ines

s T

ele

pho

ne

Usa

ge

Stu

dent

Tel

epho

ne

Ser

vice

Stu

dent

Tel

epho

ne

Usa

ge

Tel

epho

ne In

stal

latio

n

Bus

iens

s N

etw

orki

ng

Do

rmito

ry N

etw

orki

ng

FS

ILG

Net

wor

king

Ne

twor

k In

sta

llatio

n

Tet

her

Cir

cuits

Msc

ella

neou

s C

arrie

r S

ervi

ce

Jack

Inst

alla

tion

Pro

ject

Hou

rly L

abor

5ESS Switch

Voice Mail System

Outside Plant

Building Plant

Station Equipment

MITnet Backbone

MITnet Building

MITnet Remote Sites

Tether

Capital Amortization

11


– Overhead Teams allocated based on distribution of Team Activity and Direct to Product costs

• Site, Administrative, and Finance Teams• Administrative computing costs• TNS Headquarters

– Interest charges allocated based on distribution of Asset Depreciation costs

Other Costs

Other Costs

12


JADE Cost Assessment Rules

1645

400

1645

410

1645

420

1645

430

1645

440

1645

450

1645

460

1645

470

1645

480

1768

800

1768

810

1768

820

1645

490

1768

830

Cost Center Cost Center Name P

rod

uct

Fam

ily

Bu

sin

ess

Tel

eph

on

e

Bu

sin

ess

Usa

ge

Stu

den

t T

elep

ho

ne

Stu

den

t U

sag

e

Tel

eph

on

e In

stal

lati

on

Bu

sin

ess

Net

wo

rkin

g

Do

rmit

ory

N

etw

ork

ing

FS

ILG

N

etw

ork

ing

Net

wo

rk

Inst

alla

tio

n

Tet

her

Cir

cuit

s

Mis

cell

aneo

us

Car

rier

Ser

vice

s

Jack

In

stal

lati

on

Pro

ject

Ho

url

y L

abo

r

Support Process1637400 Athena / Rcc Help 52% 1%1637410 Dormitory Networking Expense 100%

1637700 Computing Help Desk 44% 9%

Telephone & Network Process1630400 MIT Network Security 67% 23% 10%

1637100 Telephone Operators 23% 67% 3% 7%1637101 TO-Automated Attendant 82% 18%

1637200 5Ess Support 20% 12% 5% 53% 7% 3%1637201 5E Supp-Business Usage 100%1637202 5E Supp-Student Usage 100%1637203 5E Supp-Circuit Vendor 100%1637204 5E Supp-Miscellaneous Carrier 100%1637205 5E Supp-Emergency Telephones 82% 18%

1681200 MITtnet Services 66% 18% 10% 6%1681201 MITnet-External Connectivity 65% 18% 7% 10%1681202 MITnet-Off Campus Connectivity 20% 80%1681203 MITnet-On Campus Connectivity 72% 20% 8%1681204 MITnet-Tether Trunk 100%

Co

st

Cen

ter


13


Product Family Revenue/Expense Chart

Business Telephone Service (Adjusted)

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

01 02 03 04 05 06 07 08 09 10 11 12

FY2002 Period

Expense Revenue

JADE

14


Rate Setting Analysis

For each Product Family

– Primary ProductsRates are set based on cost

– Secondary Products

Rates are set based on Primary Product rates

– Other Products

Rates are set based on other factors

15


Product Family Example

Business Telephone

Service

ISDN PRI

Unit Cost

Product Units

Analog Phone

Unit Cost

Product Units

ISDN Phone

Unit Cost

Product Units

16


Volume Data

• Telephone lines in service

– Business, student

• Voice mail boxes in service

• Telephone and voice mail moves, add’s, and changes

• Business telephone usage (minutes)

• Network addresses assigned

– Business, dormitory, FSILGs

• Network drops in service and new installations

– Business, dormitory

• Tether subscribers and activations

• Circuits

– In service and new installations

• Jack installations

• Billable labor hours

17


Primary Product Unit Cost Chart

Analog Business Telephone

$0

$5

$10

$15

$20

$25

$30

$35

$40

01 02 03 04 05 06 07 08 09 10 11 12

FY2002 Period

Un

it C

ost

(U

nit

Rev

enu

e?)

Standard Rate Unit Cost Unit Revenue

$28

JADE

18


• Questions?

• Future benchmarking opportunities?

Topics

19


Appendix: Product Family Charts

20


Business Telephone Service (Adjusted)

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

01 02 03 04 05 06 07 08 09 10 11 12

FY2002 Period

Expense Revenue

JADE

21


Business Telephone Usage

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

01 02 03 04 05 06 07 08 09 10 11 12

FY2002 Period

Expense Revenue

JADE

22


Student Telephone Service (Adjusted)

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

01 02 03 04 05 06 07 08 09 10 11 12

FY2002 Period

Expense Revenue

JADE

23


Student Telephone Usage

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

01 02 03 04 05 06 07 08 09 10 11 12

FY2002 Period

Expense Revenue

JADE

24


Telephone Installation

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

01 02 03 04 05 06 07 08 09 10 11 12

FY2002 Period

Expense Revenue

JADE

25


Business Networking (Adjusted)

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

01 02 03 04 05 06 07 08 09 10 11 12

FY2002 Period

Expense Revenue

JADE

26


Dormitory Networking (Adjusted)

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

01 02 03 04 05 06 07 08 09 10 11 12

FY2002 Period

Expense Revenue

JADE

27


FSILG Networking (Adjusted)

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,000

01 02 03 04 05 06 07 08 09 10 11 12

FY2002 Period

Expense Revenue

JADE

28


Network Installation

($200,000)

($150,000)

($100,000)

($50,000)

$0

$50,000

$100,000

$150,000

$200,000

01 02 03 04 05 06 07 08 09 10 11 12

FY2002 Period

Expense Revenue

JADE

29


Jack Installation

$0

$50,000

$100,000

$150,000

$200,000

$250,000

01 02 03 04 05 06 07 08 09 10 11 12

FY2002 Period

Expense Revenue

JADE

30


Tether (Adjusted)

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

01 02 03 04 05 06 07 08 09 10 11 12

FY2002 Period

Expense Revenue

JADE

31


Circuits (Adjusted)

($10,000)

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

01 02 03 04 05 06 07 08 09 10 11 12

FY2002 Period

Expense Revenue

JADE

32


Miscellaneous Carrier Services

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

01 02 03 04 05 06 07 08 09 10 11 12

FY2002 Period

Expense Revenue

JADE

33


Hourly Project Labor

($80,000)

($60,000)

($40,000)

($20,000)

$0

$20,000

$40,000

$60,000

$80,000

01 02 03 04 05 06 07 08 09 10 11 12

FY2002 Period

Expense Revenue

JADE

34


I/T Service Center Total (Adjusted)(not including Dorm and ILG Networking)

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

01 02 03 04 05 06 07 08 09 10 11 12

FY2002 Period

Expense Revenue

JADE

35


Dorm and ILG Networking (Adjusted)

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

01 02 03 04 05 06 07 08 09 10 11 12

FY2002 Period

Expense Revenue

JADE

Documents

1 MIT Information Systems 1/10/2002 JADE A Telecommunications Cost Model Common Solutions Group 1/10/2002 Dennis Baron Massachusetts Institute of Technology