1. IT Business Management
Why Now?
Senaka Ariyasinghe
VMware
19 June 2014
AUSTRALIAN COMPUTER SOCIETY
BUSINESS SYSTEMS ARCHITECTURE
& DESIGN
2. Today we intend to cover…
2
• New IT operating models
• IT Cost Modeling concepts
• Cost allocation methodology
• Bill of IT
• Chargeback/Showback
• Continuous improvement &
benchmarking
• Cost Optimisation
• Maturity Models – from ITFM to ITBM
3. Is IT Speaking the Language of Business?
I’ll increase
sales by 6% or
$35M.
I’ll reduce
COGS by $5M
annually.
I’ll increase sales
leads 30% and generate
a pipeline of $70M.
CFO
VP Supply
Chain
VP Sales
CMO
CIO
• Sales budget
• Logistics budget
• Marketing budget
• IT budget
I have
$20M extra budget.
What can you do
for me?
I’ll build another
data center which will
give us 40% more
compute power.
4. IT and LOB Alignment – The Long View
ITTotal Cost
IT Unit Costs
$
Time
IT Demand
LOB
“I don’t
understand why
IT costs still
increasing?”
CIO/IT
1. An economic based
means to align
IT/LOB priorities
2. Ability to engage
LOB around
business value
What’s Missing?
5. Changing the Conversation
• IT finds its own savings
• IT budget enhanced
• IT shifts from KTLO to innovation
• IT is now transformational
Cost Risk while Service Quality Innovation
We’ll
reduce annual costs by
$6M, reduce risk in
outsourcing by 20%,
increase service quality
by 15% and apply
savings to a new CRM
system.
CIO
6. Can You Answer these Questions?
1. Do you really know what your services cost?
2. Are you making decisions based on facts or gut feel?
3. Do you know how your services and costs compare with
industry benchmarks?
4. Do you have a methodology and a plan to move
from where you are to where you need to be?
5. Do you know how all the pieces of IT come
together to deliver value?
6. Can you effectively capture business requirements,
deliver on them, and communicate how you’re performing?
You need a structured approach to
running the business of IT
7. IT Business Management
• Helps organisations gain transparency and control over the cost
and quality of IT services
• Helps IT organisations shift from a technology orientation to a
service broker orientation, delivering a portfolio of IT services that
align with the needs of line of business stakeholders
Gain Transparency
Align IT with the Business
Enable the CIO Transformation
Agenda
Control and Optimize IT Budget
8. ITBM Why Now?
• Running IT as a Business – from “Cost Centre” to
“Value Centre”
• New IT business models – IT as a Service
• New role of the internal IT organisation – IT Service
Broker
• Contestability Frameworks
• Doing more with less
Increasing need for transparency and control over the
costs and quality of IT services
Some compelling industry transitions & triggers driving adoption
9. Transforming IT with IT-As-A-Service
DNA, Skills, Roles &
Organizational Alignment
“Front Office” Capabilities
Service Accountabilities
Technology Breadth
Enabling Technology
Private, Hybrid, Public Clouds
End-to-End Automation
Financial Transparency
Self-Service Capabilities
A New IT Business
Model
Service Oriented
Market Driven
“P & L” Focused
Broker and Builder
10. Service Level
& Quality
Demand, Costs
& Incentives
Broker of IT Services
Service
Portfolio
Internal
IT
IT Broker Capabilities
• Cost Transparency
• Spend and Price Analysis
• Collaborative service offerings
• Service Quality and Cost Focused
• Agility
Enhancing the CIO and Operations
• Delivering internally and externally provisioned
business services
• Providing the right service at the right price for
competitive advantage
Private
Cloud
External
Vendors
Public
Cloud
Tomorrow’s IT – The Service Broker
11. Challenges Infrastructure Teams are Facing
• Offer Competitive Infrastructure, Cloud
Services
How much is my Cloud, how does it compare?
• Manage and Optimise Infrastructure &
Cloud Costs
How to manage, optimise overall Cloud cost?
• Showback Cost and Usage to Business
How can my customers benefit?
12. What is the Cost of Cloud? Cost of a VM? Email?
13. But they need to know Cloud costs in minutes…
Total cost of your
Cloud infrastructure
Cloud costs broken
down for each major
cost category
14. …and generate rate cards automatically!
Average cost each
VM that is part of
any specific service
Breakdown of what
drives the average
cost per VM
15. …and to compare costs across Clouds
Compare Private
Cloud costs to Public
Cloud for “like”
offerings
17. The VMware Approach to IT Business
Management
Communicate IT Value
in Business Language
3
Cost & Service
Optimization
2
Proactively Managing
Business Expectations
4
Bringing IT
All Together
5
360o Visibility for
Fact-based Decisions
1
18. Bit of background…ITIL v3 Service Catalogue &
IT Financial Management
email EUC
ITIL v3 recommends a 2-Tier Service
Catalogue
Business Services Catalogue
Technical Services Catalogue
Service Catalogue
ITFM components as
specified in ITIL V3
Budgeting
Accounting
Chargeback
Recovering IT costs from
business units and service
consumers
Accounting helps IT to understand
where the budget is spent
Planning for future IT investments to
support business needs
Role of IT Financial Manager (ITIL):
responsible for managing budgeting,
accounting and chargeback for the IT
service provider
19. Chargeback vs. Show back
Chargeback
“The need to understand the components of the costs of IT,
and to fund the IT organisation in the face of unexpected
demands from user departments, led to the development of
chargeback mechanisms, in which a requesting department
gets an internal bill (or "cross-charge") for the costs that are
directly associated to the infrastructure, data transfer,
application licenses, training, etc., which they generate”
Show-back
“Show-back consists of providing IT management,
departments, and corporate management with an analysis of
the IT costs due to each department, without actually cross-
charging those costs.
