IT ELEC 1 – Platform Technologies

1. Title of the Module

Cost-benefit Analysis for a Proposed Server Solution

2. Introduction
This module presents the discussion on types of server, overview of cost and benefit
analysis and planning a simple proposal on client/server setup for an organization. In this
module, the students will be immersed on different types of servers and how could be of
help to organizations depending on the services they offer. It also discusses the overview
and role of performing cost and benefit analysis for the proposed server setup/solution.

3. Learning Outcome
In this module the students are expected to learn the following:
• Discuss the importance cost-benefit analysis.
• Prepare a simple proposal on client/server setup for an organization.

4. Learning Content
Topics for Module 8: Cost-benefit Analysis for a Proposed Server Solution

Topic 1: Types of Server

A Server is a computer or device on a network that manages network
resources. For example, a file server is a computer and storage device dedicated
to storing files Any user on the network can store files on the server. A print server
is a computer that manages one or more printers and a network server is a
computer that manages network traffic.
Servers are often dedicated, meaning that they perform no other tasks
besides their server tasks. On multiprocessing operating systems however, a
single computer can execute several programs at once. A server in this case could
refer to the program that is managing resources rather than the entire computer.
What is Server Platform?
A term often used synonymously with operating system. A platform is the
underlying hardware or software for a system and is thus the engine that drives
the server.

Server types:
Application Servers
Sometimes referred to as a type of middleware, application servers occupy
a large chunk of computing territory between database servers and the end user,
and they often connect the two.
Middleware is a software that connects two otherwise separate applications
For example, there are a number of middleware products that link a database
system to a Web server. This allows users to request data from the database using
forms displayed on a Web browser and it enables the Web server to return dynamic
Web pages based on the user's requests and profile.
The term middleware is used to describe separate products that serve as
the glue between two applications. It is, therefore, distinct from import and export
features that may be built into one of the applications. Middleware is sometimes
called plumbing because it connects two sides of an application and passes data
between them. Common middleware categories include:
• TP monitors
• DCE environments
• RPC systems
• Object Request Brokers (ORBs)
• Database access systems
• Message Passing

Audio/Video Servers
Audio/Video servers bring multimedia capabilities to Web sites by enabling
them to broadcast streaming multimedia content. Streaming is a technique for
transferring data such that it can be processed as a steady and continuous stream.
Streaming technologies are becoming increasingly important with the growth of the
Internet because most users do not have fast enough access to download large
multimedia files quickly. With streaming, the client browser or plug-in can starts
displaying the data before the entire file has been transmitted.
For streaming to work, the client side receiving the data must be able to
collect the data and send it as a steady stream to the application that is processing
the data and converting it to sound or pictures. This means that if the streaming
client receives the data more quickly than required, it needs to save the excess
data in a buffer If the data doesn't come quickly enough, however, the presentation
of the data will not be smooth.
There are a number of competing streaming technologies emerging. For
audio data on the Internet, the de facto standard is Progressive Network's
RealAudio.

Chat Servers
Chat servers enable a large number of users to exchange information in an
environment similar to Internet newsgroups that offer real-time discussion
capabilities. Real time means occurring immediately. The term is used to describe
a number of different computer features. For example, real-time operating systems
are systems that respond to input immediately. They are used for such tasks as
navigation, in which the computer must react to a steady flow of new information
without interruption. Most general-purpose operating systems are not real-time
because they can take a few seconds, or even minutes, to react.
Real time can also refer to events simulated by a computer at the same
speed that they would occur in real life. In graphics animation, for example, a
realtime program would display objects moving across the screen at the same
speed that they would actually move.

Fax Servers
 A fax server is an ideal solution for organizations looking to reduce incoming
and outgoing telephone resources but that need to fax actual documents.

FTP Servers
One of the oldest of the Internet services, File Transfer Protocol makes it
possible to move one or more files securely between computers while providing
file security and organization as well as transfer control.
Groupware Servers
A GroupWare server is software designed to enable users to collaborate,
regardless of location, via the Internet or a corporate Intranet and to work together
in a virtual atmosphere.

IRC Servers
An option for those seeking real-time capabilities, Internet Relay Chat
consists of various separate networks (or "nets") of servers that allow users to
connect to each other via an IRC network.

List Servers
List servers offer a way to better manage mailing lists, whether they are
interactive discussions open to the public or one-way lists that deliver
announcements, newsletters, or advertising.

Mail Servers
Almost as ubiquitous and crucial as Web servers, mail servers move and
store mail over corporate networks via LANs and WANs and across the Internet.

