IT Service Cost Accounting: A Case Study of Server Virtualization in Metropolia University of Applied Sciences
Kaljunen, Jani (2017)
Kaljunen, Jani
Metropolia Ammattikorkeakoulu
2017
All rights reserved
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:amk-2017111316952
https://urn.fi/URN:NBN:fi:amk-2017111316952
Tiivistelmä
The purpose of this study was to determine the total costs of a server virtualization service in Metropolia University of Applied Sciences (UAS). With 16 700 students and 1 000 staff members, Metropolia is the largest UAS in Finland. This study was commissioned because no thorough IT cost analysis had been conducted before, and understanding on the cost-effectiveness of UAS’s IT service production was needed. Currently a vast majority of UAS’s end user IT services run on virtual servers and thus server virtualization was chosen as cost object of this study.
A case study research method was utilised in this study, because it enabled an in-depth analysis of the production environment and the cost structure, a prerequisite for a valid and reliable presentation of the product cost. The qualitative data in this study included best practices and activity analysis, while quantitative data consisted of IT resource costs and usage volumes. The conceptual framework of this study consisted of a hybrid costing system, where multiple costing methods were utilized. The share of indirect data center network costs was relatively large and thus activity-based costing was used to ensure proper cost assignment. After having the knowledge of the costs associated with the current production environment, a preliminary cost benchmarking was carried out. The product cost calculation involved uncertainties due to data availability; therefore, a sensitivity analysis was performed. Finally, economies of scale associated with expansion of production volume were discussed.
The primary outcome of this study consisted of the cost of a virtual server in different scenarios, along with a presentation of the production environment cost structure. The cost level of UAS’s production seemed competitive, although no final conclusion could have been made without a more detailed market study. Most of the uncertainties detected had no practical impact on the product cost. However, choices made regarding activity-based costing and cost drivers used to allocate data center network costs had a significant effect on product costs. The findings suggested that joint IT service production in higher education sector seem to be economically viable; especially, if production volumes can be increased to adequate levels.
The author recommends that the information on costs and cost-effectiveness is utilized in decisions regarding investments, budgeting, pricing and outsourcing. IT cost chargeback based on costs and resource usage should be considered. The cost of other major IT services should be determined and benefits of activity-based management considered.
A case study research method was utilised in this study, because it enabled an in-depth analysis of the production environment and the cost structure, a prerequisite for a valid and reliable presentation of the product cost. The qualitative data in this study included best practices and activity analysis, while quantitative data consisted of IT resource costs and usage volumes. The conceptual framework of this study consisted of a hybrid costing system, where multiple costing methods were utilized. The share of indirect data center network costs was relatively large and thus activity-based costing was used to ensure proper cost assignment. After having the knowledge of the costs associated with the current production environment, a preliminary cost benchmarking was carried out. The product cost calculation involved uncertainties due to data availability; therefore, a sensitivity analysis was performed. Finally, economies of scale associated with expansion of production volume were discussed.
The primary outcome of this study consisted of the cost of a virtual server in different scenarios, along with a presentation of the production environment cost structure. The cost level of UAS’s production seemed competitive, although no final conclusion could have been made without a more detailed market study. Most of the uncertainties detected had no practical impact on the product cost. However, choices made regarding activity-based costing and cost drivers used to allocate data center network costs had a significant effect on product costs. The findings suggested that joint IT service production in higher education sector seem to be economically viable; especially, if production volumes can be increased to adequate levels.
The author recommends that the information on costs and cost-effectiveness is utilized in decisions regarding investments, budgeting, pricing and outsourcing. IT cost chargeback based on costs and resource usage should be considered. The cost of other major IT services should be determined and benefits of activity-based management considered.