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INTERNATIONAL JOURNAL OF NETWORK MANAGEMENTInt. J. Network Mgmt 2000; 10:145–156

Analysis of the cost-effectiveness of information

networks with applications By Rafiq Jamal-Aldeen, Saad Haj Bakry

Ł

and Adnan Nouh

This paper presents a methodology for the analysis of the cost-effectivenessof information networks over a period of time. The cost-effectiveness isconsidered to be associated with use-dependent and use-independent costsand benefits. Copyright © 2000 John Wiley & Sons, Ltd.

Introduction

The use of information networks is rapidlyincreasing at both the public level andthe private level.1,2 Various organizations

associated with banking, health care, and otherfields are building their own private networks.3,4

These networks have cost, on the one hand,and they produce benefits, on the other. Inthe available literature various books, researchpapers, and manuals have addressed differentnetwork cost and benefit issues.5 – 9 One recentlypublished paper10 emphasizedthe tangible benefits

of networks by providing an analytical method fortheir evaluation that takes into account networktechnology and services, and network utilizationand performance. This paper aims at extending theprevious paper to provide a more comprehensivemethodology that considers both tangible benefitsand tangible costs, and accordingly evaluates thecost-effectiveness of information networks.

The paper has two main parts. The firstis concerned with the cost-effectiveness evalua-tion methodology; the second is associated withusing the methodology for investigating the cost-

effectiveness of an ‘Inter-Banking’ network. Themethodology is described in terms of both theprinciples upon which it is based, on the onehand, and the procedure that uses the principles toprovide cost-effectiveness evaluation steps, on the

other. The case of the Inter-Banking network con-siders three practical applications associated withdata, voice, and video services over different net-working technologies of lower and higher speedsincluding ATM.

Evaluation Methodology

—Basic Principles—

The proposed cost-effectiveness evaluationmethodology is based on the following three main

principles:

ž The first principle is concernedwith providinga comprehensive view of thetangible costs andtangible benefits of information networks sothat cost-effectiveness is well defined.

ž The second principle is associated with givingattention to the change of value accordingto time. Two types of change need to beconsidered: change related to keeping thevalues at theirrealworth at a specific referencetime, and change related to the actual increaseor decrease in costs and benefits.

ž The third principle is concerned with usingthe network within its performance limits.This limit is related to the utilization of the busiest link of the network, which dependson the link capacity and traffic flow; and it

Rafiq Jamal-Aldeen, Saad Haj Bakry and Adnan Nouh tench in the Department of Electrical Engineering, College of Engineering, King SaudUniversity, Riyadh, Saudi Arabia.

Ł

Correspondence to: Professor Saad Haj Bakry, Department of Electrical Engineering, College of Engineering, King Saud University, Riyadh,Saudi Arabia.

Copyright© 2000 John Wiley & Sons, Ltd.



146 R. JAMAL-ALDEEN ET AL.

is also related to the traffic delay throughthe link.

The above principles have been formulatedmathematically in Tables 1 through 3. Table 1identifies the cost-effectiveness factor consideringuse-dependent and use-independent tangible costsand benefits associated with different time scales,types, services, and parties concerned. Table 2formulates the change of value for maintainingvalues according to their real worth, and for actualchange of value. Table 3 gives the evaluationof busy hour traffic flow through the busiestlink, considering performance. The table alsoconsiders the level of use, and the servicedtransactions according to the acceptable busiestlink flow.

—Evaluation Procedure—

The evaluation procedure uses the above princi-ples to evaluate the cost-effectiveness of networks.The procedure has two main phases:

ž The first phase is concerned with identifyingthe case study, or the network for which thecost-effectiveness evaluation is needed.

ž The second phase is associated with thepractical evaluation of the cost-effectiveness.

The first phase has the following set of steps thatidentify the case study considered

ž STEP 1 is concerned with identifying thenetwork structure, and the acceptable traf-fic according to the busiest link performance

Issue Consideration Cost Benefit

Indices 0 t ! T Time in years

0 x ! X Type of cost Type of benefit

0y

! Y Type of service. Example: y D 1 (data); y D 2

(voice); y D 3 (video)

0 z ! Z Not considered Party concerned.