News Servers
News servers act as a distribution and delivery source for the thousands of
public news groups currently accessible over the USENET news network.
USENET is a worldwide bulletin board system that can be accessed through the
Internet or through many online services The USENET contains more than 14,000
 forums called newsgroups that cover every imaginable interest group. It is used
daily by millions of people around the world.

Proxy Servers
Proxy servers sit between a client program typically a Web browser and an
external server (typically another server on the Web) to filter requests, improve
performance, and share connections.

Telnet Servers
A Telnet server enables users to log on to a host
computer and perform tasks as if they're working on the
remote computer itself.

Web Servers
At its core, a Web server serves static content to a Web browser by loading
a file from a disk and serving it across the network to a user's Web browser. The
browser and server talking to each other using HTTP mediate this entire exchange.

Topic 2: Cost Benefit Analysis

A cost benefit analysis is used to evaluate the total anticipated cost of a project
compared to the total expected benefits in order to determine whether the proposed
implementation is worthwhile for a company or project team.
If the results of this comparative evaluation method suggest that the overall
benefits associated with a proposed action outweigh the incurred costs, then a
business or project manager will most likely choose to follow through with the
implementation.
Generally speaking, a cost-benefit analysis has three parts. First, all potential costs
that will be incurred by implementing a proposed action must be identified.
Second, one must record all anticipated benefits associated with the potential action.
And finally, subtract all identified costs from the expected benefits to determine
whether the positive benefits outweigh the negative costs.

What is Cost?
Both cost - benefit analysis (CBA) and cost-effectiveness analysis (CEA) are
useful tools for program evaluation. Cost-effectiveness analysis is a technique that
relates the costs of a program to its key outcomes or benefits. Cost-benefit analysis
takes that process one step further, attempting to compare costs with the monetary
value of all (or most) of a program’s many benefits. These seemingly straightforward
analyses can be applied anytime before, after, or during a program implementation,
and they can greatly assist decision makers in assessing a program’s efficiency.
However, the process of conducting a CBA or CEA is much more complicated than it
may sound from a summary description. In this chapter we provide an overview of
both types of analyses, highlighting the inherent challenges in estimating and
calculating program costs and benefits. We organize our discussion around practical
steps that are common to both tools, highlighting differences as they arise. We begin
with a simple description of each approach. Cost- effectiveness analysis seeks to
identify and place monetarys on the costs of a program. It then relates these costs to
specific measures of program effectiveness.
Analysts can obtain a program’s cost - effectiveness (CE) ratio by dividing costs
by what we term units of effectiveness:
Cost-Effectiveness = Ratio Total Cost

Units of Effectiveness
Evaluation Units of effectiveness are simply a measure of any quantifiable outcome
central to the program’s objectives. For example, a dropout prevention program in a high
school would likely consider the number of dropouts prevented to be the most important
outcome. For a policy mandating air bags in cars, the number of lives saved would be an
obvious unit of effectiveness. Using the formula just given and dividing costs by the
number of lives saved, you could calculate a cost - effectiveness ratio, interpreted as
“monetarys per life saved.” You could then compare this CE ratio to the CE ratios of other
transportation safety policies to determine which policy costs less per unit of outcome (in
this case lives saved). Although it is typical to focus on one primary outcome in CEA, an
analyst could compute cost- effectiveness ratios for other outcomes of interest as well.
Like cost - effectiveness analysis, cost-benefit analysis also identifies and places
monetary values on the costs of programs, but it goes further, weighing those costs
against the monetary value of program benefits. Typically, analysts subtract costs from
benefits to obtain the net benefits of the policy (if the net benefits are negative, they are
referred to as net costs):
Net Benefits = Total Benefits -Total Cost

Identifying Costs
The first step is to identify and quantify all costs associated with a proposed action. In
order to successfully identify all potential costs of a project, one must follow the
subsequent steps.
1. Make a list of all monetary costs that will be incurred upon implementation and
throughout the life of the project. These include start-up fees, licenses,
production materials, payroll expenses, user acceptance processes, training,
and travel expenses, among others.
2. Make a list of all non-monetary costs that are likely to be absorbed. These
include time, lost production on other tasks, imperfect processes, potential
risks, market saturation or penetration uncertainties, and influences on one’s
reputation.
3. Assign monetary values to the costs identified in steps one and two. To ensure
equality across time, monetary values are stated in present value terms. If
realistic cost values cannot be readily evaluated, consult with market trends
and industry surveys for comparable implementation costs in similar
businesses.
 4. Add all anticipated costs together to get a total costs value.

