by Ian S. Hayes

The first part of the economic analysis concentrated on quantifying the benefits of your proposed wireless solution. This second part involves the opposite side of the analysis -- calculating costs. These costs represent the investment that your company must make to reap the previously identified benefits.

Whereas many benefits are intangible, most costs are concrete, identifiable and directly attributable to the proposed solution. The two primary challenges in calculating costs are making sure that all cost categories are identified and that individual estimates are accurate.

The scope and type of solution will heavily influence the calculated costs. While it is possible to make some generalizations (for example, an infrared network is less expensive than a satellite network), wireless pricing is fluctuating rapidly and continually as the market evolves. Accordingly, this article does not offer specific costing information or data, but emphasizes cost issues and considerations instead. The cost categories in this article, while not addressing all possible situations, are nevertheless a useful starting point for your own cost analysis.

Determining the cost of a wireless solutions has come obvious and simple components, and some subtle and more complex ones. For example, it is straightforward to compute total wireless device costs by multiplying the number of devices needed by the per unit price. On the other hand, estimating the impact of learning curves on short-term productivity is an educated guess at best. Hidden and unexpected costs exist, as is true for all projects. Listed below are some common issues and considerations that you are likely to encounter as you attempt to estimate the costs of your wireless solution.

• Ballpark vs. Detailed Estimates

You can produce costs at various levels of detail. Typically, company policies dictate how detailed your estimates must be. A "ballpark" estimate that provides a high-level sizing of costs may be acceptable for "go/no go" decisions, while a more detailed tally may be needed for the project's budget.

• Who Pays the Costs?

In the simplest situation, a single organization will bear all project costs. In reality, many solutions cross organizational boundaries, and costs must be tracked and assigned to the parties responsible for paying them. For example, shifting functions from the back office to the field service organization reduces costs incurred in the office and creates extra costs for the service group. Similarly, deploying a new system in the sales department may wind up increasing user support effort and overhead in the IT organization. In some situations, other, external parties may pay for components of the solution. A university may require students to buy their own PDAs to access curricula information. Although the students' overall costs do not affect the university's budget per se, it is a factor for the students, whose acceptance is critical to the ultimate success of the endeavor.

• What Are the Real Costs?

A difficult aspect of estimating project costs is pinpointing the true cost of a given item. Computing people costs is a good example. How much does a person's time truly cost? Options for estimating a person's cost include straight salary, departmental chargeback rates, fully burdened salary and average charge rate for billable employees. Will small increments of time be charged, or will they be absorbed within normal operations? Total cost of ownership studies by analyst organizations such as the Gartner Group show that the true organizational cost of a tool such as a laptop PC is far higher than the purchase cost of the hardware and software. Complex and subtle costs abound, such as the productivity losses that ensue when experienced users are asked to mentor novice users. Perhaps the best approach to deal with these issues is to follow your company's accepted cost estimation practices where possible. As you determine "true" costs, think about how those costs will be used. For example, straight (unburdened) salary rates may be acceptable when comparing internal employees but unacceptable for comparisons with the billing rates of external consultants.

• Precision and Variance

Different types of costs will have different precisions, an important point to note as you product your cost justification. Precise expenses, such as hardware costs, are unlikely to vary significantly from their estimates. Conversely, application development costs may vary by 20% to 50% or higher from their initial estimates. Where precision is suspect, you may choose to use a high estimate, a cost range, or provide a best case, most likely case and worst case scenario, in accordance with your organization's policies.

• Depreciation and Expense

The components of your solution will have different accounting treatment depending on their type and cost, and your company's policies. Significant purchases of hardware and software are usually depreciated over their useful lives, while other costs are expensed as incurred. The accounting treatment of these items will affect cash flow and income statement calculations of your project, as well as the company's financial statements. Seek guidance from your financial organization to determine the proper accounting treatment for each of your project's components.

• One-Time and Recurring Costs

Projects always have a mixture of one-time costs, such as hardware purchases and deployment expenses, and recurring costs, such as software maintenance and network service fees. Consider whether any identified one-time costs may recur. For example, if the solution has an expected lifespan of 5 years, are PDA upgrades or replacements anticipated in that timeframe? Spread the cost of fixed, recurring fees across the life of the project, and include provisions for potential rates increases where appropriate. Some recurring fees, such as network service charges, may vary over time, making it difficult to accurately estimate them over the life of the project.