Example:z D 1 Organization

z D 2 Customer

Use N t , y Number of transactions for service (y ) during year (t ). This

dependence factor can be related to the demands, network capacity

and performance

Per transaction uc t , x , y ub t , x , y , z

t , x , y , z

For (t ) t , x , y , z UC t , x , y D N t , y . UB t , x , y , z D N t , y .

uc t , x , y ub t , x , y , z

Use For (t ) t , x , y , z IC t , x , y IB t , x , y , z

independence

Total All t , x , y , z AC t , x , y D UC t , x , y AB t , x , y , z D UB t , x , y , z

C IC t , x , y C IB t , x , y , z

All t AC t D

x

y

AC t , x , y AB t D

x

y

z

AB t , x , y , z

All t D 0 ! T AC T D

T

t D0

AC t AB T D

T

t D0

AB t

Cost t D 0 ! T E D AB T /AC T

effectiveness

Table 1. Basic terms for the evaluation of the cost effectiveness of information networks

Copyright© 2000 John Wiley & Sons, Ltd. Int. J. Network Mgmt 2000; 10:145–156



THE COST-EFFECTIVENESS OF INFORMATION NETWORKS 147

Issue Factor Description

Evaluation t Time variable given in years and ranges betweentime-scale (0) and T

t D 0 Time of initial investment, when the network

components are obtained and installed

t D Time when the accumulation of costs and benefits

achieves maximum E

Real worth V t Value at time t

value v t D v The average annual real worth change proportion

(costs & for V t

benefits) RV t The real worth of V t with reference to time t D 0

RV t D V t /1 C v t

Change of g t D

g The average annual change proportion of RV t value CV t CV t D RV t Ð1 C g t

(costs & D V t [1 Cg /1 C v ]t

benefits)

Evaluation cp t Parameter of change

of change cp D 1 Cg /1 C v

CV t CV t D cp t ÐV t

Table 2. Factors concerned with the evaluation of time scale, real worth, and change issues

Issue Factor Description

Network L Network traffic load during the busy hour (bps)

busy hour F Network traffic flow during the busy hour (bps)

use F i Traffic flow through link (i ) (the busiest link) duringthe busy hour (bps)

Use ofservice (y )

n y Number of (y ) service transactions during theaverage busy period (hour)

M y The amount of information that need to betransferred per [y ] transaction (bytes)

k y The proportion of traffic for [y ] service

Performance C Channel capacity (bps)

U Acceptable channel utilization (occupancy)

F i D U .C

D Normalized time delay

D D 1/1 U for variable message length

D D 2 U /2.1 U for fixed message length

Total use Q t Equivalent number of busy hour use for year t

Servicedtransactions

N t , y 450.Q t .k y /M y .F

Table 3. Factors associated with the evaluations of the network use, considered acceptable busiest linkflow at the busy hour





principle given above, and explained inTable 3. Further details on this step are givenin reference 10.

ž STEP 2 is associated with identifying theacceptable use of the network services in termsof the number of acceptable transactions of the different services, during the busy hour,as given in Table 3.

ž STEP 3 is related to identifying the use levelof the network services during a year. Thisis taken in terms of the equivalent numberof acceptable busy hour use and the numberof serviced transactions per year as given inTable 3.

The second phase has the following set of stepsthat lead to evaluation of the cost effectiveness.The steps are given in the following, consideringthe above sequence:

ž STEP 4 is concerned with the evaluation of cost-effectiveness versus time, and the level of use. This is based on the evaluation of benefitsgiven in Table 4 and of cost given in Table 5.Both cost and benefits and consequently costeffectiveness include use-dependent and use-independent elements and are related to time.The period of time at which cost-effectiveness

reaches its maximum value would be theoptimum life of the technology used.

ž STEP 5 is associated with the evaluation of thecost-benefits break-even state versus the levelof use considering the time of use to be that of theoptimum life of thetechnology considered.This step is directly associated with the resultsof the previous one, and with Tables 4 and 5.

ž STEP 6 is concerned with the relative evalu-ation of networking technologies for the casestudy under consideration. The evaluationconsiders the maximum cost-effectiveness of the technologies versus the level of use.

Applications

—The Case Study Considered—

The evaluations methodology presented abovehas been applied to a typical ‘Payment Inter-Banking’ network. The network interconnects 11 banks, via an Inter-Banking Center according toa star topology. Each bank has its own customeraccess points that can be used by the customers of all 11 banks. The transactions of customers usingthe accesspointsof their own bankare dealtwithby

Issue Benefit Factor Description

Usedependence

Commonfactor

I x , y , z Importance

Time h y , z Saved time per transaction (hour)

Saving w z Wages per person ($)

x D 1 ub 1, y , z I 1, y , z .h 1, y , z .w z

Movement d y , z Saved distance per transaction (km)