Identifying Benefits
The next step is to identify and quantify all benefits anticipated as a result of
successful implementation of the proposed action. To do so, complete the following
steps.
1. Make a list of all monetary benefits that will be experienced upon
implementation and thereafter. These benefits include direct profits from
products and/or services, increased contributions from investors, decreased
production costs due to improved and standardized processes, and increased
production capabilities, among others.
2. Make a list of all non-monetary benefits that one is likely to experience. These
include decreased production times, increased reliability and durability, greater
customer base, greater market saturation, greater customer satisfaction, and
improved company or project reputation, among others.
3. Assign monetary values to the benefits identified in steps one and two. Be
sure to state these monetary values in present value terms as well.
4. Add all anticipated benefits together to get a total benefits value.

Evaluate Costs and Benefits

The final step when creating a cost benefit analysis is to weigh the costs and benefits to
determine if the proposed action is worthwhile. To properly do so, follow the subsequent
steps.
1. Compare the total costs and total benefits values. If the total costs are much
greater than the total benefits, one can conclude that the project is not a
worthwhile investment of company time and resources.
2. If total costs and total benefits are roughly equal to one another, it is best to
reevaluate the costs and benefits identified and revise the cost benefit
analysis. Often times, items are missed or incorrectly quantified, which are
common errors in a cost benefit analysis.
 3. If the total benefits are much greater than the total costs, one can conclude
that the proposed action is potentially a worthwhile investment and should
be further evaluated as a realistic opportunity.

Principles of Cost Benefit Analysis

One of the problems of CBA is that the computation of many components of

benefits and costs is intuitively obvious but that there are others for which intuition fails
to suggest methods of measurement. Therefore some basic principles are needed as
a guide.

The Steps of a Cost-Benefit Analysis

CBA can be thought of as progressing through four steps:

1. Choose the population.
2. Select potential impacts.
3. Consider how the program might change well-being.
4. Determine how society values these changes.

It is important to keep in mind that the final goal of a CBA is to estimate the
social benefit (or cost) of a program. In the following paragraphs, we describe the
conceptual steps and then offer an applied framework. Finally, we show how these
steps work in practice through NIJ’s MADCE.

Choose the Population

The first step of a CBA is to determine the population you are interested in
(called the “standing” of the study). In brief, the study’s standing is the group whose well-
being is changed by a new policy or practice. Stated another way, the standing is the
population whose costs and benefits are counted. A study’s standing might be all of
society, all of society excluding the program participants, or all taxpaying citizens.
Choosing which group has standing is a value-based decision that depends on the nature
of the program, the analysis, and the decision-makers or stakeholders. For example, a
CBA of a mandatory job training program for recipients of government assistance
generally includes program participants in its standing, whereas a CBA of sentencing
policy generally does not include prisoners in its standing (although it could). In practice,
the selection of the standing in the aforementioned examples National Institute of Justice
| NIJ.gov RESEARCH IN BRIEF 9 means that one cost of the job training program would
be the value of the time that clients give up to participate in training (economists call this
the “opportunity cost” of participants’ time), whereas a sentencing CBA would not include
the opportunity cost of the prisoners’ time.

Select Potential Impacts

Select the potential impacts to include in the analysis. First, consider what might
have changed as a result of the program. In a criminal justice context, potential impacts
often mean changes in behavior (e.g., employment, criminal offenses) or resources
used (e.g., police time, jail beds, court hearings). Think about what effects the program
may have had, identify the impacts you can plausibly measure, and estimate the size
of the changes that the program caused (if any). This step is the reason that a CBA
relies on a strong impact evaluation. Without an impact evaluation, estimating the
program’s effects is impossible, and, thus, there are no effects to value. Economists
sometimes say that an evaluation is “well identified” if it convincingly isolates the
causal impacts of the program.

Consider How The Program Might Change Well-Being

Consider how the program’s effects might have changed the well-being (either
positively or negatively) of someone in the standing. For instance, a program that
increases meetings with a probation officer might decrease the time that the officer has
to work with other clients. A program that improves participants’ educational outcomes
might lead participants to make greater contributions to society through employment.
Regardless, this step translates the program’s impacts into social well- being i.e.
Economists usually call this “social welfare” or just “welfare.” To avoid confusion with the
unrelated government assistance programs, we often say “well- being” instead, even
though researchers more commonly use the term “welfare.”

