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It one conf it costs chargeback 2008_04_22

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IT costs management and chargeback to internal BU & subsidiaries

IT costs management and chargeback to internal BU & subsidiaries

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  • 1. IT costs management andchargeback to internal BU &subsidiariesiTOne conference onIndustry sector best practices in ITLuxembourg – HammApril 22nd 2008L. Remmy, former IT & Telecom Director RotarexVP Operations P&T consulting
  • 2. AgendaPreambleIdentify your IT costsChargebackPractical exampleConclusion March 12, 2013 Industry sector best practices in IT 2
  • 3. IT costs do matter !!!Source : “IT doesn’t matter”, Nicholas G. Carr, June 2003, Harvard Business ReviewFree to download on http://kazman.shidler.hawaii.edu/carrhbr.pdf March 12, 2013 Industry sector best practices in IT 3
  • 4. Who knows where IT costs aregoing ?Source : “Six Chix”, Rina Piccolohttp://bitaites.org/2006/page/28 March 12, 2013 Industry sector best practices in IT 4
  • 5. “Why do we get so many ITemployees ?” Because they are all looking for new and more productive software development tools on Internet …. March 12, 2013 Industry sector best practices in IT 5
  • 6. The “IT costs” Problematic “Free lunch” aspect of traditional IT activity model, poor or no cost-benefit analysis : main objective  launch the project … Executive Management do not have a clear view of where the IT budget is spent BU heads don’t know exactly what they are paying for … How can IT staff measure some of their performance improvements ? IT is not part of the company’s ERP … March 12, 2013 Industry sector best practices in IT 6
  • 7. Objectives Get transparency over the company IT costs Be able to charge the business owners in accordance to the IT resources they are using: “Once managers understand what they are paying for, their focus quickly changes” Mc Kinsey Quarterly _ Aug. 23 2005 rd = realistic and figure (or mathematically) justified cost allocation. Start some IT performance indicators In a recession climate, search for cost-justification and reply to IT cost-cutting pressure For our IT community : -) ◦  Start identifying what IT activity could be outsourced … March 12, 2013 Industry sector best practices in IT 7
  • 8. AgendaPreambleIdentify your IT costsChargebackPractical exampleConclusion March 12, 2013 Industry sector best practices in IT 8
  • 9. How many companies know theirworkstation TCO ? In 2002, a study from 01net, said that only 30 % of French companies know their workstations Total Cost of Ownership … At that time, the mean TCO was 4000 € but ranging from 1300 € to 8000 € / PC / year. Figures from Gartner in 2001/2003 gave a “PC budget per PC device” of US$ 9300 to 9600 (Discrete Manufacturing sector, 8100 employees & 286 IT workforce average) March 12, 2013 Industry sector best practices in IT 9
  • 10. Who gets the information ? IT department is, of course, the original source of information. They know what is spent for whom. They have the inventory figures. But they have to work closely with Finance / Management Accounting. Starting point will be the actual figures and next year budget estimates March 12, 2013 Industry sector best practices in IT 10
  • 11. The Cost Centers (CC) Devide the total IT cost by functional area Source : Gartner Conference, IT cost Management, Luxembourg, Aug. 27 th 2002 March 12, 2013 Industry sector best practices in IT 11
  • 12. The Cost Centers (CC) You can have has much CC has you want, but don’t under estimate : ◦ data collection work ◦ invoice encoding work What will be the cycle used to update BU information ? Generally accepted : not more than once a year. March 12, 2013 Industry sector best practices in IT 12
  • 13. AgendaPreambleIdentify your IT costsChargebackPractical exampleConclusion March 12, 2013 Industry sector best practices in IT 13
  • 14. Definition IT Chargeback (or charge-out) = Charging user departments for IT costs they incur March 12, 2013 Industry sector best practices in IT 14
  • 15. Methodology “There is no common chargeback model to be implemented” - Henri Gilabert – GLG Conseil March 12, 2013 Industry sector best practices in IT 15
  • 16. Find the key … ? You will only finalize the job with your finance dept. if you get the Key … Of course, there you can wait a bit before you know what Finance exactly wants … March 12, 2013 Industry sector best practices in IT 16
  • 17. Functional vs. IT cost allocation key Functional ◦ Nb of users ◦ Nb of invoices It related keys ◦ Nb of PCs ◦ Nb of licences March 12, 2013 Industry sector best practices in IT 17
