Cost of Data Analytic Components
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Cost of Data Analytic Components

Data Analytic projects involve the following major cost components:

Cost of Operations

With the exception of Operations all other cost components are straightforward and easily identifiable because most resources involved are dedicated to these tasks. In Operations the extra cost inflicted be the new Data Analytic project has a complex structure that may be traced to different corporate centers, for example:

In most cases Data Processing is done automatically at extremely low costs and is known in IT language as ETL (Extract, Transform, Load). Sometimes however data needs heavy cleaning requiring human intervention which increases its contribution even to 80% of the entire cost of Operations.

To derive the change in cost of Operations we need to be able to identify and allocate cost components that are due to the Data Analytic project. In the majority of cases the most appropriate accounting method for this step is ABC (Activity Based Costing) because it not only makes the least assumptions but also helps in preparing recommendations to maximize the profitability of the existing solution or in case the project is found unprofitable to redesign or reuse the profitable components.

To apply ABC we need a good understanding of the Corporate Decision Flow Diagram and analyze the internal processes associated with the new Data Analytic project. Similar to a factory floor data flows between centers incurring costs and adding benefits. Only by analyzing each step one can decide what makes economic sense and avoid being carried away by our eternal love relation with technology and the cool factor of the latest trend.