Determine How Society Values These Changes

Find information either from within or outside of the evaluation to determine how
society values these changes. For instance, ask, “How much does society value a
probation officer’s time?” Or, “How much does society value more and better
education?” Keep in mind that the answers to these questions have nothing to do with
the analysts’ beliefs about how much these issues National Institute of Justice |
NIJ.gov 10 Cost-Benefit Analysis: A Guide for Drug Courts and Other Criminal Justice
Programs should be valued; rather, the analyst must use existing data to estimate,
based on observed behavior, how society does in fact value these changes.
Common Unit of Measurement of CBA

Background

In order to reach a conclusion as to the

desirability of a project all aspects of the
project, positive and negative, must be
expressed in terms of a common unit;
i.e., there must be a "bottom line." The
most convenient common unit is
money. This means that all benefits
and costs of a project should be
measured in terms of their equivalent
money value. A program may provide
benefits which are not directly expressed
in terms of monetary but there is some
amount of money the recipients of the
benefits would consider just as good as
the project's benefits.
For example, a project may provide for the elderly in an area a free monthly visit to a
doctor. The value of that benefit to an elderly recipient is the minimum amount of
money that that recipient would take instead of the medical care. This could be less
than the market value of the medical care provided. It is assumed that more esoteric
benefits such as from preserving open space or historic sites have a finite equivalent
money value to the public. Not only do the benefits and costs of a project have to be
expressed in terms of equivalent money value, but they have to be expressed in terms
of monetary of a particular time. This is not just due to the differences in the value of
monetary at different times because of inflation. A monetary available five years from
now is not as good as a monetary available now. This is because a monetary available
now can be invested and earn interest for five years and would be worth more than a
monetary in five years. If the interest rate is r then a monetary invested for t years will
grow to be (1+r)t. Therefore the amount of money that would have to be deposited
now so that it would grow to be one monetary t years in the future is (1+r)-t. This called
the discounted value or present value of a monetary available t years in the future.
When the monetary value of benefits at some time in the future is multiplied by the
discounted value of one monetary at that time in the future the result is discounted
present value of that benefit of the project. The same thing applies to costs. The net
benefit of the projects is just the sum of the present value of the benefits less the
present value of the costs.
The choice of the appropriate interest rate to use for the discounting is a separate
issue that will be treated later in this paper.

CBA is tool of Representation of Consumers or Producers Valuations

 The valuation of benefits and costs should reflect preferences revealed by
choices which have been made. For example, improvements in transportation
frequently involve saving time. The question is how to measure the money value of
that time saved. The value should not be merely what transportation planners think
time should be worth or even what people say their time is worth. The value of time
should be that which the public reveals their time is worth through choices involving
tradeoffs between time and money. If people have a choice of parking close to their
destination for a fee of 50 cents or parking farther away and spending 5 minutes more
walking and they always choose to spend the money and save the time and effort then
they have revealed that their time is more valuable to them than 10 cents per minute.
If they were indifferent between the two choices they would have revealed that the
value of their time to them was exactly 10 cents per minute.
The most challenging part of CBA is finding past choices which reveal the
tradeoffs and equivalencies in preferences. For example, the valuation of the benefit
of cleaner air could be established by finding how much less people paid for housing
in more polluted areas which otherwise was identical in characteristics and location to
housing in less polluted areas. Generally the value of cleaner air to people as revealed
by the hard market choices seems to be less than their rhetorical valuation of clean
air.

CBA- Measurement of Benefits

When consumers make purchases at market prices they reveal that the things
they buy are at least as beneficial to them as the money they relinquish. Consumers
will increase their consumption of any commodity up to the point where the benefit of
an additional unit (marginal benefit) is equal to the marginal cost to them of that unit,
the market price. Therefore, for any consumer buying some of a commodity, the
marginal benefit is equal to the market price. The marginal benefit will decline with the
amount consumed just as the market price has to decline to get consumers to
consume a greater quantity of the commodity. The relationship between the market
price and the quantity consumed is called the demand schedule. Thus the demand
schedule provides the information about marginal benefit that is needed to place a
money value on an increase in consumption.
The increase in benefits resulting from an increase in consumption is the sum
of the marginal benefit times each incremental increase in consumption. As the
incremental increases considered are taken as smaller and smaller the sum goes to
the area under the marginal benefit curve. But the marginal benefit curve is the same
as the demand curve so the increase in benefits is the area under the demand curve.
As shown in Figure 1 the area is over the range from the lower limit of consumption
before the increase to consumption after the increase.
When the increase in consumption is small compared to the total consumption
the gross benefit is adequately approximated, as is shown in a welfare analysis, by
the market value of the increased consumption; i.e., market price times the increase
in consumption.

