Magazine article The CPA Journal

Cost and Operational Considerations in Assessing Alternative Computer Options

Magazine article The CPA Journal

Cost and Operational Considerations in Assessing Alternative Computer Options

Article excerpt

In the present dynamic business environment, the decision as to what type of data processing system best suits the needs of your company has become very complex.

The hardware options available to companies today include proprietary systems, e.g, the IBM AS-400, open systems for Unix, or a totally integrated PC network. The specific nuances of the system hardware alternatives would be gathered by dealing with an appropriate licensed vendor representative. In many cases the final choice on hardware implementation will be based on software alternatives which are available on a specific industry basis. In assessing the hardware alternatives, many complex financial and operating variables must be considered.

The following information may simplify the task of the financial executive or the outside accountant in advising his or her respective management or client in analyzing the proper course of action which should be pursued in choosing the computer installation which best serves the needs of the company.

The cost considerations which will influence the choice of the appropriate system alternatives will involve the following:

Specific One-Time Costs. These costs are incurred once during ownership. Typical are the actual acquisition costs of hardware, software, installation, packaged software customization, site preparation, etc. One method for creating comparable estimates across different vendors' offerings is to compare leases with comparable terms and conditions using the monthly lease fee as the basis for comparison. If the lease is a true fair market value lease, the lessors must compute their estimates of residual value at termination.

Unpredictable One-Time Costs. Indeterminate one-time costs are primarily for items such as loss on disposal of present equipment, lease termination charges, etc. These costs can vary greatly depending on timing. For example, early termination charges on a lease may not be known until the lessor disposes of the system.

Specific one-time costs are to be expected in evaluating system alternatives; whereas unpredictable one-time costs should be considered but based on the facts at hand they may not be a significant factor.

Recurring Fixed Costs. Recurring specific costs are for items such as hardware and software maintenance, monthly charges for leased communications lines, software support charges, etc. Many of these cost elements are Feed over the life of the equipment. Others can be escalated. Maximum escalation factors should be used.

Recurring Variable Costs. Variable costs are usually the single largest element of cost in the equation. They include factors such as-

Operations (systems programmers, console/peripheral operators, data entry staff);

* Program development (analysts, programmers);

* Maintenance;

* Consumables (tape, paper, ribbons, toner, etc.);

Outside purchased services (contractors, package customization, integration services, etc.); and

* Utilities (electrical power).

The operational factors which are necessary in order to build the total cost of ownership model will include the following considerations:

Evaluation and Selection. When purchasing a system, a number of choices must be made. These selections include

* Application package vendors

* System software

* Integrator (if necessary)

* Manufacturer

* Utilities

Maturity in the applications and system software industry means less effort will be required to evaluate integration of utilities, performance claims, etc. Site visits are more easily arranged and claims of various vendors can be more easily verified.

In order to maximize your performance, the ultimate decision as to which hardware to choose is usually based on what software is available on an industrywide basis.

The choice of software alternatives should be based on what package will answer the basic needs of your company and require only a moderate amount of customization. …

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