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Benchmarking Market Pricing


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A joint presentation from CIPSA and ISG on the why's and how's of benchmarking.

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Benchmarking Market Pricing

  1. 1. Benchmarking MarketPricingRawdon Simon - ISG31st May 2012 Copyright © 2012 Information Services Group, Inc. All Rights Reserved
  2. 2. Benchmarking Market PricingWhy Benchmark? Uncover opportunities for improved efficiency Determine a sourcing strategy Sole Sourcing – don’t leave money on the table! Ensure you are paying the right amount for your outsourced services Copyright © 2012 Information Services Group, Inc. All Rights Reserved
  3. 3. Benchmarking Market PricingTypes of Benchmark • Looked at from the perspective of your costs in providing the IT service Cost • Addresses all costs, both in-house and outsourced Benchmark • Typically used to uncover efficiency opportunities across in-house operations • Uses costs data for comparison • Analyses the price you are paying your service provider for services received • Typically used to analyse fees paid for Price already outsourced services or to determine fees for proposed outsourced Benchmark services • Only looks at outsourced fees for a specific set of services • Uses price data for comparison Copyright © 2012 Information Services Group, Inc. All Rights Reserved
  4. 4. Benchmarking Market PricingWhen are Benchmarking Clauses Appropriate? More Less Appropriate for: appropriate for: Shorter term contracts (3 Longer term contracts (at years or less) least 3-5 years) Services not commonly outsourced Well-defined, commonly Services where data is not outsourced services available Services where benchmark Services with large data is available or components of reasonably expected to transformation embedded become available through the contract life Copyright © 2012 Information Services Group, Inc. All Rights Reserved
  5. 5. Benchmarking Market PricingThe Importance of Scope Application Development & Maintenance P0/P8 Development Q0/Q6/QW Maintenance ZF Management & Tools (AD) Mainframe (MF) Storage (ES) Servers (SP) Desktop (DT) Network (NW) Service Desk (SD) D1 Mainframe E1 Disk Storage DA Server Processors B8 Common Office A1 LAN Architecture C3 Central Service Desk Processors E2 Automatic Tape DB Server Function Applications A2 LAN Switching C4 Local Service Desk Retrieval Systems BA Server Batch BC Email A3 LAN Routing C5 Incident Management B1 Transaction E3 Manual Tape Storage Processing and Job D6 Personal Computers AA LAN Planning & & Problem Processing E4 Optical Storage Scheduling D7 Infrastructure Servers Design Management B2 Interactive M1 Backup and Restore BB Server Transaction D8 Thin Clients AB LAN Changes Processing Processing F9 Distributed Printers AC LAN Support ZM Service Desk B3 Batch Processing ZD Storage Management BD Server Databases AD LAN Operations Management and B4 VM Processing and Tools G5 Server Planning and G1 Desktop Planning and Tools BF Mainframe Design Design W1 WAN Architecture Databases K5 Server Hardware MAC K1 Desktop MAC W2 WAN Switching Central Printing K6 Server Software K2 Desktop Software W3 WAN Routing G3 Mainframe Planning Distribution Distribution WA WAN Planning & Surveys (SU) (CP) L8 Server Support L1 Common Software Design L5 Production Control L9 Server Hardware Support WB WAN Changes F1 Laser Printing UA User Profile L6 Mainframe Maintenance L3 Desktop Hardware WCWAN Support Operations F2 Impact Printing UB User Problem Solving F3 COM Production LA Server Monitoring and Maintenance WDWAN Operations UC Support Satisfaction LB Mainframe Support Supervision M8 Infrastructure Server M5 Mainframe Change F7 Post Processing UD Office Technology F8 Enveloping M7 Server System Administration V1 Voice Architecture Satisfaction Administration N3 Desktop Training V2 Voice PBX/Centrex UE Business Systems ZA Mainframe V4 VoIP Management and ZV Central Printing Satisfaction Management and ZG Server Management ZJ Desktop Management VA Voice Planning & UF Overall Satisfaction Tools and Tools and Tools Design Tools UP Employee