ICT costs are increasigly becoming an issue. This presentation shows option for getting most value out of your ICT at reasonable cost levels. Transparancy in costs and volumes are key.

1. IT Cost Management
Cost transparency and cost
reduction within IT
organizations
Jeroen Hoevenberg
2control4IT
Jeroen.Hoevenberg@2control4IT.nl

2. Summary
• Introduction
• Cost management and transparency
• Cost management and savings
• The future of IT cost management
• What is 2Control4IT?
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3. No theoretic story
• The models described below are actually used
within a large utility company in the Netherlands.
Reference is available on request.
• Cost savings of almost 45% (with higher customer
satisfaction) have been realized over a period of 5
years. However, the models themselves do not
save money, but the way they have been used.
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4. IT in an economic crisis
• IT is both a cost centre as a value driver for the
business.
– When IT is only used as a cost centre only savings will
be realized and in the end business will stop.
– When only used as a value driver unlimited amounts
of money are wasted as the real value is not in IT but
in the business.
The question is how to spend as little money as
possible on IT and still realize the highest added
value for the company?
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5. Trust and transparency
• In many cases IT is experienced as very fuzzy. From the
business perspective there is often little trust in the IT
organization (what do we spend and what do we get for it).
• As a result many restrictive controls are implemented and IT is
treated as a cost centre.
• However for IT to perform there is a need for more trust and
less controls.
• One of the basics to create trust is transparency and the will
to discuss and explain.
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6. The need for performance dialogue
• In a good performance dialogue there is no failure, but only
feedback. Quality of feedback determines success of next
dialogue.
• Trust is good, but performance dialogue is better.
Requirements: Clear goal, smart kpi’s and two people who
want to help each other.
• IT cost and volume transparency contributes to the quality of
the kpi’s.
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7. Formula for success
Transparency + Performance dialogue =
Added Value
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8. Summary
• Introduction
• Cost management and transparency
• Cost management and savings
• The future of IT cost management
• What is 2Control4IT?
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9. IT cost management
A cost model works as an accelerator for:
• increasing transparency of IT costs and products
• improving registration of both costs (financial administration) and volumes (CMDB)
• simplifying data collection for benchmarking and controlling
• improving planning, control, charging and forecasting.
• decision making (for example contract negotiations).
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10. Basics of an IT cost model
• Basic model cost model is based on the principle of Activity Based Costing.
• A basic model starts from the point of view of the costumer. So no complicated IT
services but clear products which the customer will recognize.
• Products consist of one or a combination of underlying IT services.
• Indirect costs are distributed to products, based predetermined distribution keys.
• IT cost model is incorporated in standard tooling.
• As IT is changing fast yearly update of cost model/services and prices for
budget/sales planning is necessary (this also stimulates continuous learning).
• Actuals are followed on a monthly base whereby analysis can be made on both price
and volume developments.
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11. * Office Expenses
Reporting Staff Services Hardware Software Datalines Housing Other Contracted Depreci- Other
line office work ation
expenses
Activity Data center DC Support Service Contract PPM Direction Operatio- Design Overhead
center Hardware Office Managem. managem. nal control
Intermediate CPU SAN Databases Virtual
products Machines
Application Seat Datalines Projects Special Service fee Managem.
fee
Products Infra Seat Dataline Projects Specials Fixed costs Managem.
service 1 Service 1 service 1 fee
Infra Seat Dataline Indirect Indirect Advice
service 2 Service 2 service 2 costs costs costs
Infra Seat Indirect Indirect
service 3 Service 3 costs costs
Maintenan. Seat
service 1 Service 4
Maintenan. Seat
service 2 Service 5
Maintenan. Seat
service 3
Maintenan.
Service
Seat
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Example of IT Cost Final product
Infra structure
service 4 Service 7
Maintenan.
service 5
Seat
Service 8 Model Application
maintenance
Maintenan. Seat Indirect/
service 6 Service 9 combined
Maintenan. Indirect Level
service 7
Maintenan.
costs Details available on request.
service 8
Maintenan.
service 9
Maintenan.
service 10
Maintenan.
service 11
Indirect
costs
Business Application Seat Datalines Projects Specials Generic Service Manage-
Application fee ment fee
Indirect Indirect Indirect Indirect Indirect Indirect Indirect Indirect
costs costs costs costs costs costs costs costs
* There is no direct vertical relation between columns/Capex is in this scheme not included
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12. Standard Tooling (1)
Screen view whiteboard from CostPerform
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13. Standard Tooling (2)
Screen view roll-up analysis from CostPerform
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14. Summary
• Introduction
• Cost management and transparency
• Cost management and savings
• The future of IT cost management
• 2Control4IT
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15. Cost efficiency steering within IT
Cap caused by insufficient
controls of suppliers
What is
paid for
A
What is Cap caused by
planned insufficient internal
B controls and cost
Costs
awareness
What is
used
C
Cap caused by lack of
What is knowledge of business
required (applications) and
configuration
Cost reduction
Capacity
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16. From paid to planned (1)
• CMDB cleaning
– CMDB maintenance is often outsourced. The outsourcing partner has no real
incentive for maintaining the CMDB on a highly accurate level.
– Creation of 1 business owned CMDB based on contract partner input and own
business measurements improves quality.
Result: Less costs because of better
insight and more accurate registration
• Contract management
– Creation of a contract management office to link with procurement and daily
coordination on work floor.
Result: Instead of ever increasing costs of contracts, costs of contracts reduced
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17. From paid to planned (2)
• Benchmarking
– “Benchmarking is the process of improving performance by continuously identifying, understanding
(studying and analyzing), and adapting outstanding practices and process found inside and outside
the organization and implementing the results”. (American Productivity and Quality Centre, 1994).
