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

2 MIT Information Systems 1/10/2002 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 MIT Information Systems 1/10/2002 Context: A Triad of Interests 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 IS DLCs DLCs (Departments, Labs, and Centers) –Affordable –Stable –Predictable –Understandable IS –Scaleable –Fully recovers appropriate costs –Simple to administer –Simple to explain

4 MIT Information Systems 1/10/2002 JADE Cost Model Assess to products based activity based percentages Team 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 New Product Families Business Telephone Service Student Telephone Service Business Networking Dormitory Networking %% %% %% %% $$$$ $$$$ Cost Allocation Matrix

5 MIT Information Systems 1/10/2002 Product Families Business Telephone Service Including ISDN and analog telephones Business Telephone Usage Including 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 Circuits Copper and fiber Including installation Miscellaneous Carrier Services Including cell phones, pagers, telex and FAX and non-5ESS lines and usage

6 MIT Information Systems 1/10/2002 Product Families (continued) Business Networking Including individual hosts and private subnets Dormitory Networking FSILG Networking Fraternities, sororities and other independent living groups Network Installation Ethernet drop installation Tether Dialup PPP service Including start-up and overtime Jack Installation Dual 4-pair communications outlets Hourly Project Labor Billable hours only

7 MIT Information Systems 1/10/2002 Team/Product Family Matrix Team Activity Costs Direct Product Costs

8 MIT Information Systems 1/10/2002 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 teams work –Other resources required for teams work Budget –Salaries and Benefits –Amortization –Equipment –Materials and Services –Software Team Templates

9 MIT Information Systems 1/10/2002 Team/Product Cost Assessment Example $$$$

10 MIT Information Systems 1/10/2002 Asset/Product Family Matrix Capital Amortization

11 MIT Information Systems 1/10/2002 –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

12 MIT Information Systems 1/10/2002 JADE Cost Assessment Rules MIT Information Systems 1/10/2002

13 MIT Information Systems 1/10/2002 Product Family Revenue/Expense Chart

14 MIT Information Systems 1/10/2002 Rate Setting Analysis For each Product Family –Primary Products Rates 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 MIT Information Systems 1/10/2002 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 MIT Information Systems 1/10/2002 Volume Data Telephone lines in service –Business, student Voice mail boxes in service Telephone and voice mail moves, adds, 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 MIT Information Systems 1/10/2002 Primary Product Unit Cost Chart

18 MIT Information Systems 1/10/2002 Questions? Future benchmarking opportunities? Topics

19 MIT Information Systems 1/10/2002 Appendix: Product Family Charts

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