Saving s z Travel cost per km

x D

2 ub 2, y , z I 2, y , z .d y , z .s z Supply p y , z Saved supply cost per transaction ($)

Saving ub 3, y , z I 3, y , z .p y , z

x D 3

For t UB t , x , y , z N t , y .ub x , y , z

Use Space Ay , z Saved space (m2)

independence Saving G t , 2 Space cost per m2 ($)

x D 4 IB t , 4, y , z Ay , z .G t , 2

For t IB t , x , y , z IB t , 4, y , z

Table 4. Examples of the evaluation of the tangible benefits of information networks





Issue Cost Factor Description

Useindependence

Initial costx D 1

IC 0, 1, y Cost of system components and theirinstallation

Environmentcost x D 2

IC t , 2, y Cost of special flooring, electricity,cooling, and other system support

Staff costx D 3

IC t , 3, y Office, salaries, and otherstaff-related costs

Operationand mainte-nance costx D 4

IC t , 4, y Operation, and routine services andmaintenance

For t IC t , x , y IC 0, 1, y C IC t , 2, y C IC t , 3, y CIC t , 4, y

Use

dependence

Supply cost

x D 5

uc t , 5, y Supply cost per transaction

For t UC t , y N t , y .uc t , 5, y

Table 5. Examples of the evaluation of the tangible costs of information networks

theprivate network of the bank concerned, withoutplacing any traffic on the Inter-Banking networkconsidered. The Inter-banking network deals withthe transactions initiated by the customers of acertain bank using the access points of the other 10 banks.

The Inter-Banking network considered is illus-trated in Figure 1. The figure shows the relativeaccess weights of thevarious interconnected banks,and the relative traffic flow through the links of thenetwork. These are needed for the determinationof the actual network flow according to the busi-est link performance principle given in Step 1 of the evaluation procedure, and explained in refer-ence 10.

It has been considered that in the implemen-tation of the network three types of networkingtechnologies may be used. Each technology wouldhave different capabilities, and would provide dif-ferent services. Therefore three applications were

considered for the Inter-Banking network:

ž The first application is based on the (X.25)technology where the capacity of the telecom-munication link between the banks is 64 kbps,and where only data services are available.12

ž The second application is based on the framerelay technology, where the capacity of theinterconnecting links is 1.54 Mbps (T.1 cir-cuits), and where data and voice services areavailable.12

ž The third application is based on the ATMtechnology, where the capacity of the linksused is 155 Mbps (OC3/STM1), and wheremultimedia services: data, voice, and videoare available.13,14

Information on the above applications, and onthe data, voice, and video transactions are given

in Table 6. In additions, Tables 7 and 8 provideinformation concerned with the evaluation of the use-dependent and use-independent cost and benefit factors given in Tables 4 and 5. Informationon the change issues is given in Table 8.

With the above description and information, thecase study, with its three different applications, becomes ready for the evaluation of its cost-effectiveness.

—Practical Evaluations—

Practical evaluations, according to the evalua-tion procedure, have been conducted for the threeapplications of the above case study. The evalua-tion and the results obtained are described in thefollowing:

ž For the evaluation of flow through the busiestlink, Figure 2 shows the link performance interms of normalized delay (normalized fortransmission) versus link utilization whichis associated with the traffic flow and with





Figure 1. The Inter-Banking Network considered with its Relative Access, Traffic Load and the twodirectional Traffic Flow. The busiest link is between bank K and the Inter-Banking Center

Factor Data services: Voice services: Video services:

y D 1 y D 2 y D 3

C: App. 1 64 kbps

C: App. 2 1.54 Mbps (T1)C: App. 3 155 Mbps (OC3/STM1)

K y : App. 1 100% 0

K y : App. 2 4% 96% 0

K y : App. 3 0.04% 0.96% 99%

M y 1.5 kbyte 120 kbyte 2400

q q (busy hour of use per average day)

Q t q .365 hour/year

Table 6. The values considered for the evaluation of the traffic flow over the network for the threeapplications of the typical Inter-Banking network case study

the link capacity. Both fixed and randomsize messages are taken into account, andthe evaluation equation of Table 3 are used.The figure shows that the flow through the

busiest link should be within (70%) of thecapacity (U D 0.7) in order to keep thenetwork performance within an acceptablelimit, and to avoid the fast-growing delay






y D 1 y D 2 y D 3

I 1, y , z D 1/2Ł Lower: 0.75/1 Lower: 1.5/1 Lower: 2/1

Upper: 1/1 Upper: 2/1 Upper: 3/1

h y , z D 1/2 12 min (0.2 hour)/6 min (0.1 hour)

w z D 1/2 10$

I 2, y , z D 1 Lower: 0.75 Lower: 1.5 Lower: 2

Upper: 1 Upper: 2 Upper: 3

d y , z D 1 0.5 km

s z D 1 $1

I 3, y , z D 2 1

p y , z D 2 $0.01 $0.01 $0.01

Ay , z D 2 80 m2 (for each type of service)G y , z D 2 $100/m2

Ł Importance levels for the customers and banks have been chosen from practical experience

