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life cycle costs are being prepared for comparative evaluation, then out-year costs do not require translation to present value. The reason is Fat out-year cost can equally be evaluated in out-years such as yearly maintenance cost and yearly operations cost. Since the dollars are being expended in the specific out-years, this is an "apples to apples" evaluation. To convert future dollars to current dollars involves the formula: Where: P = Present value F = Future cost i = Interest rate n = Interest period P = F (1 1 For instance, assuming yearly maintenance cost of a communications system at We 5-year mark is $100,000 and the interest rate is projected to be 7.5%, then present value is $69,655. Similarly, if We maintenance cost in the 5th year is defined as current cost, We fixture cost if given by: F = P (1 ~ iffy, where if = inflation rate For the example given, if maintenance cost is given in current dollars and the average inflation rate is 3.5%, then future cost is projected to be $1 18,769. Thus, interest rates and inflation factors may be used to adjust cost to a common comparative basis as needed. A.5.4 Measures of Effectiveness for Communications Technology Measures of effectiveness for a commun~cadons system include: · Ability to meet infonnabon distribution needs (geographic points serviced). Ability to meet bandwidth needs: Current requirements wig reserve (bps) Future projected requirements wig reserve (bps); ONCE NCHRP 3-51 · Phase 2 final Report A5-16
Ability to support networking functional needs: · Point-to-mulUpoint Point-to-group(s) Point-to-point Standard ~nternet protocol support; Ability to support multimedia needs: · Data · Voice · Video; · Ability to meet information distribution reliability needs (effective bit error rate); Ability to meet communications availability needs; Compliance with open standards; Provisions for open network management standards; Latency of the network versus latency requirements, as defined by time synchronization and response time needs; t Ability to meet maintainability objectives: . Built-~n self test and test reporting · Repair level and confidence factor · Network management standards compatibility · Hot swap-out of changeable electronic modules; and · Time synchronization, and system synchronization requirements (accuracy and resolution). Over factors Mat may be important include: · Limited installation space in a data closet; .;~NCHRP~.rp ~NCHRP 3-51 · Phase 2 Final Repot 17
. . Limited floor loading support capability in a data closet; Limited power availability in a data closet (power budget); Limited head management within a data closet (maximum heat dissipation); and Specific interface requirements. The above may be converted to a definitive set of communications needs. This includes information routing table with geographic coverage communication loads, media requirements, and network standards requirements. Thus, magnum acceptable values may be defined. ~ evaluating technologies to meet these requirements, a nominal life cycle cost may be established based on lowest cost compliant bid. The excess cost over lowest compliant bid may Men be allocated to excess features and performance. Thus, a definitive value may be assigned to a feature such as increased data rate. Features may then be evaluated on a cosVbenefit basis. For instance, if Me basic bandwidth requirement was for a 4-term~nal OC-3 network (155.51 Mbps) urge a cost of $30,000 per terminal or $120,000 for the network (cost of 719 x 10- $/bps), an OC-12 (622.08 Mbps) communications network was proposed at an added cost of $6,000 per SONET terminal; then, the cost per bit/second of increased data rate is 5.! x 10-5 $/bps or $24,000 for 46~56 Mbps of additional communications capability. This represents a savings of 15.! times in $/bps. The benefit can be evaluated in terms of known, future data rate requirements. If Me cost of modular expansion from OC-3 to OC-12 in Me future is $20,000 per terminal ($80,000), Men Me cost savings of lineal purchase is $56,000. Current value of $56,000 is five years at 7% interest rate or $39,927. Thus, the effective savings in current dollars is $15,927. Performance parameters can be compared and a cost placed on the performance. Where future need can be defimtively identified, filture additions versus current procurement can be quantified. In Me above example, it is very clear Cat a cost savings is denved by additional data rate capacity. In fact, if the $80,000 per terminal update is considered to be in current dollars, as quoted by a manufacturer, an additional value may be derived based on inflation. AssuIIiing 3% inflation, Me $80,000 would be $92,742 in five years. The cost savings would be $64,919 ~:WCHR~' NCHRP ~51 · Phase 2 final Report A5-18
future value. Considering fixture value, the savings current value would be $46,286 at 7% interest rate. Generally Me need for additional capability can be weighted based on probability. A 100 percent future need probability identification would provide the highest weighting. A 50% probability of need would reduce the value by the probability factor. Growth rate trends can be used to project future needs for communications. If a metropolitan network is growing at the rate of one DS-3 commu~iicadons channel per year, Ten a 10-year linear projection would indicate We need for an OC48 SONET network in 10 years and an OC-12 network in four years. What is usually experienced is an exponential growth in communications bad needs caused by: Expansion of PCS and Local Area Networks ~ANs); Integration needs of LANs from various sites; · Advent of digital multimedia over a common network; Trend toward Vader bandwidth network devices such as ATM switches operating at OC-3 and OC-12; and Trend toward switched hubs with 0th band interconnecting hubs (such as switched 10 Base T ETHERNET hubs with 100 Base T ETHERNET backbones). Thus, linear projections of band needs are generally too conservative. In summary, requirements can be quantified for procurement purposes and a qualitative value given to exceeding requirements based on probable needs and comparative costs. If He procurement approach allows value to be placed on exceeding requirements, then He best cost/value selection can be made. A single step REP with published evaluation criteria is He best procurement approach for evaluation of proposed co~nmunicadons solutions and costs. Exceeding base requirements does have value which can be compared and evaluated. ~,,z,pt NCHRP3-51 · Phase2FmalRepoIt AS-19
