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Draft Deliverable : IT Cost Recovery Process Implementation Playbook

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Final draft of implementation plan prepared for Client\'s use in deploying an I.T. Cost Recovery process solution

Final draft of implementation plan prepared for Client\'s use in deploying an I.T. Cost Recovery process solution


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  • 1. - DRAFT ONLY - IT Costing and Chargeback Process and Workflow Document Process Owner: XXXX Author: Steven M Morgen, IBM GBS Consulting Version and Date: DRAFT ONLY - Version 0.1 18/01/2007
  • 2. Table of Changes Version Owner Approver Change Date Changes Made # Date Approved 0.1 Steven M. Morgen , IBM GBS
  • 3. Table of content TABLE OF CHANGES...............................................................................................................................................2 1 INTRODUCTION......................................................................................................................................................4 1.1 OVERVIEW......................................................................................................................................................4 1.2 TERMINOLOGY.................................................................................................................................................7 1.3 ROLES AND RESPONSIBILITIES.............................................................................................................................7 2 PROCESS STEPS....................................................................................................................................................10 .........................................................................................................................................................................10 STEP 1: COMMIT TO DEVELOPING AND ESTABLISHING A COST MODEL..........................................................................10 Step 1.1: Develop the Goals of the ADM Cost Model.........................................................................................10 Step 1.2: Assign Responsibility for Developing and Implementing the ADM Cost Model................................12 STEP 2: ESTABLISH A COST STRUCTURE..................................................................................................................13 Step 2.1: Define the Cost Elements ...................................................................................................................13 Step 2.2: Define the Cost Categories ................................................................................................................13 Step 2.3: Assign the Cost Elements to Cost Categories ....................................................................................13 Step 2.4: Choose the Cost Pools.........................................................................................................................14 Step 2.5: Determine which IT resource usage is too difficult to “meter” and therefore, may require alternative recovery.............................................................................................................................................14 STEP 3: ESTABLISH A PRICING STRATEGY ..............................................................................................................15 Step 3.1: For every Cost Pool select the Billable Units ...................................................................................15 Step 3.2: For every Cost Pool calculate the Unit Cost and set a Rate Structure ............................................15 Step 3.3: Assign the costs to the ADM/Service Provided ..................................................................................16 Step 3.4: Set the Rate Structures for Service......................................................................................................16 Step 3.5: Document the Cost Model...................................................................................................................18 STEP 4: CHOOSE THE COLLECTION, REPORTING, AND BILLING STRATEGY.......................................................................18 Step 4.1: Determine how the cost of services will be communicated to the business ......................................18 STEP 5: SET-UP THE COLLECTION, REPORTING AND BILLING INFRASTRUCTURE...............................................................19 Step 5.1: Design and Create a collection database for Costing and Chargeback ...........................................19 Step 5.2: Set Up Collection Mechanism.............................................................................................................20 Step 5.3: Set Up Communication Channels........................................................................................................20 STEP 6: FINALIZE AND BEGIN................................................................................................................................20 Step 6.1: Consider A Pilot Activity.....................................................................................................................21 Step 6.2: Train Those Responsible For Collecting and Reporting....................................................................21 Step 6.3: Begin the Costing and Chargeback Program.....................................................................................21 STEP 7: APPLY CONTINUOUS IMPROVEMENT TECHNIQUES TO THE COSTING AND CHARGEBACK PROGRAM..............................22 Step 7.1: Collect, Analyze, Report, And Evaluate Metrics (Monthly)...............................................................22 Step 7.2: Review the Costing and Chargeback (Quarterly)...............................................................................22 Step 7.3: Apply continuous improvement to the Costing and Chargeback program........................................23 3 TEMPLATES..........................................................................................................................................................24 4 CHECKLISTS .......................................................................................................................................................24 APPENDIX A: LABOR COST POOL DECISION CRITERIA.........................................................................25 APPENDIX B: INFRASTRUCTURE COST POOL DECISION CRITERIA..................................................26 APPENDIX C: NORMALIZATION GUIDELINE..............................................................................................26 Costing and Chargeback Page 3 of 27
