Technology Business Operations It Administrative Oversight

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Technology Business Operations It Administrative Oversight

  1. 1. Technology Business Operations Justifying the right level of IT administrative oversight for your organization IT Financial Management for Controllers and CFOs Conference The World of IT Financial Management© 2009 ITFMA April 1, 2009 Diane Carco Chris Herman IT Optimization Practice Swingtide, Inc. TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide1
  2. 2. Who is Swingtide? • Consultants specializing in Technology Business Operations (TBO) – IT Business Center of Excellence – IT Cost Reduction – Outsourcing and Insourcing Advisory – Acquisition and Divestiture Support • Focus on CIO Business issues – Proven methodologies applied by the people who developed them –A Accomplished cross-functional team of finance, technical and li h d f ti lt f fi t hi l d contract/sourcing experts TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide2
  3. 3. What you will take away from this presentation An understanding of: g • References for the general cost of administrative oversight • Setting the right level for administrative oversight of IT: – Using analogies to establish an appropriate cost – Building a rationale from the cost of not managing • A definition of robust IT administrative oversight: Technology f f Business Operations (TBO) • A benchmark su ey app oac for estab s g t e right level in be c a survey approach o establishing the g t e e your organization TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide3
  4. 4. HOW MUCH DO PEOPLE PAY FOR ADMINISTRATIVE OVERSIGHT OUTSIDE OF IT? TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide4
  5. 5. The Cost of Administrative Oversight: What can we learn 1 3 – 1 5% 1.3 1.5%: from these examples? Mutual Fund Management 20-30%: as % of funds Executive managed 10%: 10% G&A expense 18.5-19.5%: 18 5 19 5% Cost of Search Fees 2-4%: as % of revenue: fund raising as a % of Sports Large Company funds raised agent’s commission 0% 5% 10% 15% 20% 25% 9.5-10.5%: Salary of Orchestra Conductor as % of .03%: 10-15%: 25%: G&A Orchestra revenue Audit General expense as % of function Contractor revenue: Small 3-4%: The amount of the expense as % of total Company annual deal value that Gartner as % of job says should dedicated to revenue managing an outsou c g a ag g a outsourcing agreement TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide5
  6. 6. Observations • When administrative oversight functions are performed well, they are… f d ll th I • When not performed well problems surface as specific symptoms • Symptoms tend to attract solutions that only address symptoms TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide6
  7. 7. Observations • Administrative oversight is required: – World experience in many domains shows it’s irresponsible not to have administrative oversight g – It is necessary because it optimally enables underlying services being delivered – It allows development of a systemic ‘root cause’ approach for the proliferation of symptoms – It i th only function situated to “see the forest” (or f is the l f ti it t d t “ th f t” ( forests) t) TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide7
  8. 8. Using Analogies to Establish the Right Level • Analogy 1: The cost of governance is to the annual cost of an outsourcing deal as the cost of IT Administrative Oversight is to the cost of IT Service Delivery (3 - 4%) • Analogy 2: G&A Expense is to Corporate Revenue as IT Administrative Oversight Expense is to IT Budget (10 – 20%) g p g( ) 7% to 10% is the Best Answer reasoning from analogies Increase since much Decrease since administrative oversight corporate revenue is included in the scope p includes a profit p of the transaction component TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide8
  9. 9. The Cost of Not Managing What you hear when you don’t have the right administrative oversight CFO #1 (w/Internal IT service delivery): “I don t don’t understand my IT costs; I think we should outsource.” CFO #2 (w/Outsourcing in place): “Why am I not getting the savings I expected from this outsourcing agreement?; I’m bringing the service back in-house.” You’re told of the divestiture of a Business Unit and the BU wants to strip away all ‘their’ Oracle licenses. You have no idea what licenses might be owned by the BU Your email storage costs grow without limits; you’re always throwing money at it TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide9
  10. 10. The cost of not managing well gg What do you experience without it? • Lease payments beyond the end-of-term on nonexistent or obsolete assets • 20% year on year storage cost increases year-on-year • Repetitive and frequent mainframe upgrades • Aggregate project benefits exceeding your total budget…(i.e., overlapping benefit claims that strain credibility) • ARC charges under an outsourcing agreement: – Assessed based on contested levels of consumption – Exceeding total planned cost for the deal • Penalties from software license audits (or, even if no penalties are (or assessed, then unbudgeted capital/expense to pay for undocumented licenses in use) TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide10
