Cost Analysis in IT - Educause10

Poster Sessions Wednesday, October 13 From 1:30 – 2:30 pm and Thursday, October 14 from 12:00 – 1:00

What’s with the Strange Multi-color Boxes?

About Tag

Microsoft Tag is a new kind of 2D bar code that connects your Internet-capable mobile phone quickly and easily to mobile content such as videos, websites, product information, text, vCards, and other information. Using the camera of your Internet-capable mobile phone you “snap” a Tag that then takes you to the mobile content.

Since poster sessions are viewable during exhibit hours we’re using Tags to provide some additional information and narrative for when we’re unable to be in attendance. Simply download/install the Tag application to your Internet-capable mobile device (it’s free and directions are below) launch the reader that will utilize the camera to read the tags. Depending on the scenario, it will trigger the intended content to be displayed, e-mail to be sent, vCard to be saved, and so on.

How to get the Microsoft Tag Reader

iPhone: Available in the App Store just search for “Microsoft Tag Reader”

All others: From your phone’s Web browser type: http://gettag.mobi

No Camera? (e.g. iPad, notebook, etc.)

You can type in the URL that is provided.

Why Microsoft Tag?

We chose Microsoft’s Tag over other 2D bar codes because Microsoft is a corporate sponsor of EDUCAUSE. However, QR codes are provided as well.

What is A Cost Estimate?The analysis of cost elements of a project proposal or on-going work. It includes verification of cost data, determination and evaluation of elements of costs, and projection of these data to determine the effect on price.

What Is A Cost Methodology?An organized, documented set of practical ideas, proven practices, procedures and guidelines used for determining one or more cost elements of a cost analysis.

What is A Cost Model?A set of mathematical relationships arranged in a systematic sequence to incorporate/formulate a cost methodology(ies) in which cost estimates are derived from inputs. Typically a cost model is in the form of a computer program or spreadsheet.

http://goo.gl/FGND

http://goo.gl/MuFx

ParametricCost Estimating Relationships (CERs)Learning CurveRegressionRatiosComputer Models

Design to Specification “Bottom-up”Design to Budget “Top-down”

http://goo.gl/5xng

Both require extensive analysis of direct and (as much as possible) indirect costsDirect & indirect costs are identified/established through the work breakdown structure (WBS)May utilize/incorporate parametric methodologiesBottom-up is requirements driven whereas Top-down is funding driven

http://goo.gl/lPWx

1.0 Hardware Costs

1.1 Servers

1.2 Storage

1.3 Network Equipment

1.4 Backup

1.5 De-installation/disposal fees

2.0 Software Costs

2.1 Applications

2.2 OS

2.3 Middleware

2.4 Security (NMS, access, etc.)

2.5 Media conversion (tapes)

3.0 Professional services

3.1 Project Management

3.2 Consulting

3.3 Training

3.4 Expenses (travel & per diem)

4.0 Site preparation and implementation

4.1 AC power cabling

4.2 HVAC

4.3 Racking

4.4 Network cabling

5.0 Recurring

5.1 Personnel

5.2 Hardware maintenance

5.3 Software maintenance

5.4 AC power & HVAC

5.5 Insurance

6.0 Miscellaneous

6.1 Parallel operations (maintenance, backfill, etc.)

6.2 Indirect cost burden

http://goo.gl/BXf2

Based upon historical data and statisticsIndustry/use specificStatistically viable (F & T Statistic)

Avg. HD Requests/Business Day: 7.68

Avg. Time (Hrs) to Resolution/Request: 3.25

Approx. Requests/Year: 1,896

Approx. Person Hours/Year: 6,162

FTEs Required for SMO Requests: 4

http://goo.gl/bCIv

System Project Management (SPM)

General & Administrative (G&A)

Average Change Traffic (ACT)

Industry “Accepted”Home Grown

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10

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70

80

90

100

0 20 40 60 80 100 120

Task Repetition

Labo

r (Ti

me)