  • 4. 1 Introduction 1.1 Overview Resource or “Usage-based” Costing and Chargeback is a “Leading Practice” that focuses on developing a standard unit cost for each major resource type or category that best represents the use of that resource. The basic idea is that the costing unit represents some measure of the resource consumed that can be traced back to the user of that resourceThe concept and practice of I.T. Costing and Chargeback is the ability of the organization’s Technology Area to define all costs associated with its Resources, and, price these services to the organization on the basis of Usage and Resource consumption in a manner and format allowing Users the ability to manage their resource consumption resulting in continuously improving, organization-wide, efficient and cost effective utilization of I.T. assets . This method requires that all Resource elements of the Application Development and Maintenance (ADM)Data Center infrastructure and associated software specific to the applicationTransaction Activity and its Business User(s) / Owner(s), can be identified and are directly charged to the end user on a per- user basis. The cost per unit (whatever unit is chosen) needs to cover all ADMData Centers’ relegated costs. There may be parts of the “enabling infrastructure” that are chosen to be recovered through other methods such as allocation, flat fee or a per user charge. This approach is not always effective in the complex PC-based and distributed computing environments where the mechanics and time involved in tracking usage may cost more than the IT organization recovers. It is imperative, that the resource-based chargeback scheme is straight forward in order to obtain consensus from the business ownersIn all cases, the three Critical to Success Factors are always; 1). The Resource must represent a signifcant expense (the threshold for which is pre-defined); 2). The Usage, and its associated Expense are controllable to the Business, otherwise behaviorial change cannot occur thus making the entire chargeback effort pointless; , and 3). The cost created by the I.T. Resource occurs as a direct result of its enablement and support of the associated Usage, in other words, “Causality”.. This process describes steps and sub-steps (Activities), with each sub-step having a number ofand associated tasks. The sSteps and sub-stepsActivities are as follows: ♦ Step 1: Commit to Developing and establishing a Cost Model Step 1.1 - Develop the Goals of the ADMData Center Cost Model Step 1.2 - Assign Responsibility For Developing and Implementing the ADMData Center Cost Model Step 1.3 - Understand and identify significant elements of I.T. Data Center Operations environment Step 1.4 – Understand and identify significant elements of organization accounting, financial management, and reporting environment ♦ Step 2. Data Capture Design Step 2.1 – Identify the Resource Usage and Transaction Data to be captured based on I.T. Management and Business User requirements and cost / charge assignability Step 2.2 – Identify the Units of Measure on which Business User pricing will be based Step 2.3 – Confirm data availability or means by which data will be obtained Step 2.4 – Determine required levels of data detail and capture frequency Step 2.5 – Use same sources of data to ensure comparability and reconciliation to other Management reports Step 2.6 – Define criteria that differentiate Controllable versus Non-Controllable data Step 2.7 – Differentiate and quantify Actual, Excess, Reserve, and Unusable capacity Costing and Chargeback Page 4 of 27
  • 5. Step 2.8 - Determine which IT resource usage is too difficult to “meter”, and therefore may require alternative recovery ♦ Step 2 3: Design Repeatable Process to Establish a Cost Structure Corresponding to an I.T. Resource Data Step 23.1 - DefineIdentify theControllable Cost Elements, differentiate Fixed and Variable , Step 3.2 Locate Data Sources; Collect Appropriate Expense Detail Step 23.23 - Define the Cost Categories , differentiate Fixed and Variable Step 3.4 - Assign the Cost Elements to the Cost Categories by Cost Type Step 23.45 -– ChooseBuild the the Cost Pools(s) Step 2.5 - Determine which IT resource usage is too difficult to “meter”, and therefore may require alternative recoveryStep 3.6 Determine suitable allocation methods for all material non-direct , immaterial direct, and non-controllable costs ♦ Step 3 4: EstablishCreate I.T. Costing PricingModel Strategy Step 34.1 - For every Cost Pool select theAlign Billable Units and Cost Pool(s) Step 3.2 - For every Cost Pool calculate Unit Cost and set a Rate Structure Step 3.3 - Assign the costs to the ADM/Service Provided Step 34.42 - SetCalculate the Unit Rate Structures for Service Step 4.3 – Apply Unit Rate to Business User(s)’ Usage volume Step 4.4 – Apply resultant Usage cost to User(s) Unit(s) of Measure to derive price per Unit of Measure Step 3.5 - Document The Cost Model ♦ Step 4 5: Choose the Collection, Billing and Reporting, Strategy Design and Planning and Billing Strategy Step 45.1 - Determine how the cost of services will be communicated to the businessIdentify the correct accountable authority in each Business Area responsible for each respective Usage’s cost management ♦ Step 5: Set Up the Collection, Reporting and Billing Infrastructure Step 55.12 - Design And Create A Costing and Chargeback Database Step 55.23 - Set Up Collection MechanismIdentify Statement and Report Design Requirements satisfying I.T. Management and Business User(s) needs Step 55.34 -– Ensure that Reports have traceability and reconciliation to Accounting System and existing Management Financial and Expense Reports Step 5.5 – Obtain all Stakeholders’ approvals on Report and Statement design and flow in advance of placement into production ♦ Step 6: Training Step 6.1 – Define training requirements consistent with I.T. Management and Business User’s needs Step 6.2 – Document Initial and Continuous Training Strategy, Approach, Objectives, and Success Metrics Step 6.3 – Produce Training Plan and supporting Learning Materials Step 6.4 – Obtain names of I.T.C.C. Tool Users from I.T and Business User Managements Step 6.5 - Conduct Training Set Up Communication Channels ♦ Step 67: ImplementationFinalize And Begin Step 67.1 - Consider ADefine the requirements, objectives procedures, and success measurements for a Pilot Activity; simultaneously, prepare “Go Live” Production Implementation Plan Costing and Chargeback Page 5 of 27
