COST-BACK METHODOLOGY
Document Type:
Collection:
Document Number (FOIA) /ESDN (CREST):
CIA-RDP85-00809R000100010020-7
Release Decision:
RIPPUB
Original Classification:
K
Document Page Count:
12
Document Creation Date:
December 14, 2016
Document Release Date:
February 19, 2003
Sequence Number:
20
Case Number:
Publication Date:
February 25, 1975
Content Type:
MFR
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Body:
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ftV_
MEMORANDUM FOR THE RECORD
SUBJECT : Cost-Back Methodology
REFERENCE: Multiple Adse Memo dtd 14 Feb 75 fr DDA, same subj
13 7975
1. The planned meeting, mentioned in paragraph 3 of reference, was
held at 0930 hours. 2 February 1974, in the DDA Conference Room. It was
chaired by and attended by the planning representatives of
all DDA offices plus Office of the Comptroller.
2. I Ireviewed the Director/DDA exchanges on the subject
and recapped the results as follows:
a. Maintain the ADP reporting system;
b. Continue studying charging other government agencies for
services rendered (initial work in this area indicates that if CIA
begins charging and other departments and agencies reply in kind,
we will be billed about $7 for every dollar we charge);
c. Whatever costing systems are 14mplemented, there will be no
transfer of funds;
d. Action must proceed to identify services in Groups I, II,
and III; however, the Director accepted the rationale of Group IV
thereby exempting the Office of Logistics (OL), the Office of Finance,
and the Office of Personnel from further action in the current exercise;
e. A Group V was added to list those services which would be counter-
productive to cost back. (This requires no action on OL's part since
our entire activity is exempt.)
3. 1 __J concluded by stating all offices must maintain their
capability to cost back services in case it becomes necessary in the future.
In this regard, resource packages must be validated and kept current. Mr.
added that he personally felt costing back was not productive; however,
if the Director comes under heavy budgetary pressures requiring substantial
cuts, it may become a necessary exercise in order to determine the best place
to make cuts.
Chief
Plans and Programs Staff, OL
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DD/A 75-0717
4FEB 1975
MEMORANDUM FOR: Director of Communications
Director of Finance
Director of Joint Computer Support
Director of Logistics
Director of Medical Services
Director of Personnel
Director of Security
Director of Training
SUBJECT : Cost-Back Methodology
1. As you are all aware, the components of this Directorate
have individually developed techniques for identifying services and
costing them back to users. This task of developing a methodology
for this purpose was levied by the Director's financial guidelines
paper dated 23 August 1974. The Directorate response to this
tasking requirement was forwarded to the Director on 3 January 1975.
In that response, we identified four groups of services in terms
of the potential value of applying costing methodology. These groups
were:
Group I - Specific services for which examination of
costs to users could lead to management decisions to
either maintain, increase/decrease, or delete the service
being provided, particularly where the cost of service
may not be competitive with that available from other
sources. Included in this group could be certain types
of training courses, physical examinations, and possibly.,
certain unclassified computer operations. f
Group II - Activities which lend themselves to rather
precise costing and to which the user can exercise some
control over the extent to which he avails himself of the
service. Computer service is an example of this group.
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Group III - Major programs representing services which
can be attributed to other governmental agencies for
possible reimbursement. This could include Office of
Communications support to the State Department and Office
of Security support of national technical surveillance
means.
Group IV - Directorate administrative overhead and
core activities not subject to costing. This would
include the Offices of Finance, Personnel and Logistics
in their entirety, plus that portion of other components
considered core costs.
2. Basically, we suggested to the Director the proposition that
it would not be useful nor cost effective to develop'an elaborate
costing methodology for all DD/A services. In addition, we made the
point that we would hope that any application of costing methodology
would not involve an actual transfer of funds but would be rather a
form of resource allocation.
3. The Director, in his response, noted that he felt that the
first stage of our costing methodology would the establishment Qf
a data base which reflects how much , o r't,iy tis cost. I believe
you so` ave es 'is e hsuch a data base as a part of your
initial methodology development plus your budgetary resource
packages. Mr. Colby also concurred in our thesis that a charge
system for all activities was not cost effective. He asked, however,
that we proceed to identif services in our-Groups I, II and III for
possible implementation. will be calling a
meeting with your plan staff chiefs in the near future to discuss
methods for doing this. I would like to be advised by the end of
this fiscal year of the services which you have identified against
this requirement. Also, please identify those services where costing
data is not useful for managerial decision making.
4. The Director has also asked that we continue.witour-.ADP
resources chge.as presently in use an_tiat 'we keep under active
investigation the posslhility of charging other government agencies
for those services which we provide.
