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31 is $152,617,001, versus $135,629,139 from the financial man- the full cost determination process. In this way, all classifica- agement system. Discussion about the reasons for the discrep- tion and allocation activities for both program and enterprise ancy with agency personnel resulted in the determination that support expenditures occur through the full cost determina- the higher expenditure amount is the better value, and thus tion process itself, increasing the transparency of the calcula- the decision was made to scale up the allocation enterprise tion. Of course, if automatic indirect cost allocations are support cost to maintenance by the same factor as between performed in a way that is entirely consistent with the full cost total maintenance program expenditures from both sources. determination process described in this report, the full cost of In this way, the calculation ensured that the maintenance pro- activities can be obtained directly from the financial manage- gram received a fair, and in this case higher, allocation of enter- ment system. However, it is paramount that the allocation prise support expenditures than would have resulted from procedures used to derive the full cost be reviewed, under- using the financial management system data alone. stood, and confirmed as being consistent with the full cost determination process. Full Cost Versus Full Unit Cost of Production Full Cost Calculation for Network and The full cost calculations result in both a total full cost Geographic Subsets for each activity considered and a full unit cost, derived by dividing the full cost by reported accomplishment. Although The full cost determination process described in this report there is value in both figures, from a practical standpoint, the was developed in order to calculate the full unit cost of mainte- full unit cost is more useful and therefore more valuable. The nance activities on a statewide basis. However, there is nothing calculation of full unit cost relies on the agency selecting to prevent its application to a subset of a state (e.g., a particular useful units of accomplishment for line activities (for functional class or another geographic designation such as a example, tons, yards, square feet, linear feet, each), and then district or region), provided that the requisite portion of total capturing and recording this data accurately. Based on per- line expenditure and accomplishment data for a particular forming these calculations with data from six different state maintenance activity can be readily identified. The approach DOTs and discussions with personnel from these agencies, it for allocating program and enterprise support expenditures is clear that adherence to these requirements is mixed. As a to a subset of total line activity expenditure is no different consequence and at a minimum, any agency undertaking the than to the statewide line activity total--that is, based on the full cost calculation should consider its level of confidence in line cost amount. It must be noted, however, that from a prac- its accomplishment data and treat full unit costs accordingly. tical standpoint there are limits to how finely the line cost data In addition, in the event that a single line activity is performed can be sliced. At some point, it is possible that a particular main- by a combination of in-house personnel and contractors, it is tenance activity has not been performed in the selected geo- critical to understand whether accomplishment data is being graphic subset within the timeframe for which cost and recorded consistently in both cases. If, as it appears to some- accomplishment data has been obtained. It is therefore rec- times be the case, contractor accomplishment data is either ommended that the full cost process be applied at higher lev- questionable or absent, then full unit costs calculated will be els of aggregation--for example, by functional class or by skewed. district, and not, for example, from milepost A to milepost B on a specific highway. Implications of Automatic Indirect Cost Allocation 3.7 Additional Considerations A number of the state DOTs interviewed for this study The full cost determination process described in this report have implemented indirect cost allocation procedures of enables the calculation of an agency's full cost to perform a different types directly within their financial management particular maintenance activity. However, in order to sup- systems. If expenditure data for the full cost determination port the use of the resulting dollar amount in any other analy- process is extracted from the financial management system, sis or comparison, it is critical that it be placed into context. it is important to understand what, if any, indirect cost allo- At a minimum and as previously stated, this context should cations already have occurred. Depending on the agency, include a combination of cost and units of measure for the indirect cost allocation plans can be quite complex and it can particular activity, in order to derive an agency's total (or full) take considerable effort to understand them. It is therefore unit price for the activity. In addition, it is critical to consider recommended that, whenever possible, raw and unallocated the impact on level of service resulting from this expenditure. agency expenditure data be used as the point of departure for In other words, what was the condition or level of service

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32 associated with the maintenance activity at the beginning and maintenance, more recently agencies have experienced periods end of the analysis period? Did the level of service fall or rise of much higher inflation. This is particularly important in the (and if so by how much) or remain flat as a result of the area of oil and petroleum products, which are important to expenditure? most maintenance activities in that they drive the price of the In addition, if the resulting cost is intended for use as an input fuel that is used by all of the equipment. For this reason and for a forward-looking decision and it has been derived from a depending on the purpose of determining the agency's full cost backward-looking analysis (i.e., a forensic accounting exercise), for performing a particular line activity, it will be important to inflation must be considered. Although historically inflation has ensure appropriate consideration for inflation and apply a fac- been relatively modest in the area of highway construction and tor to the resulting full unit cost.