Partial fulfillment for award of the degree of Master of Information Technology

Public organizations are increasingly embracing technology as a means of achieving operational efficiency and in the process reduce the cost of doing business. It is necessary for organizations to have a clear financial visibility into their Information Technology operations. However, it is frequently observed that IT continues to drain financial resources without providing any insight on its consumption. This is partially due to the intangible nature of IT and partially due to lack of standard IT service costing frameworks. IT Managers need financial and non –financial information to have proper insight of their operations. Having a costing model enables IT departments to determine the cost of providing an individual or group of services. The objective of this research was the development of a service oriented costing model for IT services offered by public organizations, with the following specific objectives: 1. To investigate the available IT service costing frameworks and models. 2. To establish the policies and factors that determine IT service costs. 3. To develop an IT service costing model for use in public organizations. 4. To validate the effectiveness of the IT Service Costing framework developed. Using a qualitative approach, this thesis presents an IT service cost model to methodically guide public organizations in determination of costs associated with provision of an IT service. The research used a descriptive design to obtain information concerning the current status of the phenomena. A target population of thirty four senior and middle level managers from the ICT, Finance and Administration departments of the Kenya Revenue Authority were considered. Purposive sampling was used to select twenty two target respondents. Semi-structured interviews consisting both open-ended and closed questions to provide greater depth were the primary data collection method used, in addition to scholarly journals, books and websites. The model presented provides an approach to cost estimating that can simplify the determination of costs associated with an IT service. The application of suitable abstraction principles in terms of cost categories, cost types, cost activities, cost elements and cost drivers yields a modified IT service specific cost model. The approach was verified using a real service as an example to provide insight into cost structures and potential cost drivers. It was applied to a case study of the email service at the Kenya Revenue Authority and in this way the flexibility and adaptability of the model to given service-orientated scenarios was demonstrated.