• Source of Cost Information

When using pricing information, consider the sources. Take care when using vendor-supplied figures other than straight product prices. Ensure that vendors include all potential costs in their estimates, and that prices are not "low-balled" to get in the door only to be increased once the project has reached the point of no return. The same caveat applies to industry cost statistics.

Hardware represents the largest, most immediate cost for a wireless solution. Project costs quickly mount when large numbers of devices are deployed, even when the per unit cost is relatively small. Estimating hardware costs is straightforward once you have determined the solution architecture and overall scale of the project. Because a given solution may use many different hardware components, deployed in many places, one of the biggest risks is to accidentally miss one or more components or accessories, or forget to equip an important, but peripheral, area. Hardware costs tend to fall into the following discrete categories:

• Client Devices

Wireless device expenses include the unit cost of each device along with upgrades, accessories and supporting peripherals. End-user devices such as PDAs and laptops may have several add-on items such as spare batteries, cards of additional memory and network interfaces, carrying cases, scanners, printers, keyboards and synching cradles. Telemetry and telematics solution costs include tags, transceivers and maybe even mounting brackets. To calculate overall costs, you will need the cost per component and the number of each type of component required. For high-volume purchases, volume discounts may apply. When calculating the number of devices needed, be sure to include development and support organizations' requirements as well as those of the end users. Many companies also opt to keep an inventory of spare devices and accessories on hand to replace missing or damaged units.

• Information Infrastructure

If your company will host the wireless solution, one or more servers will be needed to operate application software and provide mobile integration. Consider whether extra servers are needed for back-up or to support development and support organizations.

• Network

Depending on the type of network(s) selected, your solution may need a variety of network equipment such as routers, hubs, access points, transmitters and transceivers. Consider how many pieces of equipment are needed to cover all supported locations adequately.

Software costs can vary from relatively small for single-purpose solutions using generic packages to very high for complex, custom solutions tightly integrated with back-office systems. Software requirements tend to fall into the following areas.

• Device software

Some device software is included in the price of the device. The device operating system, browser and PIM software, for example, are typically bundled with the device. If additional software is required, it is usually licensed and priced on a per device basis.

• Application Software

Application software costs vary widely based on the type and source of the software. Custom-created applications are usually the most expensive. Packaged software, generally purchased or leased, consists of separate license and maintenance fees. If an application is rented from an application service provider (ASP), software rental costs are usually rolled into the monthly service fee. Software vendors can be quite creative with their pricing schemes and discount policies, so check with the vendor rather than relying on list prices for your estimates. Be forewarned that packaged software may also require customization and/or integration, which the vendor may perform for a fee if your IT organization opts not to handle the job. Account for these costs separately in the cost justification.

• Infrastructure Software

A wireless solution may rely on a variety of network and server software and utilities to support operations. This software may include network utilities, operating systems, security software, databases and middleware. Pricing models may vary, but software is typically licensed by hardware platform or number of users, and consists of both license and maintenance fees.

• Support Tools

Support tools include the routines, systems and utilities to manage and support the wireless solution. Backup and recovery software, device management tools, network monitors, and help desk support tools are a few examples. These tools are licensed in a manner similar to infrastructure software.

• Development Tools

If your solution relies on a custom-developed application, customized packaged software, and/or integration with corporate applications, then software development tools will be needed. This category includes tools for analysis, coding and testing, as well as configuration management and project management. Generally, these tools are priced per seat, and may involve a one-time purchase or a combination of license charges and maintenance fees.

Projects do not run themselves. Every project needs a management structure to track progress, monitor budgets, control risks, resolve issues and respond to changes. A small project may rely on a single project manager while large projects may utilize fully staffed program management organizations. In calculating project costs, be sure to include specific costs for the required level of management. Use historical information from your IT department to determine the appropriate level of staffing and time commitment for a project of your size.