Table 7. The values considered for the evaluation of the tangible benefits of the three applications of thetypical Inter-Banking network case study


y D 1 y D 2 y D 3

IC 0, 1, y 3,500,000 5,000,000 20,000,000

IC t , 2, y 500,000 700,000 1,000,000IC t , 3, y 1000,000 1,000,000 1,500,000

IC t , 4, y 800,000 1,000,000 2,000,000

uc t , 5, y 0.02 0.02 0.02

cp 1.07 1.07 1.07

Table 8. The values considered for the evaluation of the tangible costs of the three applications of thetypical Inter-Banking network case study

region of the curve. This evaluation of theperformance versus utilization is associated

with the following evaluations concernedwith Steps 4 through 6 of the evaluationprocedure.

ž For the evaluation of the cost-effectivenessversus time explained in Step 4 of the evalua-tion procedure three main considerations have been taken into account: the three applicationsof different technologies, the use level, and the70% utilization limit at the busiest link duringthe busy hour. The results obtained are givenin Figures 3(a) and 3(b). The time in years of

the maximum cost effectiveness for a certainlevel of use represents the optimum life of the

technology considered.ž The evaluation of the break-even state versus

the level of use, explained in Step 5, is per-formed at the optimum life of the technology,where cost effectiveness is at its maximum.The evaluation considers certain level of use,and 70% utilization of the busiest link at the busy hour. The results obtained are given inFigure 4(a) through 4(c).

ž A relative evaluation of the network technolo-gies explained in Step 6 has been conducted





Figure 2. Normalized (queuing and transmission) time delay (against transmission time) versus linkutilization for fixed and variable packets

Figure 3(a). Cost effectiveness versus time in years for different network use level Q (equivalent busyhours of use per year) at busy link utilization level of U D 0.7; considering the 1st technology





Figure 3(b). Cost effectiveness versus time in years for different network use level Q (equivalent busyhours of use per year) at busy link utilization level of U D 0.7; considering the 2nd technology

considering the three technologies of the casestudy. Cost effectiveness versus the level of use is found considering optimum life and70% utilization of the busiest link at the busyhour. The results obtained are illustrated inFigure 5.

Conclusions

The work presented in this paper is useful tovarious people concerned with information net-works including students, researchers, and tech-nical managers interested in the evaluation of thecost effectiveness of existing and future networks,considering performance and use issues and dif-ferent technologies. The evaluation methodologyhelps them identify their case study, on the onehand, and develop practical results, on the other.

The Inter-Banking case study example illustrateshow the work can be done.

The results obtained from the Inter-Banking casestudy show that while the cost effectiveness of acertain technology depends on its use level, theoptimum life of the technology remains the same,despite the change in the maximum level of costeffectiveness. In addition, the results also illustratethat to achieve a cost-benefit break-even state at

optimum life a certain level of use is needed. Of course, this should the minimum level of use of thenetwork.

In comparing networking technologies, thesuperiority of the ATM cost effectiveness has been clear. In this respect an important questionremains on the optimum time of the replace-ment of existing networking technologies withthe ATM. This is the subject of a forthcomingpaper.





Figure 3(c). Cost effectiveness versus time in years for different network use level Q (equivalent busyhours of use per year) at busy link utilization level of U D 0.7; considering the 3rd technology

Figure 4(a). Cost and benefit (break even state) versus the use level Q (equivalent hours of use per year)at busy link utilization level of U D 0.7, and optimum life, considering the first technology





Figure 4(b). Cost and benefit (break even state) versus the use level Q (equivalent hours of use per year)at busy link utilization level of U D 0.7, and optimum life, considering the second technology

Figure 4(c). Cost and benefit (break even state) versus the use level Q (equivalent hours of use per year)at busy link utilization level of U D 0.7, and optimum life, considering the third technology





Figure 5. Cost-effectiveness versus the use level Q (equivalent hours of use per year) at busy link utilizationlevel of U D 0.7, and optimum life, for the three technologies

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