2. COST ACCOUNTING CONCEPTS FOR IS ORGANIZATIONS › 2.4 Transaction Accounting › 2.4.2 Implementing Transaction Accounting › 2.4.2.4 Charge-out Systems

2.4.2.4 Charge-out Systems

Once you have the components to collect usage statistics
(resource measurement systems), compute processing costs
(cost accounting systems), and identify and account for the
transactions processed (transaction logging facilities), you
are ready to consider the charge-out process.

This section assumes that standard fees are derived by adding
the data center's cost ("cost" defined as direct cost plus an
overhead burden factor) and a pricing markup.

Using the processing cost developed by the cost accounting
system and the number of transactions, you can determine the
direct cost of production.

In the case of the Payroll Check Generation Application, if
the processing cost was calculated to be $389.45 for a
three-month period, and in that period of time 236,188 checks
were produced, it could then be derived that the direct cost
was $1.65 per 1000 checks.  When a 106% overhead burden
factor is added, the cost per 1000 checks increases to $3.40
($1.65 + 1.06($1.65)).  With an 18% pricing markup, the final
fee per 1000 checks is $4.00 ($3.40 + 0.18($3.40)).

The result is the objective of transaction accounting:  A
standard fee ($4.00) applied per transaction (payroll check)
for a long enough period of time to ensure accounting
stability (one year).

The above example illustrates what appears to be a rather
simple situation.  In many cases, transaction accounting may
actually be this simple to apply.  However, two processing
patterns, as related to transaction accounting, should be
considered in great detail:

o The length of the measurement cycle that is used to arrive
  at the "true" processing cost

o The nonlinear costs of application systems as they relate
  to the volume of transactions

LENGTH OF A MEASUREMENT CYCLE

One of the inherent dangers of a period measurement approach
is that a periodic measure may not collect all the resource
activity that is required to derive the average usage for the
event.  Consider an IMS transaction (Accounts Payable Scan)
that is used to analyze all of the accounts payable entries
in the Accrued Accounts Payable database.  Because this
database will vary in size with the time of the month (larger
in the beginning and smaller at the end, directly after
payables processing), low, normal, and high processing levels
for an event must be measured.  Indeed, the resource
measurement system must measure the total cycle over a period
of at least one full month to establish a true cost for the
Accounts Payable Scan.


APPLICATION SYSTEMS HAVING NONLINEAR COSTS

Many application systems have processing attributes that
result in either increasing or decreasing costs per
transaction as the transaction volume increases.  Costs may
decrease as an application system takes advantage of
economies of scale.

Unfortunately, increases in cost are more typical.
Generally, as transaction volume increases, the processing
costs increase more than proportionately; in other words, on
a nonlinear basis.  This situation can be caused by
programming architecture, including internal table handling
overflow, database expansion, string manipulation, list
processing, index file overflows, etc.

The net result of either the increase or the decrease is that
the transaction accounting standard fee per transaction must
be slightly modified.  The recommended approach is to provide
step level standard charges based on transaction volume
ranges.  Consider the case illustrated below:

    COBOL compilations with the source statement as the
    transaction:

    00001 - 00400 standard charge per statement is $0.03
    00401 - 01000 standard charge per statement is $0.05
    01001 - 50000 standard charge per statement is $0.10
The step level standard charges have a great similarity to
pricing techniques seen in many other facets of business.
Consider the similarity to the photocopying business when
examining a typical price schedule for a photocopier.

    Each copy is one transaction.

    001 - 010 Standard charge per copy is $0.10
    011 - 100 Standard charge per copy is $0.05
    101 - 300 Standard charge per copy is $0.025
    301 - 400 Standard charge per copy is $0.02
    401 - 999 Standard charge per copy is $0.01

 Options include collating @ $0.25 per hundred copies and
 three-hole punch @ $0.30 per hundred copies.

Notice that in the copier price schedule there is a basic
cost for handling the transaction (that is, copy) and
additional standard charges for options.

The example below applies to COBOL compilations that use the
source statement as the transaction.  Source listings and
cross-reference listings are options that increase the cost
of a compilation.  Thus, it is advantageous to have option
pricing for compilations.  The following table illustrates a
potential set of charges:

   Source          Basic Cost
   Statements    per Statement

      1 -  400       $0.03
    401 - 1000       $0.05
   1001 - 5000       $0.10

   Additional charges per option:

   SOURCE       XREF       DMAP         PMAP
   $0.005       $0.020     $0.005       $0.015

If a program was compiled that had 300 source statements and
requested a SOURCE listing and cross-reference list (XREF),
the total charge would be $16.50 ($9.00 base charge and $7.50
for the two options).

The benefit of this approach is that the charges are now
directly associated with the selected options.  You can
estimate the cost before execution.