James A. Bennett
The GIS Cost and Fee Structure Model was developed to assist organizations to budget and determine cost recovery vehicles for their GIS programs. The model tracks expenses and calculates projected revenues from GIS products and programs over a given time period. This information is used to generate realistic and justifiable pricing structures for GIS data and services and to present multi-year budgeting summaries on both a cash and amortized basis. This paper will examine the development and use of the Cost Model for an organization, highlighting the many factors that must be considered to properly address this important issue.
Organizations, especially those in the public sector, have an increasing need to determine reasonable fees for GIS-derived spatial data, as well as planning for and tracking the financial basis of their programs. To be successful, the foundation of this financial planning and product fee determination must be scientifically based, supported by policy, address multiple years and long range goals, provide for amortization of program expenses, and allow for input of actual expenses and revenues to refine the results over time, hence making better program decisions throughout the life of the GIS.
3Di, LLC, through its client relationships in Michigan, was given the opportunity to help communities determine reasonable fees for GIS products relating to the Enhanced Access bill passed in that state. The “Enhanced Access” legislation, passed by the State of Michigan in 1996 as Public Acts No. 462 and 553, allows local governments to charge for “enhanced access” to data and services above what is strictly detailed by the Federal Freedom of Information Act. In order for these bills to effectively aid in the building and maintenance of a governmental GIS, government supervisory bodies, such as a Board of County Commissioners or a City Council, must approve two policies:
Rather than perform the fee determination part of this on an ad hoc basis, as had done before and is typically done, 3Di decided to build an interactive, reusable tool for performing this valuable financial function as a part of our rapid, comprehensive implementation process. GIS professional consultants and Certified Public Accountants were tasked with developing this financial modeling tool and the result is 3Di’s GIS Cost & Fee Structure Model. The Cost Model was also built “open-ended” for use by a wide variety of clients in both the public and private sectors. Because it encompasses and addresses all of the major factors required for effective cost modeling and fee determination, these topics are addressed in the context of the Cost Model to illuminate these issues for the purposes of this paper.
3Di’s GIS Cost & Fee Structure Model was developed using state-of-the-art computer modeling and accounting principles and implemented into an easy-to-use Microsoft Excel spreadsheet. The Cost Model balances expenses and projected revenues from GIS products and programs over a given period of time. This provides realistic and justifiable pricing structures for GIS data and services in order to track program expenses and budgets.
GIS program expenses are detailed in Staffing, Consulting, Data, Fixed, and Internet categories for up to a period of 15 years. These expenses are then totaled for a selected period, once again up to 15 years and amortized into annual expenses in each category. These annual expenses are then apportioned by percentage to the different products offered.
Revenues are calculated on a product basis. Included as a "product" within this are Internet subscription revenues as well as more traditional offerings such as hard copy maps, digital data, database products, and custom services. Projected sales figures for each product are determined initially from historic data and market studies, then refined as product sales occur and are tracked as an ongoing process. Other revenue factors that can be delineated include organization contribution percentages, i.e. the internal value to the organization input as a mass percentage or more specifically as chargebacks to internal departments for such things as GIS software, services, and usage. These revenues are then combined and computed with the expenses to derive pricing guidelines for publication and system use. An important byproduct of these calculations is multi-year budgeting figures, which are then summarized for the user on a cash and amortized basis.
There are many assumptions that need to be made regarding projected sales, staff rates and utilization, etc., which require the clients’ review, revision, and concurrence for a finalized and calibrated Cost Model. This is especially true in the initial stages of a GIS program and before historic sales figures and annual averages have been generated. In the Cost Model, these assumptions and input figures are split out into separate sheets within the model based upon category. The following is a sheet-by-sheet description of this breakout, how the GIS Cost & Fee Structure Model works, and what aspects need to be addressed to successfully construct one of these valuable tools to manage a GIS program. Subsequent to this a case study is presented to illustrate the process of implementing a GIS Cost & Fee Structure Model.
This summary sheet provides two overall financial views of the product revenues and expenses over time. The first section is the cash based view, which is the projected ACTUAL dollars the client will have to spend for the GIS program year-by-year. This includes up-front and ongoing costs. The second section is an AMORTIZATION of these costs evenly over the time period under consideration. This is also shown so the customer can get an idea of total costs of the program if they were to experience them evenly over the selected time period. 3Di felt it was valuable information for the client to know what an actual and annualized appropriation for the GIS program might be. The net numbers of both these methods should match, which provides a check of the model for inconsistencies. This gives the client a view to overall program expenditures and revenue for the selected time period and can be used to determine and plan for short and long-range budgets.
This page presents customer-pricing information on a product-by-product basis with the suggested prices they should pay for hard copies of the products. This information could also be built into the clients’ own forms. No numeric input is required on this page as everything is pulled from other areas in the model. No volume discounts are provided because it is assumed that all these products require the same time and expense to create regardless of volume. In addition, these prices can provide incentive for customers to use the digital products and the Internet delivery mechanisms, as some of the overhead is reduced through these more effective, digital means. Standard sizes for hard copy offering are determined with the client and are then reflected throughout the Cost Model. Prices can be rounded at the clients’ discretion and revenues are generated off this actual pricing.
This page presents customer-pricing information on a product-by-product basis with the suggested prices they should pay for digital copies of the products. As with the Hard Copy page, the client could also build their own forms and insert this information on them. No numeric input is required on this schedule as everything is pulled from other areas in the model. Once again, these prices can be rounded at the clients’ discretion and revenues are generated off this actual pricing. The client also has the option to offer percentage and threshold-level volume discounts on products. For example, if a customer buys one parcel worth of information they would pay one price, if they purchase parcel data for an entire municipality they would receive a 15% price break on this mass purchase.
This section provides information for Online Mapping Services whereby the customers can create their own maps, perform basic functions, and generally have access to applications as opposed to data. This area of the model calculates an estimated subscription rate and gives a look at how this might cover the allocated costs. The hourly rate for above average use can be specified here to account for high volume users of the system such as the real estate industry. The calculated rate is pulled from this section to the hard pricing page but the model user is given freedom to input different rates to determine if it will sufficiently cover the allocated expenses.
These sections are the product specific pages. Here is where the projected units sold are input and require intensive review/comment from the client. These figures are input as average annual product sales through the specified time period. As such, they will be adjusted as actual figures are derived and projected in the first few years of the program. This annual average basis allows for the “flattening out” of product sales between products that are more cyclic or vary in nature, such as orthophotography (where sales rates vary depending on currency and customer awareness of the flights and product availability) as opposed to property parcel data, which stays more current and constant in demand.
An important factor in these sections is the "Internal Value to the Organization" percentage, which will calculate the amount that the client organization will contribute without planning on reimbursement. Another way to look at this is to consider that these GIS products and services have internal value to the organization and its constituents, and the organization will therefore bear a certain percentage of the expenses without expecting any cost recovery. Configuration of this germane item bears close scrutiny and input from the client from both a fiscal and political perspective as it directly affects the pricing results and revenues generated.
Drawing from other sections, a cost for each product is then calculated, a suggested price, and revenues as generated by the sales figures. This feeds into the pricing and financial summary pages. Base unit totals and costs are being allocated to a product by the assumptions made in the "General Information" and expenses sections and then evenly applied on a per unit basis.
This section captures other revenue inputs into the GIS program aside from product sales revenue. These additional revenue “feeds” generally fall into two areas, chargebacks to other departments and internal organizations, and grants. Internal chargebacks can fall into the categories of hardware, software, training, services, consulting, and usage. These other revenue sources and amounts are then taken out of the calculation of fees and product revenue generation to avoid “double charging” to constituents, customers, or others.
This section has general information about the client organization and other items that are used throughout the model. The client information and averaging of spatial characteristics are used to develop product mix assumptions that help to determine price breaks by volume of items purchased and by level of detail. Media costs and costs for staff services at different levels are set here and are used in other sections. The amortization time period for the model is set to project the GIS program out to the desired number of years, the master allocation percentages of expenses to products, and the internal value percentage are input here.