Measurements of Benefits Require the Valuation of Human Life

It is sometimes necessary in CBA to evaluate the benefit of saving human lives.
There is considerable antipathy in the general public to the idea of placing a monetary
value on human life. Economists recognize that it is impossible to fund every project
which promises to save a human life and that some rational basis is needed to select
which projects are approved and which are turned down. The controversy is defused
when it is recognized that the benefit of such projects is in reducing the risk of death.
There are many cases in which people voluntarily accept increased risks in return for
higher pay, such as in the oil fields or mining, or for time savings in higher speed in
automobile travel. These choices can be used to estimate the personal cost people
place on increased risk and thus the value to them of reduced risk. This computation
is equivalent to placing an economic value on the expected number of lives saved.
CBA Analysis-With or Without Comparison
The impact of a project is the difference between what the situation in the study
area would be with and without the project. This that when a project is being evaluated
the analysis must estimate not only what the situation would be with the project but
also what it would be without the project. For example, in determining the impact of a
fixed guide way rapid transit system such as the Bay Area Rapid Transit (BART) in
the San Francisco Bay Area the number of rides that would have been taken on an
expansion of the bus system should be deducted from the rides provided by BART
and likewise the additional costs of such an expanded bus system would be deducted
from the costs of BART. In other words, the alternative to the project must be explicitly
specified and considered in the evaluation of the project. Note that the with- andwithout
comparison is not the same as a before-and-after comparison.
Another example shows the importance of considering the impacts of a project
and a with-and-without comparison. Suppose an irrigation project proposes to
increase cotton production in Arizona. If the United States Department of Agriculture
limits the cotton production in the U.S. by a system of quotas then expanded cotton
production in Arizona might be offset by a reduction in the cotton production quota for
Mississippi. Thus the impact of the project on cotton production in the U.S. might be
zero rather than being the amount of cotton produced by the project.

Cost Benefit Analysis Involves a Particular Study Area

The impacts of a project are defined for a particular study area, be it a city,
region, state, nation or the world. In the above example concerning cotton the impact
of the project might be zero for the nation but still be a positive amount for Arizona.
The nature of the study area is usually specified by the organization sponsoring the
analysis. Many effects of a project may "net out" over one study area but not over a
smaller one. The specification of the study area may be arbitrary but it may significantly
affect the conclusions of the analysis.

Double Counting of Benefits or Costs Must be Avoided

Sometimes an impact of a project can be measured in two or more ways. For
example, when an improved highway reduces travel time and the risk of injury the
value of property in areas served by the highway will be enhanced. The increase in
property values due to the project is a very good way, at least in principle, to measure
the benefits of a project. But if the increased property values are included then it is
unnecessary to include the value of the time and lives saved by the improvement in
the highway. The property value went up because of the benefits of the time saving
and the reduced risks. To include both the increase in property values and the time
saving and risk reduction would involve double counting.

Decision Criteria for Projects

If the discounted present value of the benefits exceeds the discounted present
value of the costs then the project is worthwhile. This is equivalent to the condition
that the net benefit must be positive. Another equivalent condition is that the ratio of
the present value of the benefits to the present value of the costs must be greater than
one.
If there are more than one mutually exclusive project that have positive net
present value then there has to be further analysis. From the set of mutually exclusive
projects the one that should be selected is the one with the highest net present value.
If the funds required for carrying out all of the projects with positive net present
value are less than the funds available this means the discount rate used in computing
the present values is too low and does not reflect the true cost of capital. The present
values must be recomputed using a higher discount rate. It may take some trial and
error to find a discount rate such that the funds required for the projects with a positive
net present value is no more than the funds available. Sometimes as an alternative to
this procedure people try to select the best projects on the basis of some measure of
goodness such as the internal rate of return or the benefit/cost ratio. This is not valid
for several reasons.
The magnitude of the ratio of benefits to costs is to a degree arbitrary because
some costs such as operating costs may be deducted from benefits and thus not be
included in the cost figure. This is called netting out of operating costs. This netting
out may be done for some projects and not for others. This manipulation of the benefits
and costs will not affect the net benefits but it may change the benefit/cost ratio.
However, it will not raise the benefit cost ratio which is less than one to above one.