VB Voice Changes Questionnaire VC Voice Support UZ User Population VD Voice Operations Management Services (MS) Telecoms (TC) Middleware & X1 Contact Centre Applications (MA) I4 Executive M4 IT Service Continuity S1 Private Circuits T1 International Leased X2 Network Security Management M6 IT Security S3 Public Frame Relay Circuits X3 Remote Network B6 Middleware I3 Central N2 Service and Account Virtual Circuits T3 International Public Access B9 Business Applications Services Management S4 IP VPN Connections Frame Relay Virtual X4 Cabling BE Internet Applications I7 Outsourcer Z2 Premises S6 Call Volumes and Circuits X5 Internet Connectivity ER SAP Applications Management ZS Management Services Tools Charges T6 International Call S8 Access Connections Volumes and Charges YP Network total HW and ZB Middleware and H1 Budget Analysis S9 Internet Circuits T7 Calling Cards SW costs Applications General H2 Business Volumes T8 International ATM Circuits Management and Information Z1 Study Related Information V3 Telecommunications ZP Network Line Tools Z6 Additional Services Information Management and (GI) Z9 Data Quality YT Telecoms total costs Tools Copyright © 2012 Information Services Group, Inc. All Rights Reserved
  6. 6. Benchmarking Market PricingMethodology Mainframe (MF) Servers (SP) Storage (ES) Desktop (DT) Service Desk (SD) Telecoms (TC) Network (NW) D1 Mainframe DA Server Processors E1 Storage Architecture B8 Common Office C3 Central Service S1 Private Circuits A1 LAN Architecture Processors DB Server Function E2 SAN Infrastructure Applications Desk S3 Public Frame Relay A2 LAN Switching / B1 Transaction BA Server Batch E3 Tiered Disk BC Email C4 Local Service Desk Virtual Circuits Routing Processing Processing and Job E4 Virtual Tape Storage D6 Personal Computers C5 Incident & Problem S4 IP VPN Connections A4 Wireless LANs B2 Interactive Scheduling E5 Automatic Tape D7 Infrastructure Servers Management S6 Call Volumes and AA LAN Planning & Processing BB Server Transaction Storage & Legacy D8 Thin Clients Charges Design B3 Batch Processing Processing ATL F9 Distributed Printers ZM Service Desk S8 Access Connections AB LAN Changes B4 VM Processing BD Server Databases E6 Manual Tape G1 Desktop Planning Management & S9 Internet Circuits AC LAN Support BF Mainframe G5 Server Planning and Storage and Design Tools T1 International Leased AD LAN Operations Databases Design E7 Optical Disk Storage K1 Desktop MAC Circuits G3 Mainframe K5 Server Hardware EA Storage Planning K2 Desktop Software T3 International Public W1 WAN Architecture Planning MAC and Design Distribution Middleware and Frame Relay Virtual W2 WAN Switching / L5 Production Control K6 Server Software EB Storage Change L1 Common Software Applications (MA) Circuits Routing L6 Mainframe Distribution EC Storage Support Support T6 International Call WA WAN Planning & Operations L8 Server Support EE Storage Operations L3 Desktop Hardware B6 Middleware Volumes and Design LB Mainframe L9 Server Hardware M1 Backup & Restore Maintenance B9 Business Charges WB WAN Changes Services Mapping Support Maintenance M2 Centralised Archive M8 Infrastructure Server Applications T7 Calling Cards WCWAN Support M5 Mainframe LA Server Monitoring Solutions Administration BE Internet Applications T8 International ATM WDWAN Operations Change and Supervision M3 Disaster Recovery MB Desktop Backup and ER SAP Applications Circuits M7 Server System Restore V3 Telecommunications V1 Voice Architecture ZA Mainframe Administration ZD Storage N3 Desktop Training ZB Middleware and Information V2 Voice PBX / Centrex Management & Management & Applications YT Telecoms total V4 VoIP / IP Telephony Tools ZG Server Management Tools ZJ Desktop Management &Tools costs VA Voice Planning & & Tools Management & Tools Design VB Voice Changes Application VC Voice Support Management Central Printing General Information Surveys Development and VD Voice Operations Services (MS) (CP) (GI) (SU) Maintenance (AD) X1 Contact Centre I4 Executive Mgmt P0 Project F1 Laser Printing H1 Budget Analysis UA User Profile X2 Network Perimeter I3 Central Services Characteristics F2 Impact Printing H2 Business