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OCR for page 37
37 Glossary Allocation (also attribution or distribution or assignment): For the Direct costs: Costs "that can be identified specifically with a particular purposes of this report, the process of relating indirect costs to the final cost objective" (OMB, 2004). In a road maintenance context, maintenance jobs or organizational units that have benefitted from typical direct costs include wages or salaries paid to employees for the expenditures of these indirect costs. For example, the indirect work performed on a maintenance job, costs of materials acquired costs of a maintenance district office need to be related to mainte- for or consumed on a maintenance job, costs of equipment used on nance jobs and units that benefit from the guidance, oversight, su- a maintenance job, and costs of travel to and from a maintenance pervision, and assistance of the district office. This relationship is job. Where maintenance is performed by contract, direct costs refer generally analytic (i.e., able to be computed) but also is informed to contractor payments. by judgment since the relationship is not immediately obvious (i.e., Enterprise: Another way of referring to the entire agency (i.e., the com- if it were, the costs might be considered as direct costs). An accept- bination of all line and support programs). able relationship is one that is reasonable (i.e., its logic is under- Enterprise support: The combination of all agency (or enterprise) sup- standable) and felt to be fair by affected parties, but also efficient port programs and functions. (i.e., not requiring excessive time and effort that is burdensome rel- Enterprise support cost/expenditure: The sum of all agency (or enter- ative to the magnitude and importance of the costs being consid- prise) support programs' and functions' costs/expenditures. ered). Often an account or pool is created to accumulate indirect Equipment cost/expenditure: The second element of line and support costs and allocate them efficiently to the maintenance jobs or orga- activity costs. This is the total equipment charges associated with a nizational units that benefit from the expenditure of these costs. particular activity. In most cases this is derived by multiplying some Allowable cost: A cost, either direct or indirect, that is reimbursable by measure of equipment usage (hours, days, miles) by an agency- the federal government. State DOTs' indirect cost allocation plans, developed equipment rental rate for each piece or type of equipment which must be approved by FHWA, document how allowable in- in the agency's fleet. direct costs are allocated to allowable direct costs for the purposes Full cost determination process: For purposes of this report, the of federal reimbursement. Attachments A and B of OMB Circular process of determining the full costs of maintenance for an activ- A-87 provide definitions and guidance with respect to which costs ity, function, or program, whether statewide, by district, or other are and are not allowable. geographical or organizational coverage. Base or basis: The analytic quantity by which indirect costs are assigned Full cost: For purposes of this report, the combination of line activity costs/ pro rata to different functions, programs, groups, or activities. expenditures, a fair share of program support costs/expenditures, Many potential bases are available. For example, indirect costs and a fair share of enterprise support costs/expenditures. could be allocated by the relative shares, respectively, of labor costs, Indirect cost plan: For purposes of this study, a document prepared total costs, number of employees, square footage of building space and submitted by a state DOT and approved by the FHWA, accord- occupied by an organizational unit, or other metric that is felt to ing to the requirements of OMB Circular A-87, for use in admin- represent the relative benefit of the indirect cost expenditure. istering reimbursements of the federal share of costs for federal-aid Benchmark approach: A form of the full cost determination process that highway work. is designed to be feasible/attainable in most, if not all, state DOTs. Indirect cost: Costs that are: "a) incurred for a common or joint pur- Cost base or basis: For purposes of this report, a basis that is expressed in pose benefiting more than one cost objective; and b) are not read- the overall direct cost of maintenance for an activity, function, or pro- ily assignable to the cost objectives specifically benefitted, without gram. The overall direct cost of maintenance in this context means effort disproportionate to the results achieved" (OMB, 2004). For the sum of all direct labor, including fringe benefits, equipment, example, the guidance, oversight, supervision, and assistance of a materials, and other expenditures, including contractor payments, district maintenance office may be said to benefit all maintenance to perform and complete the specified maintenance work. crews and jobs within its jurisdiction, but there is no direct connec- Cost objective: A financial accounting term defined as "a function, tion or nexus between the district office personnel and each indi- organizational subdivision, contract, grant, or other activity for vidual maintenance job. A reasonable but efficient method must be which cost data are needed and for which costs are incurred" found, often informed by judgment, to relate district office costs to (OMB, 2004). Unless otherwise indicated, a "cost objective" will all the maintenance jobs under its responsibility. Refer to the fol- refer in this report primarily to a maintenance job. lowing definition.
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38 Labor cost/expenditure: The first element of line and support activity OMB Circular A-87: A document issued by the Office of Management costs. This is the product of labor hours and fully burdened (i.e., and Budget (last revised on May 10, 2004) that establishes princi- salary plus fringe benefits) labor rates associated with a particular ples and standards for treating costs in connection with federal activity. Depending on the agency, it also may include charges for awards, including discussions of direct and indirect costs, and ex- third party labor such as other state or local agencies performing planations of allowable and unallowable costs. certain maintenance services and/or convict labor charges. Other cost/expenditure: The fourth and final element of line and sup- LEMO: A shorthand way of referring to the four elements of line and port activity costs. This element of activity cost is used to collect all support activity costs (i.e., labor, equipment, material, and other). other activity costs that do not fit in the first three elements. Sources Line activity: A maintenance program activity that involves the actual per- for this element include contractor payments, private equipment formance of work on, or inspection of (if required by law), one or rental, utility charges, and, depending on the agency, payments for more transportation infrastructure assets, as well as work responding services by other state and/or local agency personnel and/or con- to an unpredictable event. Examples of line activities include pothole vict labor charges. patching, mowing, snow and ice control, bridge inspection, and acci- Program support: The combination of maintenance program support dent and disaster recovery. activities and functions. Line activity cost/expenditure: The sum of labor (including fringe Program support cost/expenditure: The sum of all maintenance pro- benefits), equipment, material and other (including contractor) gram support activities' and functions' costs/expenditures. costs/expenditures incurred in the performance of a particular Simplified benchmark approach: A simplified form of the full cost line activity. determination process that eliminates the need for developing Line program: A logical grouping of similar activities or projects that crosswalks of line and support activity and program expenditures are primarily focused on actually delivering the primary work by assuming that all line activities and programs are supported by products of a state DOT. For example, construction projects make all support activities and programs, respectively. up a construction program, and maintenance activities and proj- Special/pass-through: A classification for agency/enterprise programs ects make up a maintenance program. that must be excluded from the full cost determination process. For Line program cost/expenditure: The sum of all costs/expenditures example, debt-related expenditures associated with past bond is- associated with a particular line program. suance, or direct payments or pass-throughs to other state and local Maintenance activity: A specific classification of maintenance work or agencies. service that is defined in the agency's maintenance program and Support activity: A maintenance program activity or function that is maintenance management system (MMS) and/or financial man- done in support of one or more line activities. Examples of support agement system (FMS). The full cost determination process deals activities include administrative support, training, inspection and with all defined activities that relate to maintenance, regardless patrol activities that identify locations where line activities must be of number or detail. Cost data are required and accomplishment performed, radio operations, maintenance program management, units are preferred for each activity to be considered. and stores operations. Maintenance job: The performance of a maintenance activity at a par- Support activity cost/expenditure: The sum of labor (including fringe ticular highway location (or on a particular length of highway) at a benefits), equipment, material, and other costs/expenditures incurred particular date and time. in the performance of a particular support activity or function. Material cost/expenditure: The third element of line and support ac- Support program: A program that supports the delivery of one or more tivity costs. This is the total material charges associated with a par- line programs. For example, agency executive management, infor- ticular activity. In most cases this is derived by multiplying the mation systems, human resources, legal, and finance. quantity of each unit of material consumed by a unit price that is Support program cost/expenditure: The sum of all costs/expenditures calculated and maintained by the agency's stores operation. associated with a particular support program.