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5.8 Development of a Cost Model

A capacity planning methodology requires the identification of major sources of cost as well as the determination of how costs vary with system size and architecture. Costs are categorized into startup and operating costs. Startup costs are those incurred in setting up the system, while operating costs are the annual expenses incurred to maintain the system and provide upgrades in hardware and software to avoid obsolescence, performance degradation, and security vulnerabilities. Startup costs apply to hardware, software, infrastructure, and initial installation charges. Operating costs are related to hardware and software maintenance and upgrades, personnel costs, training, telecommunications services, and consulting fees.

The highly distributed nature of LAN and client/server environments is frequently responsible for a lack of knowledge of the costs incurred in maintaining these environments. A survey of 250 companies showed that fewer than 5% of U.S. corporations quantify their expenditures of PCs and LANs [4]. The same study indicates that costs associated with LAN-connected PCs range from $5,000 to $10,000 per user, making PC/LAN usage the largest undocumented IT cost in most corporations. In general, client/server costs can be divided into four major categories: hardware costs, software costs, telecommunications costs, and support cost. Hardware costs include the cost of

  • client and server machines along with their disks and other peripherals, memory, and network cards

  • disk storage arrays

  • routers, bridges, and intelligent switches

  • backup equipment

  • uninterrupted power supplies (UPS)

  • cabling

  • vendor maintenance and technical support

Software costs account for the cost of

  • server and client network operating systems

  • server and client middleware (e.g., TP monitors)

  • database management systems

  • HTTP servers

  • mail processing software

  • office automation software

  • business applications

  • antivirus software

  • security and intrusion detection software

  • software development

  • vendor software maintenance and upgrades

Telecommunication costs include charges for

  • WAN services (e.g., Frame Relay, X.25 networks, T1, T3, ISDN)

  • Internet Service Providers

Support costs include

  • salaries, fringes, and benefits of all system administrators, database administrators, LAN, and Web administrators

  • help desk support costs which includes salaries, fringes, and benefits of help desk staff, and their infrastructure (e.g., computers, servers, and phones)

  • training costs for support staff (includes travel and time off for training courses)

  • network management hardware and software

  • performance monitoring software

More than one survey [2], [4] indicates that personnel costs account for a large percentage|between 60 and 70%|of client/server costs. One can be as detailed as required when accounting for costs. This increases the accuracy of the cost assessment at the expense of the time and effort needed to obtain all needed information. Alternatively, one can use more aggregated cost models that account for most of the cost elements with a reasonable degree of accuracy. When some of the cost elements are not known precisely, one can use Rules of Thumb (ROTs) to obtain a first-cut approximation to the cost model. Examples of cost ROTs are: hardware and software upgrade is 10% of the purchase price per year, system administrator costs lie between $500 and $700 per client per month, training costs range from $1,500 to $3,500 per technical staff person per year, 40% of personnel costs are in the resource management category, 40% are in applications development and maintenance, and 20% in other personnel [3], [4].

An MS Excel spreadsheet, called Cost.XLS, included in the accompanying disk, provides a template for computing startup and operating costs for C/S systems.

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