Competence

Time to Resolution/Completion

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0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

II III IV V VI

Institutional Tier/Class Best FitKnown ERP Implementations

Impl

emen

tatio

n C

osts

($M

)

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Integrated Commercial Off-the-Shelf ERP FTEs - 15Total Annual Personnel Cost = $755KManagement Ratio = 16%

Best of Breed/Home Grown 3GL SystemFTEs - 27Total Annual Personnel Cost = $1.3MManagement Ratio = 33%

http://goo.gl/nWfs

COnstructive COst MOdel (COCOMO)SEER-SEMPRICE-SSoftware Cost Modeling System (COSMOS)

http://goo.gl/mTJd

(PH)AM = (ACT)(PH)DEVContract Modifications OnlySMO Staff Only(PH)AM : Annual Maintenance in Person Hours 2,347(PH)DEV : Development Effort in Person Hours 8,094ACT : Fraction of software that undergoes change during a year 29.00%TBR SMO Staff Only(PH)AM : Annual Maintenance in Person Hours 809(PH)DEV : Development Effort in Person Hours 8,094ACT : Fraction of software that undergoes change during a year 10.00%All Modifications To DateSMO Staff Only(PH)AM : Annual Maintenance in Person Hours 6,891(PH)DEV : Development Effort in Person Hours 23,763ACT : Fraction of software that undergoes change during a year 29.00%TBR SMO Staff Only(PH)AM : Annual Maintenance in Person Hours 2,376(PH)DEV : Development Effort in Person Hours 23,763ACT : Fraction of software that undergoes change during a year 10.00%

http://goo.gl/rq5h

The discounted value of a project’s life cycle benefits is compared to the discounted value of its life cycle costsQualitative vs. QuantitativeDiscounted Cash-flow (DCF) Methods

Net Present Value (NPV)Internal Rate-of-return (IRR)

http://goo.gl/M2B0

“Useful Life” of System“Build vs. Buy”

FieldingDesign Development Sustainment

1/24/2004

Acquisition Costs(Off-the-Shelf)

Sustainment

1/22/2004 - 12/31/2009"Off-the-Shelf" System

7/1/1999 - 1/22/2004“Home Grown” Systems

http://goo.gl/WZTp

TCO can and usually does vary dramatically against TCATCO is more relevant in determining the viability of any capital investmentVendors typically focus on either acquisition or maintenance costs but the two are considered together for TCO

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Whether or not to pursue a projectSelect among alternatives with different benefitsSelect among competing projects in ITSelect among competing projects in and outside of IT

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$0$500,000

$1,000,000$1,500,000$2,000,000$2,500,000$3,000,000$3,500,000

Year #1 Year #2 Year #3 Year #4 Year #5

NPV of Two Technologies/Methodologies

Methodology A Methodology B

5 Year Cumulative Costs for Methodology A vs. Methodology B

Yr #1 Yr #2 Yr #3 Yr #4 Yr #5 NPV

Methodology A 697,500 1,274,100 1,861,767 2,460,722 3,071,192 $2,817,244

Methodology B 1,365,000 1,569,750 1,774,500 1,979,250 2,184,000 $2,064,151

http://goo.gl/3VPT

Ratio of resources gained or lost on a project relative to the amount of resources investedChoice of investment alternatives can be essential to high ROILeveraging Economies of Scale Results in a Greater ROIAppreciating vs. Depreciating ROI

Many Indirect Cost Savings-24x7 Helpdesk

-Library

-Hosting

-Professional Development

Campus Delivered vs. Collaborative Online ProgramCampus Collaborative

Course Development Costs $3,000 $3,0001x Payment $6,000Online Fee/Course 40 40Reimbursement Rate/Course 100% 70%Number of Students 20 20Marginal Return/Course $40 $28Total Revenue $800 $6,560