  11. 11. The cost of not managing well What do you experience without it? • Paying 5X of the revenue generated for a hosted app • Your company does layoffs while there are major unexplored efficiencies to find in IT hardware maintenance and telecommunications • Rejected tax deductions for work done in other countries • Pending audit points • Business demand is more variable than IT cost structure S i ( t th d ki d) • Surprises (not the good kind) • Constant firefighting Without the right administrative oversight, companies experience up to 20-30% excess cost TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide11
  12. 12. How much would you pay for a function that eliminates these exposures? Cost of running TBO Function 20-30% TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide12
  13. 13. What do we mean by IT Administrative Oversight? Thl Technology B i Business O Operations (TBO) ti (TBO): CIO AMO ITO TBO (Applications) ( pp ) (Infrastructure) ( ) • Asset Management • Budget/Forecasting • Ch Chargeback bk • Communications • Compliance • Cost Management •C t Customer R l ti hi Relationship Management • Governance • Process Improvement • P j t Portfolio Management Project P tf li M t (PMO) • Reporting/Dashboards • Technology Sourcing • Thi d Party Management Third P t M t • Work Intake TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide13
  14. 14. TBO Definition: WHAT: A cross-functional IT business office that optimally enables the efficient delivery of the core IT function (applications and infrastructure) WHO: A unified team staffed with subject matter experts in IT Finance, Sourcing, and Technology RESULTS IN: The best alignment with internal customer business goals matching spend to value TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide14
  15. 15. Why is TBO Important Now? • IT Management has evolved from high-growth phase to maturity phase – Most IT projects no longer have enormous ROIs. pj g This, in addition to the difficult economy, require more precision in management and oversight – Focus is shifting to the overall business of IT – Shift from cost center to profit alignment – Complexity of task requires new combination of skills TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide15
  16. 16. Why is TBO Important Now? ys O po ta t o • A recent survey indicates that nearly half of corporate CFOs believe that the alignment of business and IT to be weak or nonexistent • IT/Finance convergence now seen as necessary for companies to maintain competitive advantage (David Wessels, Wharton School) • Organizational trends indicate an increasing likelihood that CIO is a straight-line report to CFO • With the increasing visibility of the IT finance function, CIOs and others will be seeking help to improve TBO effectiveness • The assimilation of the IT function: “Seven or eight years from now, one of two things will happen: you’ll either see CIOs become more business oriented, or you’ll see IT become such a fabric of business that business leaders become more tech competent.”(Russell Reynolds Associates) TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide16
  17. 17. Benchmark: Review of the budget numbers of large well-run companies reveals the following average budgetary split TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide17
  18. 18. Benchmark for level of TBO spend based on survey results CIO AMO ITO TBO IT Expense  IT Expense (Applications) (Infrastructure) Budget RTB* 24% 48% 8% Projects* 20% *These numbers represent average values surveyed *Th b t l d TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide18
  19. 19. Conclusion • People accept that there is a cost associated with an administrative oversight function. This cost reflects the value of optimally enabling an underlying function • The most analogous examples to the management of IT are: – The % of G&A to corporate revenue (10%-20%) and; – The % of annual outsourcing deal cost committed to governance (3-4%) – With logical adjustments, these analogies suggest a rate of 7-10% • Th cost of not providing the appropriate administrative oversight The tf t idi th i t d i i t ti i ht could be as high as 20-30% of IT budget • On average, well run companies spend 8% of their IT expense average budget on this function • While it may be tempting for corporations to reduce staffing in TBO areas, now more than ever companies need to continue to commit resources to a TBO approach to managing IT. Correctly implemented, it creates the best alignment with internal customer p , g business goals, matching spend to value TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide19
  20. 20. Thanks! Contact me with any questions or comments. dcarco@swingtide.com cherman@swingtide.com TBO and Setting the Right Level of IT Finance Controls: ITFMA 04-01-2009 Slide20

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