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EXPENSE CATEGORIES

The next step in developing an enterprisewide network cost-allocation system is to assign all expenses into a manageable number of nonoverlapping categories. Most data center managers can develop a matrix of network resource categories that has a direct correspondence to their host data center resource assignment matrix. If there is no existing host data center expense matrix to use as a model for defining the network cost allocation expense matrix, the data center manager can begin by grouping the basic categories of network expenses. Exhibit 1 shows a basic network expense assignment matrix. 

There are two important considerations. First, each of the categories in the expense matrix must correspond to budget line items that will be forecasted and tracked by a business enterprise financial controller or accountants assigned to audit network costs. Second, expense line items must be defined so they are clearly separated from all other items and there is limited opportunity to assign expenses to the wrong category or, even worse, duplicate direct and indirect costs.

Although the data center 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, data center 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.

Exhibit 1. Basic Network Expense Assignment Matrix
Resources
Expenses Stations Servers Linkages Storage Telecom
Fixed Costs
Equipment
Facilities
Insurance
Interest
Maintenance
Salary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable Costs
Consultants
Database Support
Help Desk
LAN Support
Paper
Supplies
Telecom Support
Vendors
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Surcharges
Diagnostics
Disaster Recovery
Documentation
Planning
Prevention
Tuning
Training
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Costs          

Data center 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 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 data center 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 the business enterprise customer rather than the other way around.


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