Other Uses for a "Fee Study"

What many readers think of as a “Fee Study” was created by RCS (née Management Services Institute) back in 1980. We called the “Study” a “Cost of Services Study” to show that our focus is on the full cost of services not how the governmental agency wishes to support the service. The methodology was formalized by the League of California Cities 1980 publication, “Cost Accounting for California Cities.” In reality, the process is nothing more than applying the cost accounting “expense” model to the local government “expenditure” accounting model. We believe that the result is a tool for local government managers to better understand what services they provide, what staff is providing that service and what group is paying for the service. The remainder of this article will show that the analysis need not be limited to fee services.

Benchmarking Services Among Agencies. Benchmarking can be achieved by comparing the unit time by positions across agencies. Using full-cost adds too many distortions and each agency should only include supervision that is directly involved in the service. Services must be carefully chosen to be comparable. By doing several benchmarking rounds, comparing and discussing differences, agencies should be able to agree on comparable units of service.

Administrative departments and their services can also be benchmarked between agencies. How much time does each agency spend processing a purchase order or requisition? Managing the retirement benefits per employee? A current one might be: how much time was needed to keep the agency website from being hacked? As a result, agencies should be able to compare and contrast ways that each are providing the service. Improvements should naturally follow.

Benchmarking Services Among Agency Teams. The obvious choice would be to compare an agency team against a contractor who proposes to do the same work. Remember that agency costs that would be eliminated are the only ones to consider. In addition, any agency time required to assure that the contractor conforms to requirements and standards should be added to the proposed contract amount.

Other benchmarking could be done between street maintenance crews, landscaping crews, police crime investigation teams. The limit is your imagination. However, the value is dependent on finding a valid way to compare results that are understood and agreed upon. The goal is not to find “bad” teams but to share great techniques that winning teams have developed.

Lesson of McDonalds. A Cost of Services Study will identify the full-cost for the average unit. Parts of that full-cost will exist whether that unit has been produced or not. The part of the cost that is unique to the next unit of service is called the marginal cost. The theory is that as long as the agency charges at least the marginal cost, it should continue to expand the units of service until a limit is reached. Take for example a golf course: there are a fixed number of holes, the course is open a fixed number of hours and there is a fixed number of rounds that can be played. If you have more demand for early rounds than you have available, maybe the early rounds should be charged more to encourage those that can to play later in the day. If the middle of the day is unused, maybe the price should be dropped to encourage those than can stand the heat to play at that time. As long as you have unused capacity for any service, consider marginal pricing schemes that will use that capacity.