For other than the most standalone and straightforward solutions (such as a WLAN or a simple e-mail application), your company will incur development and integration effort and expense. These expenses are not restricted to IT efforts. Changes to business processes require analysis, design and documentation. Internal staff, consultants or both may be used to perform these activities. The best and most accurate method of gauging these expenses is to ask the individuals who will lead the respective tasks to supply estimates. If your company intends to use outside consultants, they will generally provide cost estimates as part of their proposals. If the project will rely on internal resources, use your company's cost justification policies for determining the proper cost per resource.

• Business Process Redesign

This category includes the effort expended to redesign company processes to support and exploit the efficiencies offered by the proposed solution. Activities may include analysis of existing processes, identification of potential process changes and the design of new processes. The expenses associated with rolling out new processes are covered under deployment.

• Application Development

These costs include analyst and developer effort to analyze, design, code, test and deploy applications. If developers are unfamiliar with the solution's technologies, additional time and budget must be allocated for training and education.

• Application Integration

Integration costs are similar to application development costs, however, since changes affect production applications and systems, separate estimates may be required from the development teams supporting the affected applications.

• Documentation

Documentation is needed to support training and the rollout of the solution. Materials may be needed to support application and device use, policy changes and new business processes. Documentation may be provided in printed form, as a help feature within the application, and/or over a corporate Intranet. Costs include writing, review time and production expenses.

A major expense bucket for wireless solutions is deployment costs. Deployment costs mount quickly for large solutions that involve major process changes or where users are dispersed over a wide geographic area. These costs fall into a range of areas, and are best estimated by the individuals responsible for delivering particular items.

• Installation Charges

This category covers charges for physically setting up networks, installing servers and other hardware, mounting devices, and loading and configuring infrastructure and support software.

• Device Preparation and Set-Up

Preparing devices for distribution to users may involve pre-loading and testing software and applications beforehand, a significant effort when large numbers of devices will be deployed.

• Support Infrastructure

Prior to deployment, the user support infrastructure must be in place. The effort to establish this infrastructure may be as simple as training existing help desk personnel, or as extensive as setting up, equipping and training an entirely new organization.

• Communications/Awareness

Every project, an especially large ones, benefit from the use of a communications person or group to build awareness, excitement and support as the solution approaches rollout. Costs in this category include staff time and supporting collateral.

• Training

User training is a vital aspect of any solution deployment and a critical success factor for acceptance. Accordingly, be sure to request sufficient funds for a quality education effort. Costs in this category include training development, production of supporting materials, training staff time and expenses, and attendee time and expenses.

• Travel

Travel expenses can become quite significant for solutions deployed over a wide geographic area. Travel expenses may be incurred for evaluation and pilot efforts as well as for installation and training activities.

The previous cost categories focus primarily on one-time charges. A number of other cost categories will recur regularly throughout the life of the project, and you must factor them into the cost justification.

• Maintenance Fees

As mentioned above, some hardware and software components will have annual maintenance fees of up to 12 to 18% of their license costs to cover support and upgrades.

• Lease Fees

If hardware or software is leased or rented rather than purchased, the leasing vendor will charge periodic costs, typically on a monthly or quarterly basis.

• Service Charges

Service charges are usually usage-based and cover items such as network airtime, e-mail usage, access to ASP applications, etc.

• Support Costs

One of the largest long-term costs for a wireless solution is user support which includes help desk operations, regular backups and recovery of application data, device management, software and device upgrades, and replacements for lost or damaged devices. Your company's IT organization can provide help in estimating appropriate cost allocations for each area.

• Application Maintenance and Enhancement

A solution that relies on custom-developed applications, customized packaged applications, or integration with corporate applications, will inevitably require changes, calling for a separate budget for long-term maintenance and enhancement. The size of this budget will depend on the complexity of the application(s) and the predicted level of change. The developers of the application should include an estimate of future maintenance effort as part of their development estimate. If external consultants develop the application, they may be willing to provide ongoing support on a fee basis.

A wireless project may also incur a number of intangible and difficult to quantify costs. Short-term productivity losses as users adapt to a new solution, distraction from getting a new device, disruptions in routines are a few examples. Whether you decide to identify and include these potential impacts in your cost justification depends on your organization's policies and practices.