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Saad Haj Bakry, PhD, CEng, FIEE
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Economic Evaluations
Saad Haj Bakry, PhD, CEng, FIEE
PRESENTATIONS IN NETWORK MANAGEMENTPRESENTATIONS IN NETWORK MANAGEMENT
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Objectives / Contents
Cost / Expenditures
Benefits / Revenues
Background in Economics
Economic Evaluations
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Background in Economics
Evaluation Methods
Change of Value
Cost & Benefits
Basic Principles
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Basic Principles Symbol Factor Criteria
C Cost / Expenditures
“Cost Reduction” (maintaining requirements / management)
B Benefits / Revenues
“Maximizing Benefits”(efficient use / charging policy)
E Cost-Effectiveness: E = B / C
t time Investigation time scale. Break-Even time: E = 1. Optimum Life: Maximum E
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Types of Cost / BenefitsIssue Type Explanation
Estimation Problem
Tangible Can be quantified directly and assigned a monetary value: e.g. cost of equipment.
In-Tangible
Difficult to quantify and given monetary value: e.g. staff frustration
Operation / Time
Recurring Continue to occur through the life of the project: e.g. maintenance cost
Non-Recurring
Usually occur at the beginning of the project life and do not occur again:
e.g. initial investment.
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Change of Value (with Time)
Factor ExplanationReference
Time / Year
t = 0 Reference time (year) for the evaluation of real worth values
Proportional Change of
Value
(positive or negative)
Effect of “inflation” Effect of “borrowing” Combined Effects: “discount rate”
Change:
v(t)
Real Worth v(t) = v RV(t) = V(t) / (1+v)t
V(t)
V(t)1)V(tv(t)
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Evaluations: Cash Flow
-300
-250
-200
-150
-100
-50
0
50
100
Year(0)
Year(2)
Year(4)
Year(6)
Year(8)
Year(10)
Year(12)
Year(14)
Cost
Benefits
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Evaluations: Investment State
-300-250-200-150-100
-500
50100150
Year(0)
Year(2)
Year(4)
Year(6)
Year(8)
Year(10)
Year(12)
Year(14)
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Evaluations: Efficiency
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Year(1)
Year(3)
Year(5)
Year(7)
Year(9)
Year(11)
Year(13)
Year(15)
Efficiency
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Cost / Expenditures
Cost Management / Policy
Place
Network Operation
Network Structure
Staff
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Network Structure
Access / Services Sub network:
Access Points Servers
Communications
Communications Sub network:
Switches Channels
Installation / Testing
Consulting: Planning (Legal, Technical,..) / Design
Capacity / BW = Cost
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Place / Staff
TrainingLand
Building
Offices / Furniture
Lighting
Air-Conditioning
Water Cooling
Salaries
Other Staff Benefits
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Network Operation
Monitoring & Control
Preventive Maintenance
Help-Desk: Fault Repair
Cost of Other Management Functions…
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Cost Management / Policy
Contracts / SLAs: Service Level Agreements
Distribution of Cost / Criteria
Cost Reduction / Resource Sharing
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Service Level Agreements: SLAs
Users: Associated with Different Internal Department
Internal SLAs
Internal IT Department: Computer Services / Intranet
External SLAs
Resources Suppliers Services Providers
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Cost Distribution: Organization Intranet
Centralized• Cost is paid by “top management”
• Top level “overheads”
Distributed
• Cost is distributed among the departments of the organization
• “Distribution Criteria is needed.
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Cost Distribution: Criteria
Criteria DescriptionShares Cost is distributed according to specified
weights of shares
Size Cost is distributed according to size: “employees” / “space”..
Profit Cost is distributed according to “profit” or “loss”
Use Cost is distributed according to traffic “generation” / “flow”
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Cost Reduction
Equipment: Buy / Lease / Rent
Operation / Maintenance /
Staff: Considering SLAs
(Specialized Companies)
Sharing Resources
Balancing Demands and
Resources
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Sharing Resources
Examples:• Long Distance Channels
• Management Software
• Information Services
• Staff
Advantages:Cost Sharing
Less Cost per Department
Capacity Utilization Cost Effectiveness
Problems: Increased Management Complexity / Control & Security / Performance Level
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Benefits / Revenues
ManagementOf Revenues
Dimensions of Benefits
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Dimensions of Benefits
TimeSaving Time
Increasing Productivity
GeographySaving Movement
Saving Space
Form: Enhancing Quality / Supporting Management Efficiency / Better Security
PROPER UTILIZATION
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Management of Revenues
Tariff Policy Services Competitiveness Busy Period Issues
Management Cost v. Revenues Public Services of
Non-Urban Areas
Future Development: Cost of Expansion / Upgrading / Replacement
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Conclusions
Cost / Expenditures
Evaluations: Use of Economic Principles
Benefits / Revenues
Interaction
Time / Progress
Efficient Management
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References General Network Planning, ITU-T
Telecommunications Management: Operation & Management of Networks, National Computing Centre (NCC) Training, UK.
R. Jamal-Aldeen, S.H. Bakry, A. Nouh, “Analysis of the cost-effectiveness of information networks with applications”, International Journal of Network Management, Vol. 100, No. 2, pp.91-101, March / April 2000.
Economic Evaluations