Dimensions typically measured are quality, time and cost. Improvements from learning mean doing
things better, faster, and cheaper.
– Benchmarking gives insight in cost and sales levels of IT products.
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18. From paid to planned (2)
Example: Infrastructure benchmark 2010
Average Infra
price 4.8%
below peers
Average higher
volumes than
peers
Slightly higher
complexity
and quality
than peers
Service
delivery below
peer levels
Source: Metri 2010
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19. From paid to planned (3)
Conclusions
• This stage has most impact on cost savings and service improvement as low
hanging fruits can he harvested this way.
• Many savings can be realized within the IT organization (no impact on business)
• Benchmarking helps in keeping focus on costs and quality of services!
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20. From planned to used (1)
• Sales model
⁻ By introducing a sales model customers receive
transparent information on the cost of specific
products. This transparency shows that some
products /services the business is paying for are
already obsolete or not worth the money.
• Cost versus value of IT
₋ When costs of full sized application get visible to the business it becomes
easier to scale down (reduce applications/reduce OTAP environments,
virtualisation).
₋ Monthly reporting of Q’s to business and discussing delta’s leads to reduction
of ghost costs (for example continue paying for servers/or seats which are no
longer in use but have not be handed in according to the right procedures).
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21. From planned to used (2)
• Savings program
˗ Execution of yearly saving programs. Savings can be analysed keeping in mind
interdepartmental dependencies, as lower sales to costumers does not
automatically lead to lower cash out. This leads to more attention for indirect
costs.
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22. From planned to used (3)
• Lean/process optimisation
– Starting of lean program. With a number of lean belts small process
improvement projects can be started. Results of lean projects can be used for
cost policies. For example one analysis at a utility company showed that 25%
of incidents were caused by user mistakes. This shows that key user training is
important and can save costs as usage of the software improves and incidents
diminish
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23. From used to required (1)
• Either, infrastructure is built on too high expectations of usage, or during the
lifetime of an application usage declines. Result are too high volumes of infra
components. Measuring actual use (sniffers) can lead to capacity reduction of
more than 50%.
• Functionality is often incorporated in different applications. When landscape
comparisons are made, the number of applications can be reduced.
Conclusion: This last step is the most difficult one. However, still large amounts of
money can saved by clever lifecycle management in combination with functionality
management.
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24. From used to required (2)
• Agile working
Introduction of an Agile way of working. At the start this causes quite some
difficulties, as personnel needs to be trained (on the job). However, advantages are
bigger. There is more direct communication with the business and thus better
requirements, time to market is much faster (sprints of 3 weeks to next delivery)
and there are less incidents.
Conclusion: Knowing your business increases the opportunities for savings! But
more than that it opens the way to a fundamental change in the position of IT
from shopkeeper to business partner or from cost center to value provider!
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25. Summary
• Introduction
• Cost management and transparency
• Cost management and savings
• The future of IT cost management
• What is 2Control4IT?
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26. IT Value Creation Model
High
Added
Value
BPM
Transparency
ABC
Black Box
Low
Low High
Fase 1 Fase 2 Fase 3 Fase 4
Added Value
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27. Black Box
• No relation between costs and products
• Steering on total cost and total sales.
• Internal processes (ITIL/Cobit, etc) not in place
• No awareness of the installed or hired infrastructure/services
• Customer is not aware which services are demanded and delivered.
IT is a burden
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28. Activity Based Costing
• Relation between activities and products is visible.
• ITIL/Cobit processes are in place
• Configuration Management DataBase (CMDB) in place and over 80% reliability
• Product catalogue available for customer based on transparent costs (Secured in
tooling)
Dimension 2
Dimension 1
Level 1 Reporti ng Li ne
Level 2 acti vi ty center
IT is a supplier
Level 3 Intermedi ate products
Level 4 Products
Level 5 Busi ness
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29. Process Based Management
• It products are converted to services which are aligned with business
processes/products.
• Continues improvement of business process by means of agile development.
• Steering on the relation between IT costs and quality measurements (defects,
incidents, problems)
• Introduction of premium/penalty system for behaviour business.
• Charging to the business based on business products/services (f.e. the number of
bills).
IT is a partner
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30. Added Value
• Business and IT organisation are fully aligned.
• Tracking and tracing of benefits through the whole organisation.
• IT is an accelerator for new activities (1 + 1 = 3)
• IT has a visible contribution to company targets (Business balanced scorecards or
performance framework)
IT is part of the
business
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31. Summary
• Introduction
• Cost management and transparency
• Cost management and savings
• The future of IT cost management
• What is 2Control4IT?
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32. 2control4IT
2control4IT is a consultancy company specialized on IT cost management, activity
based costing, IT charge back systems and added value analysis. 2control4IT creates
insight and transparency. These two elements are basic requirements for both
reducing IT costs and increasing IT added value. Transparency also works as a lever for
the quality delivered and is the basis for trust based management.
Services:
• Create transparency in IT costs
– Total cost of ownership
– Indirect costing analysis
– Cost modelling
– Benchmark support
– KPI Frameworks
• Create transparency in IT volumes
– CMDB cleaning
– Uniformity in incident and problem registration
• Create relations between costs and volumes
– Activity based costing
– Activity based management
– Activity based budgeting (including internal transfer prices)
– Scenario planning for strategic decisions
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33. 2control4IT
• Create strong business control
– Coaching
– IT business control training
– Interim IT business control
– Performance dialogues
– Change programs
Contact
2control4IT
Jeroen Hoevenberg
+31(0)6-5894 6176
Jeroen.hoevenberg@2control4IT.nl
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