  • 6. Step 67.2 - Train those persons responsible for Collecting and ReportingPlan for Production Data Availability Step 67.3 - Begin the Costing and Chargeback ProgramInitiate Pilot Activity according to Plan Step 7.4 – Evaluate and Assess Results; Determine Go / No Go with I.T and Business User Stakeholders Step 7.5 – Refine I.T.C.C. tool and / or process if necessary, re-test changes (if necessary) and evaluate with Stakeholders. Repeat until Stakeholder approval for full production is obtained Step 7.6 – Finalize all documentation Step 7.7 - Upon Stakeholder Approval, proceed to Implementation and deploy Implementation plan ♦ Step 7 8: Apply continuous improvement techniques to the Costing and Chargeback Program Step 8.1 Establish permanent Stakeholder Review Committee Step 78.12 - Collect, Analyze, Report, And Evaluate Metrics (Monthlyper billing frequency) Step 78.23 - Review Of Costing and Chargeback Trending and Variances to current year or Standard Costs(Quarterly) Step 8.4 – Internal and External Benchmarking Step 78.35 - Apply continuous improvement to the Process and Cost Model Step 8.6 – Implement Ongoing Training Costing and Chargeback Page 6 of 27
  • 7. 1.2 Terminology Charge-back Allocation of charges to clients, usually done at the end of an accounting period. Costing Establishing the cost of IT delivery by process or service and products Pricing Setting of prices to charge for services. If costs are known and the level of profit agreed; prices are then set. Charging The process of "billing" for usage once the price of the service has been set. Cost Driver The reason costs are incurred; e.g. transaction entry, mounting tapes, security management. Cost Centers Organizational entities those are responsible for the costs within their areas of responsibility. Cost Pools Major groups of resources to which costs are assigned and from which charges are distributed. Cost Category A grouping of cost items or elements into a higher level. For example the items ‘Salary & Wage’, ‘Other Compensation’, Fringe Benefits’, ‘contract & temp’ are grouped into the category ‘Personnel Service Cost’. Cost Item or A set of costs at the lowest level Cost Category for planning, tracking and Element identification Examples: • Salary & Wage • Other Compensation • Fringe Benefits • Contract & Temp Billable Units Billable units are chosen for each cost pool to achieve the allocation approach to be taken. All relevant costs within a cost pool should be recovered based on the units to be charged. The units by which IT costs are calculated and charged, i.e. CPU time, DASD storage, voice call minutes, etc. Usage Based A method of charging departments for their use of IT resource. Charging Standard Pricing of usage based on a unit of work at a rate that is fixed for some period of Costing time, usually a year or quarter. Resource unit This method of charge-back computes charges based on resource usage that can Costing be directly identified with a user. (Resource unit costing is the same as usage- based costing; it can be based on either standard or variable rates.) Proportional Allocation of costs to organizational entities based on each organization’s allocation proportional usage or participation based on a metric, i.e. sales, membership, number of FTEs. Direct allocation The method of charging based on direct usage or direct benefit, usually for a resource that is not shared. Activity Based A method of tracing the costs incurred by various I/T activities and associating them Costing with services provided and/or to I/T customers. (-> Refer to relevant Technique Paper) Units of The specific Business User Activity to which Cost of Usage will be applied to Measure determine cost / unit of measure 1.3 Roles and Responsibilities The Costing and Chargeback Program team consists of a core team that runs the IT Accounting program on a daily basis. This team is responsible for:  Gathering, storing, analyzing, retrieving, validating, and reporting on IT system data that supports the IT Accounting program.  Maintaining the IT Accounting program data base  Maintaining and establishing the rate tables  Validating and updating unit costs  Producing IT chargeback invoices/reports Costing and Chargeback Page 7 of 27
  • 8.  Understanding and explaining variances in actual v.s. planned as well as exceptions in individual bills/reports  Forecasting billable units for each cost pool  Ensuring the accuracy of the cost pool allocations  Producing IT Accounting reports on a periodic basis  Costing new services and supporting differential pricing/rate  Educating business units and users on IT Accounting Implementation Team Roles The implementation team is comprised of staff performing a variety of different roles:  IT Accounting specialist  Data Collection specialist  Data Administrator  IT Subject Matter Experts  IT Finance specialist  Internal Audit specialist  ADM Project Manager  LoB Executive  ADM Executive In addition to the team members, key linkages need to be established with each business unit and each IT department. The following table describes these roles, their responsibilities, and who performs them. Role Responsibilities IT Accounting specialist  Customize the IT Accounting program o Identify cost elements o Select cost categories o Assign cost elements to cost categories o Create cost pools o Establish cost structure o Select billable unit o Calculate unit cost o Set the rate structure o Assign the cost to ADM services provided o Set the rate structure for the service o Document the cost model o Create allocation routines o Select reports o Choose the selection, reporting, billing strategy o Select or create invoice templates o Set-up communication channel Data Collection specialist  Validate the data feed  Set the collection/reporting/billing infrastructure  Design/create costing and chargeback database  Set-up the collection mechanism  Install data collection software  Establish/run the data collection procedures Data administrator  Manage the data to support IT Accounting program metrics  Ensure proper procedures in place for timely IT Accounting program access to data in correct format. Costing and Chargeback Page 8 of 27