The Staffing Expense section is a summary of the staff expenses for the entire program and feeds off the detail in the Staffing Subschedule. It, like the other support/expense sections, provides a summary of actual cash expenditures and an annual amortized expense based on the time period under consideration. This amortized expense is then apportioned out to the different products by the master allocation percentages. This apportionment is one of the review areas for the client in this and other expense sections.
This section is the actual input area that is used for the staff summary. Because many products may take advantage of similar activities, such as Central Mapping Services, these costs are broken down by application tasks and activities rather than strictly products. Staff time is further broken down into staff categories and time allotted to up-front development of the GIS applications and then ongoing maintenance. This information is then totaled and passed on to the Staffing Expense section for amortization and apportionment.
The Consulting Expense section provides information on the consulting expenses related to implementing and maintaining the GIS and - as with the Staffing expenses - presents this in terms of GIS Applications. Pure consulting costs in this sense is tied more closely to implementing specific functions or applications relating to the GIS program, such as implementation planning or application development as opposed to outsourced data conversion and development. That type of consulting is captured in the Data Expenses Section, described below. As with the other sections, initial development and maintenance costs are split out and are then apportioned out to the different products by the master percentages.
This section provides information on the data needs and costs of the system. This encompasses digital data development that the client will contract for, other data development and maintenance performed in-house is included in staff time. This expense does not include recurring years because it is mostly random in amount and timing. Therefore, all the input is made individually by year in both the acquisition and maintenance/upgrade sections. Again, the summary of the actual and amortized costs is made available and is then apportioned out to the different products by percentage.
This section summarizes the fixed expenses of hardware, software, and overhead that are required for the GIS program. As with the data expenses, there is an acquisition section for non-annual outlays and a maintenance and upgrade section for those that are annual. Lifecycles for both hardware and software acquisition are indicated and those turnovers are considered new acquisitions. Annual costs fall mostly into the software and overhead areas. There is a total cost presented for each segment and a summary at the end that shows total cost expenditures and then the annual amortized amounts. As with the other expense sections, this annual amortized amount is then apportioned out to the different products by percentage.
This section provides information on the Internet-enabling expenses related to the GIS, primarily to assist in deriving Internet subscription rates. As with the fixed expenses, lifecycles for hardware and annual maintenance costs for Internet specific components are taken into account. These are then totaled for the specified time period and averaged to derive an annual amortized figure.
In this sense and for its use in the Cost Model, Internet Mapping Services, or the customers' ability to make maps and perform functions through the Internet is considered its own product. The Data Market portion (for lack of a better term) of this web capability is the digital product delivery vehicle for all the other products. Therefore, a percentage of the Internet expenses are allocated to all the products and the rest is used for calculation of the subscription rates. Internet Mapping Services then recovers its costs from the subscription fees. The Data Market portion of the expenses is distributed across the products as an additional media cost.
As you can tell from the GIS Cost & Fee Structure Model components, cost modeling for a GIS program must take into account a variety of factors to generate sound and justifiable fee structures. Moreover, these are not static items, but change constantly through the life of a GIS program. Use of an interactive and configurable tool to plan for, model, and track these expenses and revenues is becoming more and more important to organizations implementing GIS as a way to manage this seminal aspect of their programs. Attention to these many details and inputs into this financial situation will both increase the probability of the long term success of the program as well as facilitate more robust, higher quality GIS.
This portion of the paper presents a case study of one of 3Di’s GIS Cost & Fee Structure Modeling Projects. The Wayne County, Michigan GIS Management Unit (GISMU) has been gracious enough to allow their project to be used to illustrate this process. Wayne County is a heavily populated county located in Southeastern Michigan containing the City of Detroit. The GIS Management Unit has been deeply involved in one of the largest GIS projects in the country since 1997. Through this innovative program, they are now preparing to offer GIS derived products and capabilities both internally and externally. 3Di is assisting GISMU, through a Project Management Contract with Esri, to capture program expenses to date, project expenses and revenues, and establish fees for the products to be offered. The following is a synopsis of this GIS Cost Modeling Project.
