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Although the manager should consult with the financial controllers who audit the network before preparing the network cost assignment matrix, the data center manager must usually define how the resource allocation procedures are to be administered, which include assumptions about the methods for measurement and assignment of enterprisewide network resource use and billing obligations. The proposed network resource cost allocation matrix should also be reviewed with the prospective network customers. In addition, the anticipated categories of host-lined data network expenses should be reviewed by the business enterprise organizational management before any pricing strategy or rate structure is determined for the enterprisewide network cost chargeout.

RATE DETERMINATION

To expand enterprisewide business information services and allocate host system costs across interconnected distributed networks, managers must change their fundamental view from a centralized focus to a decentralized one. This change in focus must include a reorientation to accommodate market-driven as well as demand-driven operations planning.

Communications managers are increasingly in a position of competition with alternative outside vendor sources for every product and service that has traditionally been a vital part of their exclusive business organizational domain. It is therefore necessary for data centers to begin defining their pricing structure on not only what chargeable resources there are but also how each of the resources is charged to help achieve strategic market advantage over the competition.

Data centers can no longer simply apply a straight distribution formula to recover costs but must also factor in potential future costs associated with the risk that new technology will be available at lower cost and that business enterprise users may bypass the data center. Unless the manager is also an expert in both financial management and risk management, this usually means an increasing emphasis on leasing or subcontracting most new services and resources at short-term premium rates, until a sufficient economy of scale can be achieved by bundling enterprisewide data network resource demands to reduce risks as well as costs.

In some cases, host-linked network domains may be large enough to achieve the break- even economies of scale quickly, especially if sufficiently large proprietary data stores are involved. In most cases, however, the process will be more like a traditional tactical penetration to achieve a dominant share of mature, nongrowth market segments, also known as buyer’s markets. The management of the central site host data center must go to the business enterprise customer rather than the other way around.

If a data center cannot package centralized services as superior to the competition, not all costs may be recovered. Furthermore, the ultimate determination of what constitutes a chargeable resource is not simply a data center expense that must be recovered but is now also an information network service or resource that a business enterprise customer must want to buy.

The manner of rate determination is directly determined by the network resource allocation strategy and chargeback system cost-control objectives. The most basic consideration determining the rate structure is whether data center management has decided to fully recover network costs on the basis of actual use or to distribute indirect costs of a network resource pool evenly among all of its users. This consideration applies to each network resource category as well as to each category of network customer.

As a basic rule of thumb, the decision of whether to recover costs on the basis of actual use or to distribute costs evenly among business enterprise users is largely determined by the extent to which a resource is equally available for shared, concurrent use or is reserved exclusively for use by an individual network user. If the resource is shared, the rate structure is based on forecasted patterns of use, with sufficient margin to absorb potential error in the forecasted demand as well as the potential probability of drop-off in demand for network services. On the other hand, rate structures can be based on underwriting network capital equipment or financing service-level agreements, which provide greater security for full recovery of all costs from an individual business enterprise customer on the basis of annualized use charges, with provisions for additional setup fees and disconnection fees to recover unforeseen and marginal costs.

As a matter of practical reality, the decision on which of the two methods of rate determination to use must also take into account the availability of dependable enterprisewide network use measurements to support direct line charges. It is also critical to first determine whether the costs that must be recovered will vary depending on the level of use (e.g., the pass-through costs of data transmission over a public telecommunications carrier line) or will be fairly well fixed regardless of whether they are fully used at all times when they are available (e.g., the on-call network technical support cost of labor). It is also important to attempt to define all assumptions on which each resource cost recovery strategy is based; this identifies all the conditions that would necessitate a change in the rate structure and exactly how each cost will be recovered in the event of major changes in enterprise information network use or underlying rate strategy assumptions.

The degree to which the enterprisewide network chargeback pricing can be easily understood by the customer largely determines how effectively all costs are recovered. It is also critical that business enterprise clients be aware of the goals of each rate decision. Depending on how responsibly they use the network, each individual enterprise network customer can help or hurt overall efficiency of the LAN as well as all interconnected LANs and the host.

SUMMARY

Opportunities exist to broaden the data center’s customer base through identifying and establishing chargeback methods for host-linked enterprisewide information networks. These new categories, however, require more complicated pricing methods. Increasing economies of scale make network chargeout a valuable strategy for the communications manager and staff. Managers should:

1.  Initially focus on services based on equipment with short paybacks and high compatibility, such as modems, terminals, printers, and a help desk phone line to vendors.
2.  Begin viewing their function as more than service bureau for data processing. Instead, the data center manager should position the data center as a resource for where expertise can be found in the organization.
3.  Identify and track all network services and resources, including cable, linkages, workstations, servers, storage, communications, and LAN administration support.
4.  Establish, if possible, the organization’s own Internet gateway.
5.  Develop a matrix for defining network cost allocation expenses, to assign all expenses into nonoverlapping categories.


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