Volumes UB User Problem Control I7 Outsourcer Mgmt P8 Source Code F3 COM Production Z1 Study Related Solving X3 Remote Network M4 IT Service Q0 Application F7 Post Processing Information UC Support Satisfaction Access Continuity Characteristics F8 Enveloping Z6 Additional Services UD Office Technology X4 Cabling M6 IT Security Q6 Source Code Z9 Data Quality Satisfaction X6 Conferencing / N2 Service and QWCore Business ZV Central Printing UE Business Systems Telepresence Account Mgmt Relation Management & Satisfaction Z2 Premises ZU Development Tools UF Overall Satisfaction YP Network total HW ZS Management Software UP Employee and SW costs Services Tools ZF Management & Questionnaire ZP Network Line Tools UZ User Population Management & Tools Service definitions ISG Model Scope Adjustment $ Charges Services Model Analysis ISG Database Rates Copyright © 2012 Information Services Group, Inc. All Rights Reserved
  7. 7. Benchmarking Market Pricing Process Overview Understand customer Planning organisation Collect data and Fact Finding interview key stakeholders Calculate performance Assurance indicators Analysis Comparison and analysis CharterDocument Reporting Documented findings Copyright © 2012 Information Services Group, Inc. All Rights Reserved
  8. 8. Benchmarking Market PricingQuality Benchmark• Relationship between cost and quality• Most organisations achieve a similar level of quality though• Guaranteed 100% availability is a special case• Level of Service makes a big difference• E.g. 24X7 vs. 12X5• Benchmark Target (contractual) and Achievement (performance) Abandonment rate for Central Service Desk calls 16.0 14.0 12.0 10.0 % 8.0 6.0 4.0 2.0 0.0 ACME RG min RG mean RG max Target 7.0 6.0 7.0 8.0 Actual 8.0 2.4 8.2 14.2 Copyright © 2012 Information Services Group, Inc. All Rights Reserved
  9. 9. Benchmarking Market PricingLevel of Detail • Tower level • Rough indication of market price High Level • Typically used as part of a sourcing strategy determination • Determine if a detailed benchmark is warranted • Sub Process Level • Fairly accurate assessmentIntermediate • Can be used to negotiate with suppliers • Often used to decide on going to the market or a sole sourcing option • Highly detailed forensic review • High degree of accuracy Detailed • Used to effect a price change as per the benchmarking clauses in a contract • Will stand up to scrutiny Copyright © 2012 Information Services Group, Inc. All Rights Reserved
  10. 10. Benchmarking Market Pricing Midrange Server - Type A  The total annual expenditure analysed for the Type A $,000 $ application servers is $x.xx million . It includes annual $,000 hardware, software, support costs (internal and outsourced). $,000 It also includes an allocation of management services ($xxxK),Annual per Server ($) $ $ $,000 Premises costs ($xxxK) and FTE related overheads ($xxxK). $,000  x.xx FTEs have been allocated to the Type A server service $,000 $ tower. $,000 $,000  xxx physical servers, xxx logical servers reported for Client. $,000 $,000  Infrastructure availability of 336 hours, 99.99%. $-  Comparison Group profile: Client Market Min Market Avg Market Max − Number of physical servers, xxx – xxx severs − Number of logical servers, xxx – xxx logical servers SAMPLE ONLY − Availability 168 hours, 98.4 – 99.9%.  Client’s annual cost per logical server is within the market range and is in-line with the market average.  This result indicates that this is an area where Client has an opportunity to potentially save costs through a competitive bidding and negotiation process. Copyright © 2012 Information Services Group, Inc. All Rights Reserved
  11. 11. Benchmarking Market Pricing Sample Results Client Minimum Savings Maximum SavingsService Tower Expenditure ($000s) $(000s) Opportunity $(000s)Server – Type A $ x,xxx $ -$ x,xxxServer – Type B $ x,xxx $ - $ -Server – Type C $ x,xxx $ -$ xxxDesktop $ x,xxx $ xxx $ x,xxx High LevelE-Mail $ xxx $ -$ xInfrastructure Servers $ x,xxx $ -$ xxxStorage $ x,xxx $ -$ xxxNetwork - LAN $ x,xxx $ -$ xxxNetwork - Voice $ xxx $ -$ xxxNetwork - Contact Centre $ x,xxx $ - $ -Total Savings Opportunity $ xx,xxx $ xxx $ x,xxx Copyright © 2012 Information Services Group, Inc. All Rights Reserved