The primary objective of this phase was to gather the data necessary to build an effective Cost Model. The focus was on identifying and gathering background materials and data from those key County Departments and agencies that do - or may produce - geographic or other products which might impact the Model and fall under the County’s Enhanced Access Policy. 3Di and GISMU gathered as much data about existing fee structures, historic sales, and background materials as possible.
3Di provided GISMU with a guide to scheduling interviews with key departments and agencies and they performed this notification and scheduling function. 3Di and GISMU personnel then met with County staff in these key departments, the interviews typically lasting between 1 and 2 hours, and materials and data from the participants to be used for Cost Model generation were either acquired or arranged for at this time. Subsequent interviews and communications with some of the agencies were performed as needed. Also, Cost Model Worksheets were distributed to GISMU to facilitate the data gathering efforts. These Excel-based worksheets were used to compile and organize expense figures and were designed to fold into the Cost Model as a part of the Draft Cost Model Development phase. The following is a listing of some of the key departments interviewed:
· GIS Management Unit
· Equalization and Assessment
· Registrar of Deeds (including KPMG)
· Management & Budget
· Public Works Division
These two-days of interviews were conducted on-site and the collected information utilized to produce the Draft GIS Cost Model. Subsequent days on-site were used to meet with GISMU to review and correlate the interview findings, the Cost Model Worksheets and “fill in the blanks” to complete the research information picture.
Note: On some Cost Modeling projects, workshops are used to group participants of similar organization types and more efficiently perform this discovery process with larger numbers of participants.
3Di compiled and analyzed the research information gathered, developed preliminary recommendations and meet with GISMU to define key assumptions and modifications to be used with the Cost Model. These assumptions primarily fall in the categories of product definition, sales, and program projections. GIS related products earmarked for distribution to date were reviewed and new product opportunities arising from the research process were identified, discussed, and included where desired. A Products Offering was finalized for use in the Cost Model. Historic sales figures and ramifications of the computerization of these various products was extensively discussed and annual average sales figures for the different products reviewed.
Following this process, the Draft GIS Cost Model was
developed and populated with the gathered and agreed upon data. Assumptions used to build the Cost Model
will be documented and delivered with the finalized model. This Draft Cost Model and results from it
were presented to Wayne County at an onsite meeting on June 7, 2000. GISMU will then take delivery of Cost Model
output for review.
Once the Draft GIS Cost Model has been reviewed and comments produced, 3Di will be meeting with GISMU to go over these comments and then finalize the base calibration and configuration of the Cost Model. The GIS Cost & Fee Structure Model software will then be delivered to Wayne County under a licensing agreement. 3Di will be conducting additional communications and meetings with GISMU as necessary to assist finalizing the Cost Model.
In conjunction with the delivery of the GIS Cost & Fee Structure Model, 3Di will be performing a day of onsite training in the operation of the application for GISMU staff. We will provide a course outline, training materials, and assistance to teach the local custodians of the Cost Model to adjust base assumptions and parameters and develop different scenarios for comparison
Through the development of the GIS Cost & Fee Structure Model, Wayne County and it GIS Management Unit have established a solid foundation to support the financial aspects of its GIS program and the determination of its Fee Structure. In addition, a highly useful and interactive tool has been put in place to manage this valuable information for years to come. 3Di has been very pleased to work on this project with Wayne County and our other clients who have utilized the Cost Model, as we see it as an integral part of an organizations’ success with GIS.
3Di and the author would like to thank the Wayne County, Michigan GIS Management Unit and the Project Management Team from Esri for allowing the use of the Wayne County Cost Modeling Project as a case study.
James A. Bennett
Director, Local Government Services
3Di, LLC
232 East Front St.
Traverse City, MI 49684
Tel: (231) 946-7622
Fax: (231) 946-5077
Email: jbennett@3dillc.com
Web: www.3dillc.com