  • 9. IT subject matter experts IT SME contributed to the whole program/process on the IT related technical topics, such as  Identifying/developing data collection techniques  Validating metrics  Validating data collection procedures… IT Finance specialist  Analyze cost recovery  Analyze variance reports  Ensure General Ledger feeds are accurate  Feed the cost data from GL Internal Audit specialist Audit the IT Accounting process and its interface to Finance Line of Business Executive The organization for which a work effort is undertaken ADM Executive The highest executive position in the ADM organization ADM Project Manager Input the project related data to the cost model Costing and Chargeback Page 9 of 27
  • 10. 2 PROCESS STEPS Step 1: Commit To Developing and Establishing a Cost Model Step 1.1: Develop the Goals of the ADM Cost Model Tasks What How Who’s Responsible 1 Assign a Cost Assign a temporary Cost Model coordinator to launch the costing ADM Executive or delegate Model and chargeback program; the coordinator will be responsible for coordinator performing all the tasks in this step 2 Document IT Collect and document the goals of the IT organization to which the IT Accounting Specialist Cost Model ADM organization reports. Identify desirable end-user behaviors goals and develop prices that will encourage users to adopt such behaviors. Guideline IT costing that is distributed back to the client needs to be adapted to what the Business has consumed and creates. It must be a reasonable framework for working, for both IT and Business Costing and Chargeback Page 10 of 27
  • 11. Guideline Chargeback identifies, allocates and recovers the costs of IT services, but it can lead to political tensions, investment setbacks and distorted use of IT services Guideline Items that are beyond the business unit’s control (i.e. inaction ability) should not attempt to use “usage chargeback” because it will not change their behavior Guideline High Administrative Costs – i.e. producing and distributing traditional chargeback reports can result in costly administrative items, compounded by time spent explaining and discussing allocation schemes. Guideline Consider elasticity of demand – prices do not necessarily reflect all actual costs. Set prices at levels that users will perceive as reasonable Guideline There are four key attributes of effective Charegack Schemes: 1) Reporting of Controllable Costs Only Chargeback reports itemize only services truly driven by line consumption behavior, excluding complicated and over-technical IT “overhead” costs. By providing easy-to-understand profiles of line utilization patterns, IT business unit managers are able to focus conversations with customers on those services most apt to improve cost efficiency and satisfaction. 2) Pricing for Customer Choice To segment diverse internal business unit customers, many IT innovators have restructured chargebacks to control IT costs without sacrificing end-user functionality needs. Many organizations are introducing customized SLAs with tiered pricing schemes allowing business units to select among discrete levels of IT service offerings; alternatively, it is possible to restrict chargebacks to exceptional “surcharges’ when line customers deviate from non- standard services or tools. 3) Incensing Optimal Utilization To smooth demand patterns (thereby reducing IT costs and increasing customer satisfaction), it is possible to introduce time- based price differentiation chargeback schemes, billing users higher rates during “peak” periods to steer non-urgent service requests towards “off-peak” periods. 4) Generating Line Buy-in for Strategic IT projects Chargebacks can be used as a corporate “tax”, charging back costs of corporate projects to raise funds for strategic initiatives, (e.g. Research and Development) that no individual business unit would Costing and Chargeback Page 11 of 27
  • 12. initiate alone. “Tax credits” (discounts off of chargebacks) are given to business units that volunteer as beta sites for testing corporate initiatives. Deliverables  Assigned Costing and Chargeback Coordinator  Documented IT Cost Model Goals Step 1.2: Assign Responsibility for Developing and Implementing the ADM Cost Model Tasks What How Who’s Responsible 1 Name the Identify the Costing and Chargeback sponsor (one person) who will ADM Executive sponsor oversee the Costing and Chargeback program implementation and ongoing results; this person will be responsible for championing Costing and Chargeback in the organization, providing direction, providing management attention and focus, assuring usefulness and benefits from the program for all levels of management involved, providing resources, and for removing obstacles to program implementation; or optionally choose a group of stakeholders (steering committee) who jointly will act as the Costing and Chargeback sponsor and who jointly will assume the sponsor responsibilities; the sponsor should be one or more members of senior management; (throughout this process, the term sponsor will be used regardless of whether one person or a group holds these responsibilities) 2 Name the Identify a Costing and Chargeback project manager (PM) who will be ADM Executive project manager responsible for implementing the Costing and Chargeback program, and who will report to the Costing and Chargeback sponsor; identify Costing and Chargeback team members, as appropriate 3 Gain approval of Review and revise, as appropriate, the prioritized Costing and Costing and Chargeback P Cost Model Chargeback goals (as documented in the previous step), and obtain goals approval of them from the Costing and Chargeback sponsor Deliverables  Assigned Costing and Chargeback Sponsor  Assigned Costing and Chargeback Project Manager  Documented and approved IT Cost Model Goals Costing and Chargeback Page 12 of 27
