Study on a Cost Model for RedIRIS

1. Study on a Cost Model for RedIRIS • September 2008

2. Why a study on the cost model of RedIRIS • RedIRIS does not charge affiliated institutions for its services (only 10 Gbps lambdas) • It gets its funding directly from the Ministry of Science and Innovation (Ministerio de Ciencia e Industria – MICINN) • MICCIN has not yet requested any specific information related to cost models • However, we at the RedIRIS management thought that: • Our services do not have a price, but they do have a cost – we should know more about it • The process of analyzing the costs of our services would help us to analyze our structure and activities, and would provide us useful information to take management decisions • As the NREN environment changes, we should be ready to assess the implications of introducing a new tariff model in which regional Governments or users were charged, as we could be requested by our funding bodies to do it

3. Purpose of the study • The goal of the cost model project is to define the methodology and criteria to allocate costs to specific services and users • It is a first approach to this issue in order to define some basic criteria • It was decided to use historical data from 2007, plus an estimate of equipment depreciation • That is enough for our current needs – we may upgrade the system and update the information later

4. Activities Resources Middleware & Applications Network & IT services Methodology of the study (I) • Services provided by RedIRIS require resources such as staff and IT services and infrastructures Network services Institution

5. Methodology of the study (II) • As one of the main goals of the study is to allocate costs to specific services, it is necessary to determine which is the service portfolio of RedIRIS

6. Methodology of the study (II) • The study proposes a way to implement Activity Based Costing (ABC) • In the traditional Volume Based Costing (VBC), indirect costs are allocated to different departments in proportion to their turnover • ABC aims to give a more accurate picture, by allocating costs (in particular, indirect costs) in accordance to the activities that generate them (cost drivers) • The key issue is the allocation of costs • Some costs can be directly linked to a specific service (e.g., software licence, dedicated hardware and staff) • Other costs can be allocated to a family of services (“digital identity”) or to a group of services (e.g., network costs for network-related services) • There are always controversial issues: cost associated to R+D; common IT services which are used more intensively by some departments; etc. • Some times it is difficult to define the cost driver, or how to split some common costs (e.g., distribute the cost of the network among all the services using it). • In those cases, it is necessary to establish some criteria to distribute those costs (e.g., 9o% of the common cost of the network is allocated to IP connectivity, and then that has to be distributed among the different services in that family of services) • Spare capacity: it is very relevant in this environment, but it is difficult to set rules to measure its impact • E.g.: the cost of a 10 Gbps link is not four times the price of a 2,5 Gbps, but rather less than twice that price.

7. Structure of the Cost Model Accounting Resources Elements Services Institutions Direct Costs Direct Costs Subsidy from Ministerio de Ciencia Network Services • Universities • Research Centers • R+D centers and foundations • Research Units of Hospitals • Centers for management of R+D • Ministries • Others Network Elements Network Infrastructures Expenses Common Elements Shared infrastructures Middleware and Applications Red.es Staff and Outsourcing Activities Depreciation Dissemination General costs General costs Total Cost RedIRIS: 17 M€

8. Allocation of resources costs to different categories

9. Allocation of costs to the affiliated Institutions • Costs are allocated to each service – and then to each institution, according to the services it is using • As RedIRIS services are not charged, most institutions will be subscribing to most services • This may facilitate take-up and foster use of advance services, although it also deprives managers of some useful information about the value of the different services for the users • There are some services, as those related to collaborative environments or to improvement of quality of e-mail, whose costs cannot be easily allocated to specific institutions • Some services, as FTP or the web, are open to everyone – but only affiliated institutions would bear the costs • The cost of networking services (which are the most expensive ones) varies among regions (the same way it happens in GN2 among countries) • We are not charging for our services – but we think that if we did, we would try to set the same fee for all the regions • This would mean a “cross-subsidy” from some institutions to other institutions – the “cost sharing model” could prove to be controversial

10. Services provided to affiliated institutions

11. Assessment of the experience • The development of the cost model has helped us to clarify some pending issues, such as some aspects of the services portfolio, or the number of FTEs used for each service • We might have to use such a model (with updated information and some changes) before we expected (for the RedIRIS NOVA project) • We are proposing to deploy a dark fiber netowrk for RedIRIS, and the proposal is likely to go forward, but it might be necessary to share part of the costs among regional Governments • The information obtained from the model could also be used for the five years strategic plan that all the main Spanish research infrastructures have been recently asked to provide to the Ministry for Science and Innovation • After developing the model, now we are applying it to calculate estimated costs for services and institutions • We have been told by the consultants that once there are concrete costs for services and users, usually small adjustments to the model are made • Which has been your experience developing cost models?

12. Thanks for your attention!