/s/John E. Blak&
John F. Blake
Deputy Director
for
Administration
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DD/A.74-4946
3 JAN 1915
MEMORANDUM FOR: Director of Central Intelligence
THROUGH : Comptroller
SUBJECT : Costing Methodology
Executive Ilegiatry
75- LL3y l
1. Your financial, guidelines for 1975 and 1976, dated 23 August
1974, tasked this Directorate with developing costing methodology for
services provided in order to make users aware of the cost of such
services. You also stipulated that we should not proceed with the
implementation of this. methodology at this time, nor were we to build
a bureaucratic structure whose cost would far exceed its value.
2. Keeping in mind your caveats, each Office has identified its
services, its customers, and its costs. You will recall that the Office
of Joint Computer Support had already developed a system of paper charge
allocation for the various types of services available from that Office.
That system underwent a refinement in terms of fee schedule during the
early days of FY 1975. The other Offices developed systems consistent
with the types of services provided, based primarily on applying some
pro rata share of budgeted amounts to production statistics which in
most cases are currently being collected for internal unit productivity
measurement or for activity reporting. For example, the Office of
Security identified 37 specific services which could be charged to
components. Estimated FY 1975 costs developed from this methodology
would include $480,000 for polygraphs, $3,600,000 for field offices,
and $2,500,000 for investigations in support of national technical
surveillance means. The Office of Communications on the other hand,
identified six major programs containing charges which would be costed
to components.
.3. As we looked at these systems and analyzed them it became
apparent that while production statistics are a useful tool to a unit
manager in measuring efficiency, the arbitrary creation of a system
to compute and apply costs would not in itself materially enhance the
usefulness of the tool. Most of the functions performed in this Direc-
torate represent those "core" activities which must be done by law or
to keep the Agency functioning. Decisions as to the level of "core"
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in this group could be certain types of training
courses, physical examinations, and possibly certain
unclassified computer operations.
Group II - Activities which lend themselves to
rather precise costing and to which the user can
exercise some control over the extent to which
he avails himself of the service. Computer ser-
vice is an example of this group.
Group III - Major programs representing services
which can be attributed to other governmental agencies
for possible reimbursement.. This could include Office
of Communications support to the State Department and
Office of Security support of national technical sur-
veillance means.
Group IV - Directorate administrative overhead and
core activities not subject to costing. This would
include the Offices of Finance, Personnel and Logistics
in their entirety, plus that portion of other components
considered core costs.
4. If it is deemed necessary to charge for Group IV services, I
would prorate the cost of such services to each Directorate on the
basis of percentage of Agency population or possibly percentage of
appropriation.
ry
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activities are of necessity major policy considerations based on
overall Agency posture The detailed identification and distri-
bution of core costs, below the DDA resource package level now
maintained, would not in our opinion enhance the decision-making
process and be of little, if any, value to the recipients of such
services. Directorate overhead and Office direction and control
likewise are basically related to "core" activities and should be
treated as such. With this in mind, we-propose the costing method-
ology for administrative services be categorized as follows:
Group I - Specific services for which examina-
tion of costs to users could lead to management
decisions to either maintain, increase/decrease,
or delete the service being provided, particularly
where the cost of service may not be competitive
with that available from other sources. Includable
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5. Within the Administrative Directorate there are two
examples of costing-back which are worth citing -- one in the
Office of Logistics' Printing Services Division and the other
in the OL Supply Division. The experiences of these two divisions
in costing raise questions as to its value as a management tool
within this Directorate. In the case of Printing Services Divi-
} sion, data for costing purposes was collected from each operator
on a job basis. The time devoted to accumulating, recording and
''-tabulating this data was b
t
t
d
n
e
ween
wo an
two a
d one-half man years.
.--" The Supply Division experience was slightly different in nature.
Nearly 60% of the 80,000 line items of supply ordered through
Supply Division are for overseas shipment.. The cost of trans-
portation is roughly $2.2 million. In the past the various
Agency components were responsible for budgeting and accounting
for shipping costs; recently the Office of Logistics assumed this
function. The net result was a drastic reduction in the manpower
needed to perform this duty -- OL estimates it needed one man day
per month to aggregate the data and run the system.
6. We presume that the costing methodology would not involve
actual cost-back procedures and transfer of funds, but would be
some form of source allocation on a factored charge basis. I
believe we would have a totally unmanageable situation if the
budgeted funds to support DD/A services were contained in the
a-=--I-budgets of using components and defended by such components
cc: Comptroller
John F. Blake
Deputy Director
for
Administration
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",Theattached is responsive to your charge
to the DDA to accelerate development of methods
to identify the cost of DDA services furnished to
Agency components. Implicit in this charge was
the suggestion that there might be merit in requiring
that components budget for or be charged for such
services- Jack makes the point that most" DDA
functions represent support services necessary to
keep the Agency functioning and that the level of
such services bears little direct relationship to the
level of operations of individual components.
"hough Jack has not been very explicit, I think
STAhe is seeking approval in principle for the approach
Director of Central Intelligence
or its application with the following exceptions:
a. Reporting utilization of ADR services
should continue as at present; and
b. The examination and evaluation
of the merits of charging other Government
agencies for support services should be
continued.
In addition, you might suggest that the DDA be
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