  • 13. Step 2: Establish a Cost Structure Step 2.1: Define the Cost Elements Tasks What How Who’s Responsible 1 Establish Cost A set of costs at the lowest level Cost IT Accounting Specialist Elements 确定 Category for planning, tracking and 成本单元 identification Examples: • Salary & Wage • Other Compensation • Fringe Benefits Note: Refer to the Cost Discovery Guide Deliverables  Defined Cost Elements Step 2.2: Define the Cost Categories Tasks What How Who’s Responsible 1 Define the Cost Develop the Cost Categories based upon IT Accounting Specialist Categories anticipated ”Interest Areas” – i.e. areas of the IT expenses that management and business units would potentialy want to understand and control. Note: A Cost Category, is a grouping of cost items or elements into a higher level. For example the items ‘Salary & Wage’, ‘Other Compensation’, Fringe Benefits’, ‘Contract & Temp’ could be grouped into the category ‘Personnel Service Cost’. Cost Categories are used to determine where the percentage of costs are spent Guideline IT Cost categories may be used for the design of forecast estimates and perform the cost analysis. Deliverables  Defined Cost Categories Step 2.3: Assign the Cost Elements to Cost Categories Tasks What How Who’s Responsible 1 Assign the Cost Group the cost items or elements into the IT Accounting Specialist Elements to the chosen cost categories. Sample cost Cost Categories categories could include Personnel Services and Cost, Equipment, Other. Guideline Cost categories can be rolled-up to the: • Technology resource Costing and Chargeback Page 13 of 27
  • 14. • Personnel Level • Project Level • Application Level • Project stages (Preliminary, AD, Maintenance) • Project Costs by life-cycle phases Deliverables  Cost Elements mapped to Cost Categories Step 2.4: Choose the Cost Pools Tasks What How Who’s Responsible 1 Document the If it has not already been done, document all of IT Accounting Specialist pre-existing the contractual obligations and formal costing pools requirements of the ADM organization that (as appropriate) involve ADM Costing and Chargeback that are being collected. Document how they are used. 2 Perform an Inventory the existing organization for IT Accounting Specialist inventory of monitoring and analysis tools that already exist monitoring tools and are being used within the organization that already exist within the organization Guideline Are there automated tools/spreadsheets established to make adjustments in current procedures for documenting IT costs to better support the new Chargeback model? 3 Evaluate Evaluate the tools that were identified in order IT Accounting Specialist existing tools for to determine if they can be applied to the potential use Costing Model within the Costing and Chargeback initiative Deliverables  Defined Cost Pools Step 2.5: Determine which IT resource usage is too difficult to “meter” and therefore, may require alternative recovery Categories Tasks What How Who’s Responsible 1 Document all Inventory all anticipated costs. Data Collection specialist proposed costs 2 Evaluate tools Determine if there is an existing tool to acquire Data Collection specialist the data. If there is not, determine if it would be appropriate to build/acquire a tool to automatically retrieve the information Costing and Chargeback Page 14 of 27
  • 15. 3 Recommend Summarize the findings. Data Collection specialist what charges to pursue for reporting and potential pricing Deliverables  Identified costs that need an alternative recovery Step 3: Establish a Pricing Strategy Step 3.1: For every Cost Pool select the Billable Units Tasks What How Who’s Responsible 1 Identify Billable Select Billable Units for each cost pool in IT Accounting Specialist Units order to support the allocation approach to be taken Guideline Billable units represent how the consumption of resources within each cost pool gets charged to the user Guideline All relevant costs within a cost pool should be recovered based on the units to be charged Guideline The units by which IT costs are calculated and charged (i.e. CPU time, DASD storage, function points, labour hours etc.) should be quantitative Deliverables  Defined Billable Units for each Cost Pools Step 3.2: For every Cost Pool calculate the Unit Cost and set a Rate Structure Tasks What How Who’s Responsible 1 Calculate Unit Using the forecast data (i.e. labour – IT Accounting Specialist Cost headcount and utilization rate) determine the Unit Cost 2 Set a Rate If appropriate, add a buffer to the unit cost to IT Accounting Specialist Structure determine the Rate Structure Deliverables  Unit Cost and Rate Structure for every Cost Pool identified Costing and Chargeback Page 15 of 27
  • 16. Step 3.3: Assign the costs to the ADM/Service Provided Tasks What How Who’s Responsible 1 Assign the cost to Using the Cost Pool Rate Structure, map the IT Accounting Specialist the ADM/Service cost to the appropriate ADM/Service provided Guideline ADM can be easily divided by Project and Maintenance Services Deliverables  Summary statement of allocated expenses to ADM/Service (e.g. Maintenance) Step 3.4: Set the Rate Structures for Service Tasks What How Who’s Responsible Costing and Chargeback Page 16 of 27
