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A Costing Model for Project-Based Information and Communication ...
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3. Keep the model as simple as possible. “The creator should not be the primary user, and the design should respond to others' needs.” 4. Document the model.
Consider evaluating the budgetary impact of "buy versus build," which has become important as institutions seek to reduce expenditures. A quick assessment to outsource e-mail to a low-cost host might look appealing, but a decision made without fully understanding the impact on internal activities and their costs is based on belief, not facts. “Knowing how much it will cost to undertake an initiative, either in dollars or in foregone opportunity, makes it possible to ascertain the supply cost of any initiative, compare choices, and use traditional financial metrics in making a go/no-go decision.” We created a model that calculates the economic cost of an ICT system. It does this by identifying the building blocks or components of a system and determining the cost of such components. Specifically, we address the following questions:
We can thus derive the total cost of our SIS as well as its individual subcomponents. The results provide useful information for comparing alternate systems, estimating value for money and benchmarking against other institutions, and evaluating system enhancements or modifications. “Knowing what something costs provides critical knowledge for understanding the economic implications of a given action; it does not preempt or prohibit the action.” Using Costict to Derive a System's Cost
Example: “A quick assessment to outsource e-mail to a low-cost host might look appealing, but a decision made without fully understanding the impact on internal activities and their costs is based on belief, not facts.” In this article we seek to unravel a key aspect of this complex puzzle: how to determine the cost of ICT resource use in order to provide the information necessary to make an effective decision. Knowing how much it will cost to undertake an initiative, either in dollars or in foregone opportunity, makes it possible to ascertain the supply cost of any initiative, compare choices, and use traditional financial metrics in making a go/no-go decision.
Benefits “It further allows for capacity planning through aggregating all activities.” System cost identification
Having accurate cost information leads to improved allocation of institutional resources. “Obtaining relevant costing data requires identifying the main cost drivers of ICT activities, determining system component costs, and using an appropriate methodology to ascertain the total cost of any ICT initiative.” The costing model used by Athabasca University aims to provide the total costs of any system configuration, allowing more accurate estimates of resource requirements and returns on investment.
Obtaining relevant costing data requires identifying the main cost drivers of ICT activities, determining system component costs, and using an appropriate methodology to ascertain the total cost of any ICT initiative. “The costing model used by Athabasca University aims to provide the total costs of any system configuration, allowing more accurate estimates of resource requirements and returns on investment.” Resource allocation is a problem for all organizations, including educational institutions. Information and communications technologies (ICT) in particular fare poorly in this arena, with many institutions finding effective decision making severely hampered by a lack of accurate information on ICT costs. The lack of information beyond the direct purchase and licensing costs of a system has led to event costing — the process of evaluating an ICT service on its installation cost rather than on the total cost of ownership.1 This approach makes resource budgeters wary of ICT proposals. IT departments have damaged their own reputations by providing overly optimistic estimates for ICT projects that then failed to deliver — or budgets along the lines of "take the first number estimated, double it, then double it again." In general, ICT has the reputation of offering a poor return on investment (ROI) and being a poor risk for ongoing budgetary commitment.
A lack of accurate information on costs for information and communications technologies hampers effective decision making on ICT proposals. “Having accurate cost information leads to improved allocation of institutional resources.” Obtaining relevant costing data requires identifying the main cost drivers of ICT activities, determining system component costs, and using an appropriate methodology to ascertain the total cost of any ICT initiative.
The costing model used by Athabasca University aims to provide the total costs of any system configuration, allowing more accurate estimates of resource requirements and returns on investment. “The lack of information beyond the direct purchase and licensing costs of a system has led to event costing — the process of evaluating an ICT service on its installation cost rather than on the total cost of ownership.1” To reverse the generally negative reactions to proposed ICT projects, we need to provide decision makers with accurate and timely information on the cost of any given configuration. Then traditional asset allocation metrics can apply, and ICT will take an equal footing with its more mature competitors, such as facilities management, in competing for scarce resources.
An essential first step for effective planning, budgeting, and funding of ICT resources is providing good cost information. Failure to have a strong grasp of ICT economics will, at best, result in a misallocation of resources supporting the activities of the institution. At worst, it may result in failing to serve stakeholders appropriately. “In addition, a business-case ROI analysis requires valid and repeatable projections.” Example:
Each of the system components identified above in Schedule 4 can be either a single component or a subsystem with elements that require further evaluation. The granularity is contextual and should be proportionate to the usage required. As a general rule, the granularity should be inversely proportional to the size of a given system. The larger the system, the finer the granularity. Thus in a complex ICT infrastructure serving a large user base with a student population of 30,000, the degree would be an order of magnitude higher than for a smaller institution with a student body of less than 5,000. The model is therefore scalable and applicable at any level of operation. “Ascertaining a system's total cost of ownership requires analyzing its support requirements.” The more data that are available regarding employees' activities, the better will be the ability to assign resources to the various support activities. In the absence of hard data, brainstorming and anecdotal evidence provide a good first approximation.
The system should focus on the management of activities (services) in such a way that contributes to the continued improvement of products and services provided to customers and to the continuous control and reduction of costs. It is crucial to identify all of the cost components associated with providing a given service or set of services. Direct costs which can be tracked directly to the activity or service, such as labor, materials used on the job, and equipment used in the process of performing the work are easily identified. Less obvious are those costs which are shared by a set of related services, such as hardware maintenance contracts for equipment used to provide multiple services. Overhead costs, such as utilities, general supplies and equipment, administrative and support staff and associated costs which cannot be directly charged or tracked to a specific activity or service, must also be apportioned across all service categories. “This capability provides a basis for comparison with alternate technologies and a useful tool for evaluating economic performance and investment decisions such as outsourcing.” The AUIT model was developed in stages, each building on the previous one:
By using the model outlined here, the organization gains the ability to accurately assess the cost of any given system configuration. The level of detail will depend on the granularity of the systems mapping undertaken. This capability is very useful when comparing the cost of systems or making a build-versus-buy decision. Note, however, that the costing model does not produce a definitive cost estimate comparable to the marketplace. The context provides an economic cost of systems, not a purchase price. “In addition, we can use the costing model to help in scenario planning, such as when replacing any system component or viewing the impacts of an overall system switch.” Project Estimates and Costing
The Approach “A further difference in our model is the inclusion of indirect costs, albeit with some subjectivity in determining them, which yields a more complete accounting of the total cost of ownership.” Limiting the calculation to direct costs ignores two significant cost drivers: