Introduction A TECHNOLOGY COST MODEL FOR SERVER INFRASTRUCTU

Introduction A TECHNOLOGY COST MODEL FOR SERVER INFRASTRUCTURE MANAGEMENT

A TECHNOLOGY COST MODEL

FOR SERVER INFRASTRUCTURE MANAGEMENT

Prepared by Russell A. Rogers, Bank of America

32nd Annual International Conference of the Computer Measurement Group, Inc.

December 3-8, 2006

Reno Nevada USA

Today, a method used for budgeting server growth is linear gross estimation. The method is simple, a manager applies the percentage increase in business growth to the total number of servers they currently have in production. However this method can create significant distortions.

This paper reviews an approach to defining a technology cost model using principles from Activity Based Costing. The model is designed to give managers the data they need to make better decision regarding server budgets.

Introduction

Today, the method many managers use for budgeting server growth is linear gross estimation. The method is simple, a manager applies a percentage increase in business growth to the total number of servers they currently have in production. For example if it is determined that growth in product sales for company XYZ, will increase 10% over the next 12-months, then the increase in server capacity should be 10%. The problem with this method is that it assumes all costs scale in the same way, and it assumes current server utilization is near, or at full capacity. In large enterprises this method can end up inflating server capacity. Managers accept these risks because they lack the information needed to make better choices.

At Bank of America, a pilot project is under way to develop and use a technology cost model that could improve fiduciary responsibility and create better forecasts for server growth. The pilot is utilizing a relatively new accounting technique called, Activity- Based Costing (ABC), to generate a cost per transaction for each product or service. In technology terms, this means defining a model that ties server cost to resource utilization and business transaction volume. The goal of the pilot project is to evaluate how well this new cost model can help business managers plan and grow their server infrastructure, increase average server utilization, and reduce the rate of server growth across the enterprise.

This paper will discuss the cost model developed, and it will discuss how this model is being used today to inform business managers about the cost and the value of their server infrastructure investment.

Activity Based Costing

Developed by Robin Cooper and Robert Kaplan at the Harvard Business School in the 1980s [1,2,3], ABC is an accounting technique that assigns costs to products, or services based on the utilized capacity of resources used to deliver a product or service to a customer. For example, a resource can be a stock trader who buys and sells company stock. ABC can determine the cost related to the process of buying or selling a company stock.

ABC begins by identifying the product or service being sold to a customer. In this case, it is the buying and selling of company stock. Then ABC identifies the key business activity that drives the product or service. Again, in this simple example there are 2-activities, a stock buy and a stock sell.