Cost Analysis

 

IVK is looking to spend less on IT and its support and maintenance costs. Accepting bitcoin as a currency can lead to more customers and increased loan applications. Although bitcoin is not directly decreasing the amount spent on IT, but actually spending more upfront, this new addition has the ability to drive profits up and open up a new world of doing loans. There are some variable costs associated with getting setup with bitcoin. bitcoins are sold on money exchanges and the rate changes frequently. The rate is even different from website to website. Users are only able to purchase bitcoins, leasing options are not available, but since IVK is a financial institution, this can be a new option for the bitcoin world. Today, the price of one bitcoin is around $590, and it would be beneficial for IVK to set up a money exchange website in which they could sell and offer loans of bitcoins. Implementing this would take a web developer to create the money exchange website and a security monitoring application to send updates to the security team every hour. Since bitcoin is still in beta, there are security issues that IVK could run into. Having a security team that receives these updates on their phone will help to ensure issues are fixed as quickly as possible.

To get the money exchange website started, IVK would need to purchase a certain amount of bitcoins to have in ‘stock.’ Since there is no real way to tell what the demand will be like at first, I would suggest maybe getting 100 bitcoins since they are expensive. This starting cost for the bitcoins alone would be around $59,000 depending on the day and the rate the bitcoins are going for at that time. At some point, IVK may want to integrate their current loan IT applications with their bitcoin loan website so customers wouldn’t have to go to different websites based on their currency. This would take time and money, but could end up being very successful in the end. I don’t think this should be done until bitcoin is tested within the company to see how often it would be used. Even though there is a possibility of failure with this project, IVK needs to stay on top of innovation with their competitors. Trying new things is the only way to figure out what will work and become successful.

 

Here is an overview of how many businesses have expanded to bitcoin.

 

Maintaining the website will need to be done by 2 web developers at the beginning and 1 main developer for ongoing maintenance. IVK probably has some employees who can move over to this project to support it. If necessary, a web developer lead can be hired since constant support of this application is needed. According to Glass Door, a web developer’s salary is around $60,000. Once hired, the development and testing of the application can start right away. Someone else on the IT team can also analyze the data to see when the lowest rate for bitcoins was to see if there is a pattern. Trying to determine when to purchase them for the best price can also try to avoid higher costs. Another upfront cost will be marketing this new currency to the customers. The marketing team will need to implement an effective way to show customers that this is a new, safe, cutting edge way to buy things. Creating pamphlets, online ads, ads on IVK’s current website, e-mails, and a recording while customers are on hold are a few different marketing promotions that can be implemented.  Getting the word out and then educating the customers is what will make or break this project. Also, all the staff will need to be trained on bitcoin and the sales techniques to push it as a new currency. Once the developers become familiar with all the ins and outs they can hold several training sessions to have the staff certified in bitcoin.

The security team of 3 people will ensure everything is running the way it should and will to support customers who have questions about bitcoin and the money exchange website, a support line will have to be implemented. Again, IVK could start with 2 people to man the phone lines from 9am - 5pm. Right now, the admins would be the best fit for the new job duties. At first the call quantities won’t be high since it will be new and getting customers educated on the new currency IVK has to offer will take some time. Supporting and maintaining the money exchange website and customers will be recurring costs until bitcoin becomes more secure and well-known throughout the world. The costs will fluctuate based on hackers, viruses, and the number of customers using bitcoin. Ensuring that support is covered in all aspects will help things to run smoothly and for there to be a more successful outcome.

Variable Costs	Cost per	Starting Amount	Cost	Upfront Cost?
Website Development	Exists	1 part-time developer	$55,000/2 $27,500	-
Website Support	Exists	1 full-time developer	$55,000	-
Security Support	Exists	2 part-time security analysts	$50,000	-
Security Support	Exists	1 full-time security analyst	$50,000
Phone Support	Exists	2 part-time admins	$38,000	-
Training	Exists	-	-	-
Fixed Costs	Cost per	Starting Amount	Cost	Upfront Cost?
Marketing/ Advertising	-	-	$5,000	Yes
Web Developer Lead	$60,000	part-time	$30,000	Yes

 

Total

$205,500

                                        

Many of the job duties can be taken over by current employees. If the project takes off, more employees can be pulled into the project or hired if need be. There could be unexpected problems or costs that could be associated with the project, but hopefully the issues that have been outlined are the only ones that IVK runs into. Overall, with cryptography, bitcoin is secure and is cheaper and quicker than alternatives. There is global accessibility in a large number of countries, and continues to expand. There is control against fraudulent activity and users so IVK and users are in control of their money and there is no middleman. I think this would be beneficial for IVK to implement and test as they need to beat out competitors.

References:


Austin, R., Nolan, R., & O'Donnell, S. (2009). The Adventures of an IT Leader. Boston: Harvard Business School Publishing Corporation.


Bitcoin. (2014). Retrieved May 15, 2014, from Bitcoin Open Source P2P:  https://bitcoin.org/en/.

Gross, J. (2013, July 25). 10 alternative currencies, from Bitcoin to BerkShares to sweat to laundry detergent. Retrieved 24 May, 2014, from TED Blog: http://blog.ted.com/2013/07/25/10-alternative-currencies-from-bitcoin-to-berkshares-to-sweat-to-laundry-detergent/.

Kirk, J. (2014, March 19). Bitcoin's Software Gets Security Fixes, New Features. Retrieved 24 May, 2014, from CIO: http://www.cio.com/article/750023/Bitcoin_39_s_Software_Gets_Security_Fixes _New_Features.