  12. 12. Benchmarking Market Pricing Sample Results ACME Peer Group Tower Monthly Total Monthly TotalUnix Servers $2,015,971 $1,938,900Wintel Servers $2,055,425 $2,002,300Linux Servers $133,103 $130,900HP Non Stop Servers $265,210 $300,000Teradata $6,647 - IntermediateBatch $217,668 $200,118Migration $24,617 -Middleware $364,021 $344,200Midrange Hardware $1,169,690 $1,096,795Out of Scope – Adjustments not applied toResource UnitsTotal $6,252,353 $6,013,213ACME total as a percentage of Peer Group total 103.98%Percentage Delta for Monthly Total 3.82% Copyright © 2012 Information Services Group, Inc. All Rights Reserved
  13. 13. Benchmarking Market PricingThe Role of Contractual Benchmarking …to the Traditional view is Transformational changing… view An accepted …but also a management strategic tool for tool for clients to clients and gauge the cost- service providers and quality- to mutually competitiveness enhance the of service sourcing delivery… relationship Copyright © 2012 Information Services Group, Inc. All Rights Reserved
  14. 14. Benchmarking Market PricingWin-win situations occur when all parties work togethertransparently and coherently.Must demonstrate to their clientthe full value of their servicesand quantify opportunities Must ensure they obtain awhere changes to technology, holistic view of the servicesprocesses or business they receive, andrequirements would understand the rootenhance the value they causes of any gapsdeliver, or allow the identifiedservice provider todeliver moreprofitably Need to have a detailed methodology, broad reference data and experience to analyse complex environments and handle unique features Copyright © 2012 Information Services Group, Inc. All Rights Reserved
  15. 15. Benchmarking Market PricingUsing Benchmarks to Drive Change Efficiency improvements Effectiveness improvements Efficiency and effectiveness savings► A standard services-based transformation model is characterised by “pay-as-you-go” utility computing, transparency into billing and consumption, and effective demand management.► Service providers leverage the ability to deliver economies of scale. Copyright © 2012 Information Services Group, Inc. All Rights Reserved
  16. 16. Benchmarking Market PricingBuilding a Benchmark Price Remaining opportunity with unidentified cause Benchmark Each constraint which cannot be identified in Uncontracted Price the contract but which is accepted as a cause Constraints for an increase in delivery cost Historic Investment Any charges still to be paid for services already Contracted delivered by the service provider Constraints Total Spend Client Specific Each constraint identified in the contract which Services causes an increase in the cost of delivery CLIENT Any service not commonly found in other Standard Service organisations, and therefore no comparator prices exist. Valued through discussion of the (normalised for costs with the service provider and client. scope, size, complexity & The most efficient and effective environments service level) in the market relating to the scope that is being benchmarked – described purely in output terms. Copyright © 2012 Information Services Group, Inc. All Rights Reserved
  17. 17. Benchmarking Market PricingSetup + do it In Summary Right ► Negotiate benchmark clauses where it makes sense ► Contract benchmarking can be a positive experience if the client, service provider and bench-marker all work together transparently and coherently.No one is ► Change initiatives based on standard service delivery models can deliver significant client savings and allow service providers to improveLeft Out margins by leveraging economies of scale. ► Clients can reinvest savings with service provider on other initiatives ► Use of well classified, and detailed benchmark dataGet the data uncovers the source of performance issues and defines the Right potential scope of the improvement opportunity. Copyright © 2012 Information Services Group, Inc. All Rights Reserved
  18. 18. Discussion Benchmarking Market Pricing Questions? Copyright © 2012 Information Services Group, Inc. All Rights Reserved