The pressure on the departments to limit their usage is less
direct, but awareness of the costs usually causes
department heads and senior management to question why
a department is "spending" more than another in IT.”
Source: http://en.wikipedia.org/wiki/IT_chargeback_and_showback
21. Cost Drivers and Allocation
Technical Services
Business
Services Business
Units
Drives the
costs of…
Costs are
allocated to…
Using an
allocation
method…
Storage Network
Data
Centre
email
Service
Desk HR Fin
Allocation
Methods
• Consumption/Activity
Based
• Fixed
• Percentage
Cost Drivers
• Labor
• Storage
• Network
• Facilities
• etc
Unit Cost of
Service x
No of Units
Consumed =
Service Cost
charge to the
Business Unit
22. Cost Model & Cost Analysis
Expenses
IT Organisation /
Expense Categorization
Technical Services
Business
Services
Business
Units
Organiational Cost Mgmt
Technology Costs Mgmt
Services
Cost Mgmt
Customer
Management
IT & Technology Lines of Business
Corp &
Finance
23. ITBM Automated Processes
ITBM
Cost Model
ITBM
Input Data Sources
Financial Information
General Ledger
Ad Hoc Analyses
Fixed Assets
Budget
Project Accounting
Purchase Order
Operational Information
PPM
CMDB
Product Catalog
Usage Metering
Headcount Info
IT Asset Management
Service Management
Ad Hoc Data
Outputs
Reporting
• Dashboards – CIO, CFO
• Monthly / Quarterly YTD
reporting
• Service Cost
Chargeback / Showback
Analytics
• What-if Analysis
• Benchmarking
• TCO
• Unit Cost Analysis
• Cost Reduction Opportunity
Identification
Database, Flat File, Web Form adaptors for ETL
25. CIO Dashboard
Summary
State of budget
Cost by IT ServicesDetailed, in context
drill down capabilities
Observation Engine
Automatic selection of
major variances
26. CFO of IT Dashboard
Over-under recovery
perspective
CFO Dashboard
27. IT Statement/Bill of IT
“Bill-of-IT” views for
each Line-of-Business
or Department
by each major service
28. Gartner’s Six Pillars of Effective IT Financial Transparency
To run IT as a Business…effective IT financial transparency
is needed
Gaining full financial transparency requires new organisational capabilities
beyond IT budgeting…
30. Journey to “IT Service Broker”- Evolving Role of ITFM
Private Cloud Costing & Basic
Benchmarking
Enterprise Cost Model & Bill of
IT
Service Quality Management &
Compliance Reporting
Modeling & Forecasting
+3m +6m +12m +18-24m
• Organisations transitioning into a “Service Broker”
model will need to evolve their IT financial
management maturity in measured steps through
their transformation journey
• New capability and skills must be acquired – and
processes & tools must be in place that can
provide enterprise-wide service cost/service
quality visibility & improvements
Maturity
2 – fact based decision to manage your biz your way
5 – think of new supply chain
add quality to costs
We see the new role of IT as a broker of IT services. This is a transformation for most enterprise IT organizations – whether you want to use that word or not.
The new role of IT is to stand up and compete against the third party service providers trying to win your customers. To win your business, from the business you work for.
Central to this new role is defining what services you want to offer, at what price, understanding those prices can be loss leaders or highly profitable – you can use them to shape demand, and you can use them to take costs out of IT through promoting lower costs services or cutting underutilized or high cost services.
A services orientation makes answering the question: Where can I take costs out of IT? – much easier to answer.
With this change the CIO and IT’s role expands - from managing technology and silos to managing the delivery of a portfolio of services at the right price for competitive advantage – and to keep your customer. Whether you outsource a portion of a service or a service entirely – should be up to you.
One definition of IT Service Broker: IT Service Brokers will quickly and objectively source an optimal IT solution that delivers differentiating, flexible and high-quality services at competitive market rates. The role of the IT Service Broker is designed to remove mundane and tedious tasks so that executives can focus valuable time and efforts on strategic and business-oriented programs. Unlike traditional management consulting, the goal of an IT Service Broker is to deliver high-quality results in short periods of time to minimize expense. To use a real-world example, many organizations evaluate market choices with regards to e-mail administration and support. An IT Service Broker can evaluate both internal and external e-mail support options, and recommend a tailored solution based upon architect-supplied business requirements. A professional IT Service Broker will assess and provide recommendations for services in a fraction of the time at significantly less cost than traditional IT sourcing processes. Moreover, by relying on free market principals, IT Service Brokers have the latitude to select solutions that will fast-forward technology adoption along with implementing flexible and favorable business terms.
The ITBM solution is a platform that automatically collects and validates disparate data in ONE location for analysis and insight. The CIO Dashboard provides at a glance views for all costs and services by multiple dimensions.
CIO dashboard:
Focused on Cost, Budget and Forecast (when available)
Provides both a YTD trend and a monthly view
Focus on top Services provided, as well as top IT Cost centers
CapEx/OpEx, Expenses etc available as Additional Reports
With 8.0, we now have a new set of dashboards aimed at specific personas, answering the top questions each persona is most interested in. Additional framelets are available for easy customization.
CFO of IT dashboard
In addition to Cost vs. Budget, Focused on Recovery
Recovery by line of business
Recovery by Service
With a detailed breakdown of the price for IT, business units can understand the link between their IT consumption and IT costs, to predict and, ultimately, influence them.
Share US State case study. (go to ITBM Vault page for anonymous case study)
