Computer Cost Allocation Study
DMG
DAVID M. GRIFFITH & ASSOCIATES. LTD.
Professional Services for the Public Sector
940 N. Tyler Road. Suite 204
Wichita. Kansas 67212
316.729'0732 Fax:316.729.0733
May 17, 1996
Mr. Dennis Kissinger
City Manager
Mr. Mike Morgan
Deputy City Manager
CITY OF SALINA, KANSAS
City-County Government Center
P.O. Box 736
Salina, Kansas 67402-0736
Dear Mr. Kissinger:
[)avid M. Griffith & Associates (DMG) appreciates the opportunity to
provide you with this proposal to assist the Office of Information
Services in updating its cost allocation plan and charge-back rate
structure. The sections that follow describe our understanding of the
project's background and objectives; a summary of our project
approach and work plan; an overview of our staffing plan; and the
project schedule and fees.
BACKGROUND AND OBJECTIVES:
The City of Salina Information Services department not only provides
data processing support for City functions but it also provides similar
services on behalf of Saline County. The City currently has a
methodology in place to estimate the cost associated with providing
support to the County and this system serves as the basis for the
development of actual charges to the County.
DMG has a great deal of experience in the development of the cost of
providing governmental services. In fact, it is DMG's methodology
that determines the adult detention rate used in the agreement
between the City and the County.
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DMG
To that end, the City desires to have DMG review the current City
data processing charge-back process and independently develop rates.
This process must utilize cost allocation techniques consistent with
those of other Cityl County cost sharing agreements.
Given this background, the objectives of this project will be as follows:
First, to establish a sound theoretical basis for the City's
charge-back rate structure that meets generally accepted
cost allocation criteria, and, is consistent with the
methodology of other City/County agreements.
Second, to assist the City in establishing charge-back rates
for use in the next budgetary cycle. The nucleus for these
rates being the most recent budget data and available usage
statistics.
In addition, as a byproduct of this engagement, DMG will review
allocations to City enterprise operations to determine the overall
accuracy, fairness and reasonableness of those allocations. The tasks
associated with accomplishing this objective are incorporated within
the project tasks listed below, even though they are not specifically
addressed.
PROJECT APPROACH AND WORK PLAN:
The approach we have defined for this project divides our efforts into
two major phases: Requirements Definition and Rate Development.
During the Requirements Definition Phase we will work closely with
Information Services to develop a thorough understanding of the
current services provided, as well as, existing rate-setting procedures.
We will then evaluate the requirements for determining the costs
associated with the services and prepare any new or modified
techniques necessary to documept the cost of the individual services
rendered. This will help to identify methods of measuring service
usage and specify the cost components of each service.
In the Rate Development Phase, we will prepare a full-scope cost
allocation plan and rate schedule using the definitions developed
during Phase 1 and budgeted cost and usage data applicable to the
City's fiscal year. This information will be suitable for use in
establishing a proposed rate structure.
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DMG
The following points describe each of the Tasks we have incorporated
into both Phases:
PHASE 1 - REQUIREMENTS DEFINITION
Proiect Task 1. Identify Current Practices. In this task we
will conduct a thorough and well-focused review of current
cost allocation, rate development and charge-back processes.
We will review documentation of existing billing systems and
procedures and conduct interviews with appropriate
members of City staff to assure that our understanding of the
current operating environment is accurate and complete.
Project Task 2. Define Service Rate Structure. During this
task we will identify available services and define any service
categories necessary for rate development purposes.
Specifically, we anticipate the need to develop billing rates for
three primary service categories: 1) Systems usage, 2) PC
technical support, and 3) AS 400 programming, analysis and
support. The first category will represent a fixed dollar
amount, while the other two categories will reflect hours of
requested usage.
PHASE 2 - RATE DEVELOPMENT
Project Task '3. Data Gathering. This task will include all
activities necessary to assemble and prepare the data
required to develop cost accumulations and rates for the
budgeted fiscal year. This data will include budget detail for
all Information Services cost components and historical
and/or estimated service usage data. We will rely upon
actual fiscal year usage data except in cases where DMG and
Information Services believe another statistic is appropriate.
Any forecasts will require significant input from Information
Services staff.
Project Task 4. Develop New Rates. In this task, we will first
initialize our cost allocation/rate development model with the
cost assignment and allocation rules defined during Phase 1.
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DMG
Then, we will load the cost and usage data assembled and
calculate an initial cost allocation plan and rate schedule. At
this point, a review of our initial cost accumulations and
rates will occur, both within our project team and with City
staff.
Project Task 5. Prepare Final Product. During this task, we
will assemble all end-products of the project, including
interim products, relevant working-papers and various
output schedules. These will be "packaged" and incorporated
into a draft final report for review. Once the review is
complete we will finalize the report for presentation purposes.
STAFFING PLAN:
The project director on this engagement will be Mr. Jerry McKenzie.
Mr. McKenzie is a Vice President with DMG and has overall
responsibility for our services to governmental entities in Kansas,
Oklahoma, Arkansas and Louisiana. As project director, his
involvement covers all aspects of the project, including data gathering,
interviewing, rate development, report writing and presentation of
results.
His familiarity with the City/County agreements, data processing
systems and cost allocation techniques related to charge-back rate
structures will aid in the efficient performance of this engagement.
Mr. McKenzie has over fifteen years experience specializing in
governmental cost accounting. A recognized expert in governmental
cost accounting, he is particularly knowledgeable in the application of
the costing principles specified in OMB Circular A-87. Mr. McKenzie
is directly responsible for the preparation of over forty central services
cost allocation plans annually. He has participated in the
development and negotiation of internal service fund cost allocation
and direct charge-back plans for governmental entities within four
differen t states.
Mr. McKenzie will receive assistance on the engagement from Mr. Bill
Maus, a Senior Manager with DMG and Mr. Bret Schlyer, a DMG
Consultant. All team members have a great deal of experience in
completing projects of this nature. Each team member has specific
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DMG
familiarity with City/County cost sharing methodology through our
work with the County on the jail rate project.
PROJECT SCHEDULE AND FEES:
Considering our understanding of the desires of the City, DMG
anticipates initiating this project around mid to late July. Given this
assumption, we anticipate that draft results will be available around
the end of August. Timing of the delivery of final results will be
dependent upon the review process.
It is our practice to base our professional services fees on estimated
staff hours plus out-of-pocket expenses. We anticipate that this
project will require at least three days "on-site" and about eighty-eight
(88) hours to complete. One on-site day will be necessary for data
gathering and interviews with an additional two on-site days for
presentation of draft and final results. Therefore, we propose
completing all aspects of this project for a fixed, not-to-exceed fee of
five thousand five hundred dollars ($5,500).
We traditionally bill on a progress payment schedule, where we
invoice for half of the total professional fees at midpoint of the project.
The remaining fifty percent billing occurs upon delivery of the final
report.
As part of this proposal, the City shall also have an option to have
DMG update the data processing charge-back study for the next two
years for an annu8J. fee of three thousand five hundred dollars
($3,500).
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In summa.Iy, David M. Griffith & Associates, Ltd. looks forward to
working with you on this most important engagement. We believe
that this project will help to ensure a consistent and fair method of
determining the cost associated with City/County services. Please
contact me if you have any questions. I look forward to receiving
direction from you regarding your desired course of action.
Sincerely,
DAVID M. GRIFFITH & ASSOCIATES, LTD.
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Jerry McKenzie
Vice President
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