2. COST ACCOUNTING CONCEPTS FOR IS ORGANIZATIONS › 2.1 Essential Characteristics of an IS Accounting

2.1 Essential Characteristics of an IS Accounting

Experience has shown that the three most important
characteristics of an accounting system are consistency in
charging, equity in the cost distribution method, and
simplicity of approach.
 
 
CONSISTENCY IN CHARGING
 
Consistency in charging means that a unit of work processed
with the same data activity has a consistently repeatable
charge that does not vary because of the multiprogramming
environment.  This characteristic is by far the most
important feature of a computer accounting system.  The two
factors that must be consistent are resource measurement and
resource pricing.
 
Consistent resource measurement can be achieved to an
acceptable degree only if multiprogramming, multiprocessor,
and paging factors are taken into consideration.  More
importantly, such factors as elapsed time cannot be used as a
charging base because the amount of time a job resides in the
system cannot be measured with consistent or repeatable
results.
 
Consistency in resource pricing presents a completely
different problem.  Consistency in resource pricing occurs
when the charge for a resource such as CPU time remains the
same throughout the year and does not vary on a monthly basis
because of a fluctuation in data center utilization.
 
This pricing approach is a radical accounting departure for
many organizations.  Traditionally, most organizations have
operated on a break-even policy, using the month as the
accounting cycle.  This accounting policy is unacceptable for
users, because they cannot analyze past monthly expenses
against one another or project future costs.  The accounting
dilemma that is a result of this zero-break-even policy is
illustrated by the following example:
 
    The accounting department of company XYZ was charged
    $25,000 for its use of the firm's computer system in the
    month of January.  For the month of February, the
    accounting department projected at least a $5,000
    decrease from the January costs because its workload
    would decrease by at least 20%.
    However, the firm's computing center used a monthly
    zero-break-even policy.  In January, the accounting
    department's usage represented 10% of the computing
    center's workload for that month.  Since the center's
    total costs for January were $250,000, the accounting
    department was billed 10% of that amount, or $25,000.
 
    In February, however, even though the accounting
    department's usage of the center decreased, so did
    everyone else's usage.  For February, the center's total
    costs were again $250,000.  The accounting department's
    usage represented 20% of ALL computer center usage for
    February, so the bill issued to the accounting department
    was $50,000, instead of the $20,000 they expected.
 
In order to have an accounting system that approaches user
acceptance, the monthly break-even policy must be eliminated
and standard rates instituted for extended periods of time.
 
 
EQUITABLE COST DISTRIBUTION
 
Due to industry concepts such as economy of scale,
multiprogramming, and timesharing services, users have become
aware of the need for equitable charging.  Equity in computer
accounting means charging users for exactly the resources
used by each unit of work, no more and no less.
Additionally, accounting systems should not directly charge
users for any system cost that the users cannot control.
 
An inequitable accounting system causes significant
repercussions.  Consider a system that is charging for jobs
according to the amount of CPU time that the job has used.
Observe two different jobs and how they consume resources:
 
o JOB A is CPU-bound and uses 200K of memory, thirty minutes
  of CPU time, and one printer.
 
o JOB B is both CPU and I/O bound and uses 700K of memory,
  thirty minutes of CPU time, and three tape drives.
 
Both Job A and Job B used thirty minutes of CPU time.  Based
on the CPU charge concept, these jobs are charged exactly the
same amount, yet they consumed totally different levels of
system resources.
In this example, it is obvious that an inequity exists in
resource measurement, but, like the problems of consistency,
equity is a function of both resource measurement and
resource pricing.  Equitable resource measurement quantifies
how a job has used each available system resource.  Equitable
pricing ensures that the charge for resources is not
disproportionate to the cost.  An example of inequitable
pricing is a case where resources such as tapes, direct
access, storage, and CPU time are charged out, but the CPU
time has a disproportionately higher price than the other
three resources when their actual costs are considered.
Under this accounting policy, the CPU-bound job is charged
more than its fair share, while the I/O bound job is charged
less than its fair share.
 
 
SIMPLICITY OF APPROACH
 
A system that ensures consistent and equitable resource
costing is inevitably complex in the required operating
system interface and in the accounting process itself.
However, users do not have to be aware of the complexity.
Instead, to encourage user acceptance, the accounting system
should be packaged simply.
 
All too often, accounting systems for computer usage have
been plagued by packaging deficiencies.  The terminology of
the operating system is often used in the chargeback
statement to the user (for example, $1.35 per 1000 EXCPs).
Or, instead of using stated rates, many operating system
accounting routines have used complex algebraic algorithms.
To satisfy the typical business structure, algebraic formulas
should not be used to express an accounting function.
Algebraic expressions or complex mathematical relationships
often hinder user understanding and acceptance.
 
If a meaningful accounting system is desired, you must
consider three objectives:  consistency, equity, and
simplicity.  An effective system ensures that the
requirements of both management and personnel are met.