  • 17. 1 Determine the The development of billing rates is based on IT Accounting Specialist Service Rate the following criteria: Structure • Usage reflects a consumable scarce resource • The cost of supplying the resource is significant • The information provided is both financial and technically useful • The user (customer) understands and can control their cost based upon their usage • The resource can be assigned to cost pool • The usage of the resource can be measured or accounted for The calculation of a billing rate is based on cost for each IT resource units is a simple division of IT resource unit Costing and Chargeback volumes into cost pool dollars. Guideline The resource usage could be based on a 12- month usage forecast using a linear regression on the previous 15 month actual measurements. Guideline Usage rates are set on an annual basis leading to situation where they do not reflect prices in the external market. Guideline Consider elasticity of demand: The goal of good chargeback schemes is seldom full-cost recovery. Prices do not necessarily have to reflect all actual costs. Prices should be set at levels that the users will perceive as reasonable. Guideline Use tiered pricing by providing end-users with choices to accommodate varying needs for service quality – peak/off peak, regular vs. expedited delivery, etc. Guideline Service level agreements tailored to individual Bus provide It cost transparency, choice and lead to high user satisfaction. Guideline Sucharges for non-standard services promote cost-justified IT selection Guideline Costing and Chargeback Page 17 of 27
  • 18. Time-based price differentiation optimizes data center usage by dispersing load. Guideline Varying chargeback prices to maximize use of existing capacity are designed to encourage a shift toward non-peak hours and ensure full utilization of the ADM resource. Deliverables  Defined Rate Structure Step 3.5: Document the Cost Model Tasks What How Who’s Responsible 1 Complete the Update the Cost Model to include all of the IT Accounting Specialist Cost Model essential elements as defined and implemented up to this point Deliverables  Documented Cost Model Step 4: Choose the Collection, Reporting, and Billing Strategy Step 4.1: Determine how the cost of services will be communicated to the business Tasks What How Who’s Responsible 1 Work with the Using clearly developed cost information, work IT Accounting Specialist Business Units with the Business Units to explain the charges to develop a and gain consensus on their acceptance clear understanding of Try to foster commitment from the Business charges that will Units with respect to projects that encompass be applied multiple modules and benefits the entire organization but exceeds the funding ability of any individual Business Unit 2 Determine if a Cost reports are an appropriate vehicle for IT Accounting Specialist Cost Report communicating charges to the business. should be They can provide the Business Units with generated appropriate insight to costs that they can subsequently influence Ensure that the reports are easy to read and understand by the business units Guideline Avoid chargeback reports that are expressed in ways easier for IT to prepare than for end- users to understand, with complicated allocation formulas, highly technical line items, and reader unfriendly formats may not be accepted by the Business Units Costing and Chargeback Page 18 of 27
  • 19. 3 Determine if a Standardized formats are an appropriate IT Accounting Specialist pro-forma vehicle for communicating information since invoice should the charges are very similar from one Business be used Unit to the next 4 Determine the The frequency of the billing cycle should be IT Accounting Specialist frequency that established. Once per month is the information recommend frequency, however this should be should be a decision point of the IT organization. generated and that chargeback should be applied 6 Develop data Develop and document procedures on how to Data Collection specialist collection collect each required piece of data; if it already procedures and exists, just state where it is; if it does not exist templates state how to generate it; provide enough detail that an average staff member would be able to perform the procedure; keep the procedures as concise as possible; develop whatever templates are needed to capture and report the chosen chargeback information, and prepare a prototype representation (table, spreadsheet, chart, graph, etc.) to show exactly how the data will be reported and presented at each stage of the collection and reporting. Deliverables  An agreed to Collection, Reporting and Billing Strategy Step 5: Set-up the Collection, Reporting and Billing Infrastructure Step 5.1: Design and Create a collection database for Costing and Chargeback Tasks What How Who’s Responsible 1 Design the Now that Costing and Chargeback have been Data Administrator Costing and defined, a storage and retrieval system may Chargeback need to be defined and designed to store the database and collected data, and allow the retrieval and use alternate tools (as of it over a long period of time. Consider the appropriate) following: make it easy to use, make it flexible (easy to modify), have it interface with graphical charting tools to automate the generation of graphs and charts (if possible), allow for querying to generate ad hoc reports, make it large to hold significant historical data, and make it secure (consider who can see what data) Additional tools may also be deployed as appropriate 2 Obtain tools Using the decisions made concerning the Data Collection specialist level of automation required for the Costing Costing and Chargeback Page 19 of 27
  • 20. and Chargeback program, obtain the necessary tools (buy, develop, or use current ones); install and implement the tools 3 Create the Costing Using the design of the previous task, create Data Collection specialist and Chargeback the Costing and Chargeback infrastructure infrastructure Deliverables  An implemented Costing and Chargeback infrastructure (i.e. database, tools, etc.) that satisfies all of the needed requirements Step 5.2: Set Up Collection Mechanism Tasks What How Who’s Responsible 1 Assign collection Assign or have the appropriate management Data Collection specialist responsibilities chain assign Costing and Chargeback collection responsibilities to specific individuals to collect all the required measurements, document them, calculate metrics, perform the necessary analysis, generate the necessary charts/graphs, and store them in the Costing and Chargeback database Deliverables  Assigned individuals who will have responsibility for collecting, analyzing, reporting, and storing the Costing and Chargeback information Step 5.3: Set Up Communication Channels Tasks What How Who’s Responsible 1 Assign Assign or have the appropriate management IT Accounting Specialist / responsibility for chain assign responsibility to one or more LoB Executive / communicating specific individuals to report the Costing and ADE Executive results to Chargeback results to the various levels of management management, stakeholders, and appropriate staff on a monthly basis 2 Assign Assign or have the appropriate management IT Accounting Specialist / responsibility for chain assign responsibility to one or more LoB Executive / communicating specific individuals to report the Costing and ADE Executive results to the Chargeback results to the development staff entire staff (as to keep them informed on results and appropriate) progress being made on a monthly or quarterly basis Deliverables  Assigned individuals to communicate Costing and Chargeback results Step 6: Finalize and Begin Costing and Chargeback Page 20 of 27
