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Exercise 48: Cost allocation and breakdown by element

Revert to the WiMAX-DSL02 model again: close the Results program, and whichever model you currently have open in the Editor, and then re-open WiMAX-DSL02.

Save the model as WiMAX-DSL48

User data

First we are going to apply the same fix to the User Data for the Video service as you did earlier in Exercise 44: Working Capital.

  1. Change the input TV Channels to be an interpolated series with values 0 in Y0 and 15 in Y1.

Note: the video service is not actually launched until 2007 (Y2), but the channels may be required in the preceding year to set up and test the video server at the exchange.

Save and run the model

Resource operating charge

  1. Draw the graph Resource Operating Charge for all resources, with all elements on the same graph.

This chart is guaranteed to match the network result aggregated over all resources.

Service operating charge

  1. Draw the graph Service Operating Charge for all services, with all elements on the same graph.

The aggregate results are nearly the same, except in 2006 when the demand from services is still zero and the only cost allocated is for the fixed backhaul bandwidth for the incoming TV channels.

Cost allocation

If a service requires multiple resources, STEM automatically accumulates the respective costs in order to calculate the total cost of provision. If multiple services have a common requirement for the same resource, or if a transformation aggregates several separate demand inputs, then STEM allocates costs between the respective drivers, by default, in proportion to the respective demand. These calculations occur without you having to do anything, so the relevant results are immediately available ‘out of the box’.

Service allocated cost breakdown by individual resources

  1. Go back to the Editor and set the input Cost Breakdown = Opaque (Data menu/Other Details), and re-run the model.
  2. Now you can draw the graph Service Allocated Operating Charge.
  3. At the first Choose element to draw prompt, select the Video service.
  4. Select all resources and all elements on the same graph at the second Choose element to draw prompt.

This shows the respective costs from each of the resources which contribute to the original, aggregate Service Operating Charge result for the Video service which we graphed above. Note that the results have been consolidated on an Annual basis (Consolidation menu/Year).

  1. Now draw Service Allocated Operating Charge per Conn for the same combination of elements.

Note: the y-axis in the graph above has been adjusted to show more detail; it shows the costs which must be covered for an individual subscriber.

  1. You can also draw Service Allocated Operating Charge for all services and just one resource, say Backhaul.

This immediately answers the question from Exercise 44: Working Capital about what was causing the Backhaul cost in year zero (and now year one) by showing which service is responsible for the initial costs.

More directly, there is another graph, Service Allocated Used Capacity, which shows the allocation of used capacity directly.

  1. Draw Service Allocated Used Capacity for all services and just the Backhaul resource.

Note: you should be careful if you draw Allocated Used Capacity across multiple resources: whereas allocated costs are always measured in the same currency units (EUR in this model), the unit of capacity may be quite different for different resources.

STEM only displays elements in the second prompt for these allocated-cost graphs where a logical connection between the elements exists. You can use this as a useful check for stray connections in a model!

Fully allocated, used and direct costs

In all of the results above, we have looked at the fully allocated cost of equipment, where the cost of slack capacity is included in the allocation so that all costs are ‘paid for’. In a competitive context, it can be helpful to consider only the cost of an efficient network, i.e., one optimised such that there is no slack capacity.

STEM results such as Maintenance Cost or Operating Charge are understood to be fully allocated except where otherwise stated. In addition there are ‘used’ and ‘direct’ equivalents, which identify the component of such results arising from the used capacity of equipment. These two only differ where there is a chain of dependent resources, and so now we switch our attention to the DSL access service, and the DSL shelf and DSLAM chassis resources.

  1. Select Draw New… from the Graphs menu and then select the following results of type Services/Resources: Direct Operating Charge, Operating Charge and Used Operating Charge.
  2. In the first Choose elements to draw dialog, select DSL access, and then in the second dialog choose DSL shelf and DSLAM chassis. Deselect the option All Elements on One Graph.

For the DSL shelf, you will see that the used result reflects the underlying growth in subscribers, being generated in proportion to the used capacity. The direct result is the same as the used result for this element.

In order that both the Direct and Used Operating Charges are visible on this graph, the line style of the Used Operating Charge has been modified. Right-click on the relevant line on the chart and select Change Series Pattern from the context menu. The Change Line Style dialog is displayed, from which you can select the line style/colour you prefer.

For the DSLAM chassis, the used result shows the gradual increase in utilisation of the chassis as extra shelves are added, but now you can see that the direct result factors in the utilisation of the intermediate DSL shelf, and so more faithfully tracks the incremental cost of adding one subscriber to the network.

  1. Select Draw New… from the Graphs menu again and this time choose Direct Operating Charge/Conn, Operating Charge/Conn and Used Operating Charge/Conn, for DSL access and the DSLAM chassis.

You will see the familiar reduction in total cost per subscriber as utilisation increases, whereas the direct cost results are constant (if your graph looks different, note that the y axis above is set to a maximum of 2.0).

As well as used and direct operating charge, you will see used and direct equivalents for depreciation and maintenance cost. Why do you think there is a Direct Operations Cost result, but no Used Operations Cost?

Things that you should have seen and understood

Resource costs, service allocated costs, cost breakdown by individual resource
Cost Breakdown, 2D Selection, Used Operating Charge, Direct Operating Charge

 

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