Real-time Billing rate setting methodology

Rate Development

Now that OIT has transitioned to Real-time Billing for Common Policy Services, OIT set's fixed rates each budget cycle based on expected service demand as well as estimated total costs for providing each service.

OIT's current rate setting methodology includes a multi-step process:

• Departments and IT Directors forecast utilization for the upcoming fiscal year

• OIT Finance reviews current service cost and develops a baseline forecast using current data, adjusting for any one-time expenditures, staff turnover, contract escalators, or other factors that are likely to impact service cost in the upcoming year.

• Once Departments have submitted their utilization requests, OIT Service Owners review and quantify any necessary changes in resources required to support the service demand. This can include adding resources to support increased demand, and it can also include reducing resource estimates based on lower service demand.

• Once OIT has firm cost estimates for each service line, including direct costs and indirect costs or division overhead, the following basic formula drives the initial rates and department budgets:

Rate True Up

As an internal service provider for state agencies, OIT aims to set rates that perfectly balance revenue and expense for each service each year. Since rates are set well in advance of the fiscal year, and many factors can influence final service costs and final department utilization, OIT evaluates any variance between final service costs and revenue at the close of each fiscal year. OIT then accounts for any over/under collection in the next rate setting process. This ensures that OIT is adjusting future rates to bring fund balance in line with federal requirements.

FY21 Rate Calculations - Common Policy Process through FY21 (prior to Real-time Billing in FY22)

In FY21 and prior, OIT operated under the Common Policy Estimate/True Up allocation process. The description below applies to that process, prior to the transition to Real-time Billing for Common Policy services beginning in FY22.

There are two components to the creation of the fiscal year Common Policy cost allocation: utilization and recoverable costs. These are estimated for each service. Each service’s total recoverable costs are divided by statewide utilization to establish a rate. Then, the costs for each service are allocated based on each department’s estimated utilization multiplied by the rate.

Other Information

General Overview of OIT's Reappropriated Funding

• The Governor’s Office of Information Technology (OIT) delivers information and communications technology services and support across the State of Colorado’s executive branch agencies as well as to other government entities. OIT drives innovative technology solutions, provides quality service, and supports state agencies whose missions are critical to serving Coloradans.

• OIT was created through C.R.S. 24-37.5-101. OIT’s operational responsibility is vast and includes the development and support of enterprise and agency-specific IT services and solutions. OIT is also responsible for information security across all three branches of state government.

• OIT is funded predominantly through reappropriated funds and recovers a majority of its costs from cost allocations to departments. Departments are appropriated funding in their annual budgets and then pay OIT for services provided. The allocation methodology is called Common Policy. Departments receive an appropriation in the Long Bill for this allocation called “Payments to OIT”. OIT also recovers costs by direct billing to departments. Direct billing is done separately from Common Policy, for specific services such as telecom, or for service needs above and beyond the capacity of Common Policy appropriations.