Rethinking Cost Analysis in the Era of Cloud Computing and Emerging Tech

Have you thought about cost analysis in the era of cloud operation, combined with other emerging technologies? There is an orthodox way of considering cost analysis: Costs can be fixed, variable or some combination of the two. However, when it comes to analyzing IT costs, traditional cost analysis in the era of emerging technologies is inadequate.

 

The entire cost element must be taken into account: from where the cost occurs to what the cost consumes. An enterprise not only has to consider emerging technologies, but also has to consider the current legacy system. An inevitable, necessary cost exists in the file service required to produce what an enterprise needs.

You have the groupware function relating to the workplace and project activities, and the firewall function to avoid malicious access and protect data, and their updated plans.

On the other side, a for-profit-enterprise has to earn a profit. A company may have to restructure its home pages and address new systems, possibly with newly emerging technologies like RPA, AI and so on.

The whole cost consists of three categories:

  • The first category involves the fixed costs to maintain the current computer system. There are costs for the hardware and software, middleware, network facility and applications to communicate with employees and outside partners (using, for example, Office 365® and its automatic updating systems), and maintenance of a cloud subscription.
  • The second category includes the inevitable costs to earn profit, such as restructuring a new site where customers access and select goods to purchase in order to gain an advantage against competitors. Here, a cost will vary depending on how much development and re-structuring is needed. A certain company may decide to invest huge amounts in RPA to reduce future cost. Another company may migrate the current on-premise environment to the cloud to pursue reduced costs. These are neither fixed costs nor variable costs, but the costs should be planned for in the budget. It is crucial to analyze the gap between the planned budget and costs consumed.
  • The third category deals with a contingency and risk response costs. I have seen many companies and projects budget for contingencies. For example, 10 percent of the fixed costs often is planned as a contingency cost or the risk response cost. In a sense, this is a semi-fixed cost, not a true fixed cost.

Written by Katsumi Sakagawa, CISA, CRISC, IT consultant, excerpted from the ISACA Now Blog