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Proposal for the Revision of the CSPI (CSPI: Corporate Services Price Index)
Hina KIKEGAWA Bank of Japane-mail: [email protected]
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Outline of presentation
1. Update of the Corporate Services Price Index (CSPI) to the 2005 base: An Overview
2. Focus on issues for IT related industries (a) Selection of pricing method:
Internet based services (b) Extension of Averaged Charge-out Rates:
Survey method of Custom software services
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1.Update of the CSPI to the 2005 base
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Update of the CSPI
The 2005 base Corporate Services Price Index (CSPI) will be introduced by the end of 2009.
We have 2 key strategies.
Incorporating IT and outsourcing related services Capturing various types of prices
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Key Strategy 1
Incorporating IT and outsourcing related services
Acceleration of data transmission speed facilitated the development of internet network and the demand for related services: Internet based services
An increasing number of firms cut overhead cost by outsourcing back-office functions: Education and training services
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Key Strategy 2
Capturing various types of prices
As evident in cellular phone charges, there has been a growing trend in which various types of non-linear price schedules are provided.
Conducting price surveys, which are done by keeping services quality constant, and compiling price statistics have become increasingly difficult.
Improvements are being made to increase the accuracy of sample prices. e.g. Model pricing, Unit value method
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2. Focus on issues for IT related Industries
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2.Focus on issues for IT related Industries
In today’s presentation, two examples of our attempt to capture various types of prices will be explained.
(a) Selection of pricing method The introduction of a new item Internet-based services
raises an issue of keeping quality constant.
(b) Extension of “Averaged charge-out rates method” In Custom Software services, “Averaged charge-out rates”
method will be improved.
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(a) Selection of pricing methodInternet based services -- online shop seller fees
Online shop seller fees
Online shop seller fees vs. Real estate rental
Difference between online shop and real estate
Pricing method for “online shop seller fees”
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Online shop seller fees
To open and keep a virtual shop on an online mall, a shop seller needs to pay a fee to an administrator.
The online mall administrator offers a web page, helps to build sellers’ own pages, etc.
Online mall
administrator
Online shopseller
Consumer
Sell goods
Pay bills
Online shop sellerfees:
Transaction fee +Monthly price
"Matching"
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The price setting formula of online shop seller fees is similar to that of real estate rental (Sales space rental):
C = A * X ( + B)
Online shop seller fees vs. Real estate rental
Online shop seller fees, Real estate fee
Fee rate Turnover Monthly charges
Is there a difference in characteristics between online shop seller fees and real estate rental fees?
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Difference between online shop and real estate
For price survey purposes, the pricing method for this services goes as follows.
Online shop Real estate (Sales rental)
Price setting formula
Space resource Basically unlimited Limited
Principal functionProvision of opportunitiesfor sellers and buyers to
meet smoothlyProvision of space for sales
C = A * X + B
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For price survey purposes, online shop fees should be evaluated at unit value of transactions.
The surveyed prices are calculated as follows;
P = C / N = (AX+B) / N
Pricing method for “online shop seller fees”
On-line shop seller fees
Number of transactions in
a month
Surveyed Price
c.f. P = C / S = (AX+B) / S
Surveyed Price
Real estate rental
Space
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(b) Extension of “Averaged charge-out rate method”
Custom software services
What is “Averaged charge-out rates?”
Why do we apply “Averaged charge-out rates?”
Advantages and disadvantages
“Progressive completion base” price
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Custom Software Services
Custom Software Services refers to the
development of customized software for
computers, including related research,
analysis and technical support.
*Packaged Software Services is a separate item in the CSPI.
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What is “Averaged charge-out rates”?
Averaged charge-out rates are the charge-out rate for projects in a specified section of respondents.
For instance, at System Solution Section of respondent A, five projects are being carried out.
The price calculation goes as follows.
Client Deadline Number of SE
Sep. 08Bank CSafety inquiry SystemProject III
Sep. 08Bank BSettlement SystemProject II
Project
Sep. 08Bank AInternet Banking SystemProject I
Project IV Mar. 09Bank DPersonnel management System
Apr. 09Bank EExpenditure calculation systemProject V
3
6
2
5
4
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What is “Averaged charge-out rates”?
Jan. Feb. Mar. Apr. May. Jun. Jul. Aug. Sep. Oct. Nov. Dec.
Project V
Project I
Project II
Project III
Project IV
Completionbase
In September, projects I to III are completed. Turnover and man-months for each project are measured in the completion month.“Averaged charge-out rates” are calculated by total turnover divided by total man-months.
Project Turnover Man-months
Project I $100,000 3SEs*3months=9
Project II $300,000 4SEs*6months=24
Project III $500,000 5SEs*9months=45
Total $900,000 78
Surveyed Price = $900,000/78 man-months
= $11,538/man-month
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Long-term, continuous (≈exclusive) contracts have decreased. -- The prices are usually quoted by the monthly rate per SE.
“One shot” (one off) contracts have increased.-- The prices are usually defined as a unit amount of sales divided by the number of man-months.
With conventional charge-out rates, constant quality prices for “one shot” contracts are difficult to measure.
Why do we apply “Averaged charge-out rates”?
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Advantages and disadvantages
Advantages
(a) Supply and demand conditions in the market are reflected flexibly.
(b) The index compiled with averaged charge-out rates tends to move proportionately with
economic fluctuations.
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Advantages and disadvantages
* Ministry of International Trade and Industry
90.0
92.0
94.0
96.0
98.0
100.0
102.0
104.0
106.0
108.0
└ 00 └ 01 └ 02 └ 03 └ 04 └ 05 └ 06 └ 07 └ 08
(2000CY=100)
85.0
90.0
95.0
100.0
105.0
110.0Continuous contractsOne shot contractsIndices of Industrial Production* (s.a., right scale)
(2005CY=100)
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Advantages and disadvantagesDisadvantage: Index fluctuationsIndex fluctuates widely because:(a) Constant quality principle is relaxed due to the limited
availability of detailed data from respondents.
-- Rates for projects in a section is averaged instead of keeping individual project constant.
(b) Charge-out rates are measured at completion month only, due to the limited data availability from respondents.
-- In Japan, larger scale projects with skilled SEs are generally completed and the rates tend to rise at the end of fiscal year.
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“Progressive completion base” price
Jan. Feb. Mar. Apr. May. Jun. Jul. Aug. Sep. Oct. Nov. Dec.
Project V
Project I
Project II
Project III
Project IV
Progressive completionbase
Disadvantage can be resolved as follows:-- Allocating total turnover and man-months equally to each month-- Taking the average of all projects being carried out in a month
“Progressive Completion Base” price
Project Turnover / monthMan-months / month
=Number of SEs
Project I $100000 / 3 3
Project II $300000 / 6 4
Project III $500000 / 9 5
Project IV $300000 / 11 2
Project V $600000 / 9 6
Total $232,828 20
Surveyed Price per month = $232,828 / 20 SEs
= $11,641/SE
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“Progressive completion base” priceWith “Progressive completion base” price, constant quality principle is less relaxed.
Large sample including both completed and uncompleted projects enables us to reduce volatile fluctuations of prices.
Fluctuations of index due to sampling and data availability are addressed.
Respondents are asked to submit the number of working days of each project, additionally. BOJ conducts allocation of period.
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“Progressive completion base” price
80
100
120
140
160
180
200
05/01 02 03 04 05 06 07 08 09 10 11 12 06/01 02
(2005CY=100)
Completion base
Progressive completion base
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End
Gracias!