Changes in Cost of Operations
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Changes in Cost of Operations

Due to the introduction of a new analytic system Cost of Operations will increase in most departments.

What is less obvious is the increase in indirect costs sometimes much higher than in direct costs. Examples:

  • Supply chain with emergency stock: the highest increase is due to costs associated with creating and maintaining the emergency stock, costs associated with the new analytics representing just a minor part;
  • High frequency trading: the cost of analytics is usually less than the cost to access with much shorter delays the trading information plus the extra cost associated with repeated trades.

The extra cost may be difficult to forecast due to legal or technological issues. For example:

  • Analytics in the financial industry may involve new reporting or extra oversight imposed by specific regulations, not applicable before.
  • In the Netflix case the complexity required to implement the new algorithm was initially dismissed to became obvious quite late in the architecture design phase.

Major issue: each department has different terms and expectations