  • 18. Best Practice Keep it simple … Do not multiply your Cost Centers don’t go to deeply into details Keep a good balance between the cost of chargeback-data collection and the real utility of data gathered. March 12, 2013 Industry sector best practices in IT 18
  • 19. AgendaPreambleIdentify your IT costsChargebackPractical exampleConclusion March 12, 2013 Industry sector best practices in IT 19
  • 20. Legacy information 2 cost centers ◦ MES (Manufacturing Execution System) or PPS (Produktionsplanungs- und Steuerungssystem) ◦ EDV or IT ◦ Figures were not up-to-date March 12, 2013 Industry sector best practices in IT 20
  • 21. Legacy information 2 cost centers 1. MES (Manufacturing Execution System) or PPS (Produktionsplanungs- und Steuerungssystem) 2. EDV or IT ◦ Figures were not up-to-date March 12, 2013 Industry sector best practices in IT 21
  • 22. CC and chargeback key IT based chargeback keys ◦ 2 tools used to gather data : EZaudit & home made .Net application 5 Cost Centers with the following keys Cost Centers CB key ◦ Distributed Computing Luxbg nbr of PCs ◦ MES lic. usage ◦ CAMCAD lic. usage ◦ Developments shortcut pres. ◦ Distributed Computing Out. Luxbg nbr of PCs March 12, 2013 Industry sector best practices in IT 22
  • 23. IT costs distribution per BU Consultancy Software Hardware Total IT Dept. expenditures w ith depreciation Manpower 2005 Training cost 14% Telephony – National + International calls + Mobile phone calls 31% Distr. Computing Lintgen IT department Computing VPPS Team 22% Computing Development Computing CAM/CAD Distributed computing Distr. Comp. Other Sites Lintgen 17% 16% Copiers + Faxes INFOR 163 : 1 PC – 146 € / month 166 : 1 INFOR client – 76 € / month 168 : Devpt based on time spent yearly Development 169 : 1 CATIA licence – 365 € / month 170 : 1 PC other site – 38 € / month Total IT Dept. expenditures w ith depreciation 2005 CATIA - PDM 4% Adm., Fees, Office Distributed computing 37% Equipment Total other sites Depreciation Total 46% Manpow er Costs Total Other 13% Expanditures managed by ITbut not included IT Dept. Budget Expanditures managed by IT = IT Dept. Budget March 12, 2013 Industry sector best practices in IT 23
  • 24. - 20,000.00 € 40,000.00 € 60,000.00 € 80,000.00 € 100,000.00 € 120,000.00 € 140,000.00 € 160,000.00 € 180,000.00 € € SE LF A SM PU RE T T FI EC RE T TO EC O LT IN EC DU TE RO M C RO TAR ED TA EX IT EC R EX Fin Au anc to e m ot i LU ve M E PR C AH A Ro SR ta G re Sa x S ga ta SE n a r L F SA A S Bo iss Cr y yo te RO c TA LUMarch 12, 2013 R DE EX C Fr US an A_ LP ce Ce G od TEC eu x_ IN RO C TA Ro Ax R it e EX ta re c DI x S RO ST pa in TA R IB R IT US E IO A_ X M N Ro e x i SE ta re co R x_ VI TE NA Ei fe C a ls pr uto it z gu ss IT costs distribution per BU INFORIndustry sector best practices in IT DEVPT CAM CAD24 PCs - Distr. Compt. Lintgen PCs - Distr. Comp. Other Sites
  • 25. IT costs distribution EvolutionActual C.C. distributuion 2002 15% EDV VPPS Actual C.C. distribution 2004 85% 15% 33% Distr. Computing Lintgen Computing VPPS Team 21% Computing Development Computing CAM/CAD Distr. Comp. Other Sites 10% 21% Total IT Dept. expenditures with depreciation 2005 14% 31% Distr. Computing Lintgen Computing VPPS Team 22% Computing Development Computing CAM/CAD Distr. Comp. Other Sites 17% 16% March 12, 2013 Industry sector best practices in IT 25
  • 26. Results 37 % Drop March 12, 2013 Industry sector best practices in IT 26
  • 27. AgendaPreambleIdentify your IT costsChargebackPractical exampleConclusion March 12, 2013 Industry sector best practices in IT 27
  • 28. Conclusion Keep it simple !!! Fairness and simplicity are key to chargeback (IT Business Edge Nov 18, 2003) Start measuring … Don’t overkill your IT costs : IT is about innovation … certainly not only costs !!! Innovation brought by IT does Matter !!! Take care of your IT staff March 12, 2013 Industry sector best practices in IT 28
  • 29. Bibliography Books ◦ “The effective measurement and Management of IT costs and benefits”, Dan Remenyi - Arthur Money - Michael Sherwood-Smith, 2nd ed. 2000 ◦ “The IT Payoff”, Sarv Devaraj - Rajiv Kohli, 2002 ◦ “IT success!”, Michael Gentle Towards a new Model for IT, Dec. 2007 Publications : CIGREF (Organization which promotes Information systems for business value, Managed by a Board of CIOs elected by other CIOs )  http://cigref.typepad.fr/cigref_publications/ Magazine’s articles ◦ “Chargeback for Good or Evil” CIO Magazine, March 2003, Malcolm Wheatley ◦ “Refacturer en Interne”, Corinne Zerbib, 01 DSI June 2005, ◦ “IT Budgeting for Uncertain Times”, Brian P. Watson, CIOinsight 2007-09-18, ◦ “The Cost of bad IT economics” Brian P. Watson - Feb. 2008 March 12, 2013 Industry sector best practices in IT 29
  • 30. Thanking you for your attention Q &A March 12, 2013 Industry sector best practices in IT 30

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