  • 21. Step 6.1: Consider A Pilot Activity Tasks What How Who’s Responsible 1 Decide on a pilot Evaluate the need for a pilot activity to test the Costing and Chargeback activity feasibility of the Cost Model and associated Program Manager infrastructure (procedures, collection, templates, common understanding, tools, reporting. 2 Perform a pilot Plan the pilot activity by considering where in Implementation Team activity the organization the pilot should take place, the extent and length of the pilot, and all of the people that would have to be involved; schedule the pilot activity, provide necessary training, and perform the pilot activity; evaluate the results of the pilot activity; make the appropriate changes to the defined costing and chargeback program based on the results of the pilot activity. Deliverables  Documented results of the costing and chargeback pilot Step 6.2: Train Those Responsible For Collecting and Reporting Tasks What How Who’s Responsible 1 Develop training Develop the appropriate training materials for Costing and Chargeback materials all the persons that will have a role in Program Manager collecting, reporting, and using the Chargeback Model 2 Provide training Schedule the training sessions, then perform Costing and Chargeback the training sessions for all those that need it Program Manager to perform their responsibilities Deliverables  Trained staff and management on how to carry out their responsibilities in the costing and chargeback program (collecting, reporting, communicating, and using the costing and chargeback information) Step 6.3: Begin the Costing and Chargeback Program Tasks What How Who’s Responsible 1 Start the program Decide on a start date when the costing and Costing and Chargeback chargeback Costing and Chargeback data Program Manager collection needs to begin Deploy to projects to start estimating and tracking actual costs at the project level 2 Deploy to Finance Deploy to Finance to begin estimating and IT Finance Specialist tracking actual costs at the organization  Analyze cost recovery  Analyze variance reports  Ensure General Ledger feeds are Costing and Chargeback Page 21 of 27
  • 22. accurate  Feed the cost data from GL 3 Control and Audit the IT Accounting process and its Internal Audit monitor the interface to Finance Program Deliverables  A chosen start date for executing the costing and chargeback program Step 7: Apply continuous improvement techniques to the Costing and Chargeback Program Step 7.1: Collect, Analyze, Report, And Evaluate Metrics (Monthly) Tasks What How Who’s Responsible 1 Collect the Execute the Costing and Chargeback Costing and Chargeback measurements procedures to collect the Costing and Program Manager Chargeback data according to the specified schedule 2 Analyze and Analyze the data, prepare the defined charts, Costing and Chargeback prepare results graphs, trends, etc. to prepare for reporting the Program Manager results according to the specified schedule 3 Report results Report the Costing and Chargeback metric Costing and Chargeback results through the defined communication Program Manager channels by the defined schedules using the defined media Deliverables  Collected, analyzed, and communicated monthly measurements Step 7.2: Review the Costing and Chargeback (Quarterly) Note – This step should be performed on a monthly basis for the first few months of the Costing and Chargeback program Tasks What How Who’s Responsible 1 Survey usage During each quarter, note the reactions to the Costing and Chargeback and benefits of Costing and Chargeback program, the Program Manager the Costing and suggestions for improvement, the Chargeback implementation problems, and any other program significant information relating to the program; seek out information if it is not readily available (use surveys, questionnaires, roundtable discussions, etc.) to elicit pertinent information; at the end of each quarter, organize the information collected into some form of presentation to be given to the Costing and Chargeback Sponsor 2 Evaluate Present the information obtained in the above Costing and Chargeback Costing and task to the Costing and Chargeback Sponsor Program Manager Costing and Chargeback Page 22 of 27
  • 23. Chargeback and discuss the results; make sure that the program with following topics are considered for discussion sponsor and evaluation -- the right people are getting the right information; there is a process for receiving and considering improvement recommendations, and improvements to the Costing and Chargeback program are implemented; the consequences of the program on behavior, activities, morale (make the right thing to do the easy thing to do); the Costing and Chargeback program goals; are the Costing and Chargeback being reported still the right ones?; should there be more?; should there be fewer?; the cost of the Costing and Chargeback program is still appropriate; the benefits received because of the Costing and Chargeback program are documented; trends of the Costing and Chargeback reported are positive or there are action plans to change the trends; and most important, management uses the Costing and Chargeback results to make better decisions and make ADM more effective; from the results of this evaluation, develop and execute appropriate action plans Deliverables  Documented evaluation of the