Analytics for the Internet of Things (IoT)

Variable versus fixed costs

Variable costs expand and contract with the amount of usage. Examples are automotive production parts for assembling vehicles, fuel in transportation, and cloud services. Fixed costs are constant no matter the amount of usage needed. Examples are data centers, rack servers, and equipment (or cloud environment) management.

In a traditional business case, fixed costs are assumed to continue until they are able to be sold at some anticipated amount. This rarely occurs in a short period of time. Variable costs are assumed to be tied to the usage required. Even variable costs in this scenario often take time to wind down after a decision is made to stop a project. The following conceptual chart demonstrates how to think ...