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Application Cost Models

The Professor was recently asked about Application Cost models. 

While ITIL does not speak specifically about “Application Cost Models,” there is information about how to create a service cost model using ITIL’s Financial Management process.  From ITIL’s perspective, an application is one part of an end-to-end service.

Developing a cost model involves:
  1. Identifying all costs attributed to the service (hardware, software, salaries, accommodations, external services, transfer costs (e.g., from other internal units)
  2. Determining which costs can be directly tied to the service
  3. Deciding how to fairly apportion indirect costs (e.g., infrastructure, technical staff time)
  4. Adjusting the total to allow for unabsorbed overhead costs (e.g., administrative or managerial salaries, building/accommodation costs such as a data center or IT office space)
A spread sheet can be used to break each cost down into a unit cost.  Overall cost for the application (or service) can then be calculated based on usage.

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