Costing and Chargeback program  Appropriate action plans Step 7.3: Apply continuous improvement to the Costing and Chargeback program Tasks What How Who’s Responsible 1 Evaluate the IT Determine how IT and the Business would use Costing and Chargeback Planning this information to improve the IT Planning Program Manager Process process 2 Evaluate the Determine how IT and the Business would use Costing and Chargeback investment this information to improve the investment Program Manager process process 3 Evaluate the Determine how IT and the Business would use Costing and Chargeback Prioritization this information to improve the Project Program Manager Process Prioritization Process 4 Evaluate the Determine how the IT and the Business would Costing and Chargeback Portfolio use this information to improve Application Program Manager Management Portfolio Management Process Deliverables  Documented evaluation of the Costing and Chargeback program (after applying continuous improvement)  Appropriate action plans (after applying continuous improvement)  Results of the continuous improvement initiative and focus Costing and Chargeback Page 23 of 27
  • 24. 3 TEMPLATES None 4 CHECKLISTS List of Sample Work Product - Costing and Chargeback Sample Work Product  Documented IT Cost Model Goals Documented and approved Costing and Chargeback IT Cost Model Goals Defined Cost Elements Defined Cost Categories Cost Elements mapped to Cost Categories Defined Cost Pools Identified costs that need an alternative recovery Defined Billable Units for each Cost Pools Unit Cost and Rate Structure for every Cost Pool identified Summary statement of allocated expenses to ADM/Service (e.g. Maintenance) Defined Rate Structure Documented Cost Model An agreed to Collection, Reporting and Billing Strategy An implemented Costing and Chargeback infrastructure (i.e. database, tools, etc.) that satisfies all of the needed requirements Documented results of the costing and chargeback pilot A chosen start date for executing the costing and chargeback program Costing and Chargeback Page 24 of 27
  • 25. Sample Work Product Collected, analyzed, and communicated monthly measurements Documented evaluation of the Costing and Chargeback program Appropriate action plans Documented evaluation of the Costing and Chargeback program Appropriate action plans (after applying continuous improvement) Results of the continuous improvement initiative and focus (after applying continuous improvement) Appendix A: Labor cost pool decision criteria Proposed Method 1. Set the band levels in line with the organization’s labor structure 2. Divide persons in each banding into two categories: Service and Overhead 3. Utilization rate should be used to determine weather or not a person belongs to service people or overhead. (i.e. 40% could be set as the “break” point. If greater than 40% utilization then the individual is providing a “service”. If less than 40% then the individual is categorized as “overhead”) a) Utilization rate is determined by => service hours (e.g. Project hours, Maintenance hours) / available hours (i.e. all available working hours excluding public holidays, etc.) 4. Overhead labor cost will use the same method as overhead cost categories to allocate back to the band levels. Allocation will be performed by using the service headcount ratio for each banding. (Service headcount ratio is the number of service headcount for each band level divided by total banding service headcount. Reference 3 above.) Type Band 1 Band 2 Band 3 Band 4 Band 5 Band 6 Band 7 Band 8 Service Headcount Overhead Headcount Service Headcount Ratio = service headcount for each band level divided by total banding service headcount Costing and Chargeback Page 25 of 27
  • 26. Appendix B: Infrastructure Cost Pool decision criteria Mainframe cost pool (includes MA, mainframe SW&HW, mainframe storage) Proposed Method 1. Forecast the service machine hours at the beginning of the year, work out the unit cost per service machine hours. Measure and allocate the mainframe cost to ADM service by the actual usage. a) Forecast service machine hours based upon historical data b) Unit Cost / hour = Total machine cost / service machine hours 2. Use the forecast service labor hours to calculate the mainframe unit cost at the beginning of the year, and then allocate the mainframe cost to ADM service (e.g. projects, maintenance) by actual service labor hours High-End UNIX server (includes MA, HW) cost pool Proposed method 1. Calculate the unit cost based on the forecast [Normalized # of CPU*Days], and then allocate the cost to the ADM service by actual usage. Middle and Low-End server cost pool Proposed method 1. Calculate the unit cost based on the dedicated # of server days, and then allocate the cost to the ADM service by actual usage. Other equipment (Network Device, Printers, Fax Machine, Scanner) Proposed method 1. Allocate this part of cost to the banding pools by service HC # Type Mainframe High-end UNIX Middle and Low-End server server Billable unit Machine hours Normalized # of Dedicated # of server days CPU*Days Appendix C: Normalization guideline Computers within an organization have different processing speeds. This speed difference might cause users to request that their work be run on the faster machine to reduce costs. This situation could lead to heavy workloads on the faster computers while the slower units stand idle. To avoid this problem, you can normalize the processing speeds to more evenly charge for CPU utilization. That is, you can assign a percentage of the original CPU time used by a system rather than the actual time to be used during the billing process. Costing and Chargeback Page 26 of 27
  • 27. For example, your organization has two z/OS systems, AL90 and AL95. System AL95 is 20 percent faster than AL90. If you use AL95 as the base system, use a factor of .80 to normalize AL90 to reflect the speed of AL95. For production only: Due to the disparity between the way different operating systems capture performance statistics, it is not desirable to normalize the processor times between platforms (e.g., z/OS to UNIX or UNIX to Windows). Costing and Chargeback Page 27 of 27

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