ROI -73% 119%

http://goo.gl/fIuf

Distance Education ProgramsCampus Delivered vs. Collaborative OnlineCampus Program 2 3 4 5 6 7 20 21 22 23 24 25 26Course Development Costs $3,000Online Fee/Course 40 40 40 40 40 40 40 40 40 40 40 40 40 40Reimbursement Rate/Course 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%Number of Students 20 20 20 20 20 20 20 20 20 20 20 20 20 20Marginal Return/Course $40 $40 $40 $40 $40 $40 $40 $40 $40 $40 $40 $40 $40 $40Total Revenue $800 $1,600 $2,400 $3,200 $4,000 $4,800 $5,600 $16,000 $16,800 $17,600 $18,400 $19,200 $20,000 $20,800

ROI -73% -47% -20% 7% 33% 60% 87% 433% 460% 487% 513% 540% 567% 593%Collaborative ProgramCourse Development Costs $3,0001x Payment $6,000Online Fee/Course 40 40 40 40 40 40 40 40 40 40 40 40 40 40Reimbursement Rate/Course 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70% 70%Number of Students 20 20 20 20 20 20 20 20 20 20 20 20 20 20Marginal Return/Course $28 $28 $28 $28 $28 $28 $28 $28 $28 $28 $28 $28 $28 $28Total Revenue $6,560 $7,120 $7,680 $8,240 $8,800 $9,360 $9,920 $17,200 $17,760 $18,320 $18,880 $19,440 $20,000 $20,560

ROI 119% 137% 156% 175% 193% 212% 231% 473% 492% 511% 529% 548% 567% 585%

Don’t start with a predetermined conclusionClearly define problem with realistic baseline, all reasonable alternatives, and benefits and costs measuresMonetize benefits and costs as much as possibleUse credible dataDeal appropriately with risk and uncertainty

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Time Scope

Cost

Time Scope

Cost

Figure A

Figure B

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Time Scope

Cost

Time Scope

Cost

Time Scope

Cost

Figure A

Figure C

Figure B

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PROJECT RISK

SOFTWARE

BUDGET

MANAGEMENT

OBJECTIVES

TECHNOLOGY

Consistency

Competing Agendas

Requirements

Unrealistic Expectations

Bad Assumptions

Requirements

Focus

Business

Technical

Skill Mix

Re-skilling

Recruit & Retain

Provisioning

Control

Project Scope

UnderstandingRequirements

Budget FitViability &Value Add

Benefits

Expected Life

Cost ofOwnership

Project Costs

Investment Return

BusinessRequirements

Change Management

Training &Documentation

Integration & Upgrades

Complexity

Stability &Liability

Liability

Software Releases

Support

Maintenance &Upgrades

Disaster Recovery

Stability

Scalability

Life Cycle

Readiness Assessment

Functional

Technical

Politics

Communication

Collaboration

Structure &Strategy

Governance

Senior Management Support

Functionality

Customization

http://goo.gl/Fi1P

Business Case Requires Cost AnalysisJudgmentOptimism BiasStrategic MisrepresentationQualitative Issues Accompany CostRisk Needs to be Evaluated

http://goo.gl/pnIt

The Society of Cost Estimating and Analysis http://www.sceaonline.net/

The International Society of Parametric Analysts http://www.ispa-cost.org/

Data & Analysis Center for Software https://www.thedacs.com/databases/url/key/4/152

Author’s Pearltree http://pear.ly/woxj

Edwin T. Cornelius, III, Ph.D.presidentcollegiate project services a cornelius & associates company“helping higher educationmanage critical technology projects”_____________________________________________________________________631-g harden street | columbia, sc 29205phone 877-454-1290 | fax 803.254.0183www.collegiateproject.com

Thomas S. DanfordChief Information OfficerTennessee Board of Regents _____________________________________________________________________1415 Murfreesboro Pike, Suite 350 | Nashville, TN 37217Phone 615-366-4451 | Fax 616.366.3979www.tbr.edu

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