LAN/CAN Financials

        Cost accounting
                why?
                what and how
        Cost recovery Approaches
        Charging
                why?
                What?
                How?

Why Account?

        to control consumables
        to understand stress points
        to evaluate performance
        to evaluate improvement
        to educate demand
        to recover costs

Why Not Account?

        a true free good
        no way to effectively account

What to account?

        logins
        connection time
        consumables
        leasables
        bandwidth consumed
        support (response time, mtct)

Cost-accounting: Types of costs

        one time
        stair-step (plant funds)
        continuing

Marginal vs average cost

Average cost is the total cost or providing some level of service divided by the total amount of that service provided.

Marginal cost is the cost of providing additional units of service, given that some level of service is already being provided.

The difference boils down to fixed costs

Industries with average cost close to marginal cost

        Landscaping
        Web sales
        Construction

Industries with average cost >> marginal cost

        Airlines
        Hotels
        Telecommunications

Establishing the cost basis

        cards
        jacks and wiring
        closets
        internal building network costs
        backbone costs
        external drainage
        administration
        desktop software
        servers
        maintenance
        R&D
        user support
        engineering and installation

Doing a Cost/Benefit Analysis

        issues in quantifying costs
        issues in quantifying benefits
                on what metrics
                for whose benefit - individual or group

Fudge factors for cost accounting:

        Amortization periods
        Cost of purchase vs cost of replacement
        Cost of R&D
        yachts

Where's the money?

...now that we know what it costs.

Cost recovery options

        General tax
        Endowment or cross subsidy (then a miracle happens)
        Charging
        Key issue - what parts of the cost basis is recovered through which

scheme?

Why charge?

        The price of a good should reflect its true incremental or marginal cost
        to recover costs
        to ration scarce goods
        The Tragedy of the Commons
        to shape behavior
        because you can

Why not charge?

        encourage use of a service
        infeasible
        benefit is a classical common good
        endruns exist
        large, fixed costs
        plentiful supply/renewable resource
        culture and values
        the cost of administering the charging mechanism
        network externalities

Classical approaches to cost recovery

        Per use fees - linear or curved
        Subscriptions
                per seat
                simultaneous use
        Role of subsidies

What can be charged?

        ...now that we know we will charge?
        service and support
        content
        access and wastables
        consumables

What are the possibilities for fees?

        Modems
        Jacks
        Services
        Desktop software
        Usage
        Special or enhanced services

Usage charging

        number of transactions
        number of IP addresses
        total packets or bytes
        class of port

Confusing factors for usage charging

        time of day
        threshholds and stairsteps
        input or output

Charging for network connectivity

        per building (per speed)
        per IP address
        per IP address * size of host
        per service accessed with passback
        per jack

Tools:

        SQL queries to the relational database on network use
        SQL queries to various servers on their users (or failures, etc)
        ask network devices for byte or packet counts
                on routers, drivers, concentrators
        forecast needs
        forecast billing
        real-time queries
        statistical reports

WAN Accounting

        What are the costs
                local loop or backhaul
                port charges
                usage charges
                        capacity or traffic
                        cloud versus leased line

What are the cost recovery alternatives

        by traffic ($.50 Mbyte)
        stairstep charging
                cloud - metering and bursts
                leased line

Costs for Wans

        Buy Sonet, add atm or IP
        Buy ATM service, add IP
        Buy IP