IT organizations need financial transparency to show business stakeholders the costs of specific IT services. This document outlines five steps to achieve financial transparency: 1) create an inventory of business and technical services, 2) calculate cost models for each service, 3) identify metrics to measure service consumption, 4) collect and analyze cost and usage data, and 5) benchmark costs against industry peers. Financial transparency allows IT to reduce costs, improve services, and demonstrate the value provided to the business.

1. Similarly, your business counterparts want to know
what IT services they are paying for and how much
each service costs. For example, the sales execu-
tives don’t want a quarterly lump sum expense that
reads, “IT services: $8 million.” They want to know
how much they are paying for smart phones, desk-
tops, and laptops, as well as for the support of these
devices. They also want to know the expense of
operating and maintaining the sales automation
application and any other services that IT is providing.
Financial transparency means that you understand
the costs IT incurs in providing each specific service
to the business and that you can communicate those
costs in a language the business understands. Many
IT organizations are not able to provide this level of
financial transparency, but it’s more critical now than
ever before.
Key IT Challenges Addressed
Through Financial Transparency
There are several pressure points facing IT executives
today that financial transparency — through effective
IT service cost management — helps to address.
One key issue is that your business counterparts
are constantly striving for better performance. They
need to be able to measure the value of the services
they provide. If IT cannot provide them with the cost
of support for each business service, the business
will have difficulty accurately measuring the value of
those services. So the business wants a break-
down of costs per IT service provided — with the
explanation in a language that they can understand,
not in technology-speak. Similarly, consumers want
a breakdown of the specific cable services they
What do your IT services cost? If you subscribe to a cable TV service, you know that you can
order services based on different package offerings. If you order services outside of your
basic package, you pay extra. The monthly bill typically outlines the package and any extra
services that you ordered, such as a special sporting event or pay-per-view movies. If the
service provider’s statement provided only a one-line total cost, without itemizing each
extra expense, you wouldn’t know exactly what you were being charged for. And you might
well question whether the charges were fair.
What Exactly Am I Paying For?
Why Financial Transparency
Matters in I.T.
By Steve O’Connor, General Manager for IT Business Management, BMC Software
b m c i N D U S T R Y INSI G HT s

2. ordered (expanded basic cable and specific pay-per-
view movie titles, for example) rather than a confusing
list of the costs of the network, service personnel,
circuits, routers, and other infrastructure components.
The business also wants to pay a fair and reasonable
cost for these services and to pay only for the services
consumed. Further, the business would like to be able
to show the cost of IT services versus the cost of alter-
nate services, such as outsourcing. This is similar to a
consumer wanting to compare the cost of a sports
package through cable service versus the cost of a
similar package via satellite TV service.
In addition, nearly every IT organization is being asked
to reduce costs. But how can you reduce the costs of IT
services — with the least impact on the business — if
you don’t know the cost to support each business
service? A related point is that IT wants to get the most
value out of every resource, including people resources.
And you have to be able to predict how you are using
those resources over time as well as what they cost.
Finally, which services should you send to the cloud and
which should you outsource? If you don’t know the cost
of the service you are providing, you won’t know which
option to choose. Once you achieve financial transparency
through service cost management, you can success-
fully address all of these issues.
Five Steps to Financial Transparency
Very few IT organizations have the service cost man-
agement capabilities needed to provide the financial
transparency that the business wants and that good
management requires. In fact, many IT organizations
manage and track the cost of services by spread­-
sheets, which can be cumbersome, costly, and time-
consuming when a variety of services are involved. You
can dramatically simplify the process and achieve
financial transparency by following the five steps
described below.
1. Create a well-defined service portfolio. Start by put-
ting together a service portfolio that includes both the
business services and the technical services that you
are delivering. The business services should be
described from the consumers’ view of the services
you are providing, using terms they understand, such
as email, order entry application, or sales automation.
These descriptions should also represent how you want
your IT staff to describe the services you provide to the
business. For a cable provider, the service portfolio
might include the basic service — specific packages
such as sports, children’s, or movie channels. It might also
include any pay-per-view services. In addition, the service
might include high-speed Internet and phone service.
Behind these business services are the IT services that
enable them to function. These include the underlying
technologies and technical services that you build,
manage, and operate to enable you to deliver the busi-
ness services. It’s really about specifying in detail a list
of all the services IT provides.
2. Calculate cost models. Do you know how much each
service costs you to provide to the business? If not, you
won’t know how much to charge. Create a cost model
for each service in your IT service portfolio. The cost
model includes the cost of all the elements that go into
providing each service. For a cable provider, the model
might include the cost of the network itself as well as
the circuits, router, people in the network operations
center, and tools they use to manage the network.
Financial transparency
means that you understand
the costs IT incurs in
providing each specific
service to the business and
that you can communicate
those costs in a language
the business understands.

3. 3. Identify consumption metrics. Now determine how
the business actually consumes the services you are
providing. If you distribute laptops to every employee in
the company, and you provide a service to support
them, this service is consumed by the number of lap-
tops you’ve handed out. If you operate and support a
sales automation application, it’s consumed by the
number of people who actually are using it. Going back
to the cable example, people consume cable services
through the basic service, the specific packages, and
any pay-per-view services that they order.
4. Collect and collate data. Are you tracking how much
the business is actually using IT services, how much
time it takes to provide each service, and the costs of
providing them? If not, begin doing so now. Collect and
collate data around the services you provide, your
costs and cost models, and the consumption metrics.
Tracking costs and usage enables you to create a
statement or user bill that you can use either as an
informational tool or to charge back to the business.
This statement can be compiled for each business unit
to give executives a snapshot of all the different services
that IT delivered to the business unit during a specific
time period. It includes how much of the service each
business unit consumed and the cost of the service
level provided. The statement is similar to what your
cable provider’s monthly statement outlines: basic
service, special packages, pay-per-view offerings
ordered, and any other services provided.
5. Compare against industry benchmarks. In the final
step, you analyze your data and compare it to industry
benchmarks. For example, compare your level of
service and costs against other companies of similar
size and type. How does your cost for providing service
X compare to what others in the marketplace incur for
the same service? With this analysis, you can demon-
strate the value you are providing to the business. If you
find you are falling short in level of service compared to
your industry peers, then you know you need to take
action to improve your offerings. If you realize that you
are incurring higher expenses to provide a specific
service than most of your industry counterparts incur,
then you know you need to analyze your costs and
determine why yours are higher.
Use the Right Tools —
Get the Results You Need
If you’re going to implement a financial transparency
program, you don’t have to start from scratch. IT service
cost management solutions can help you achieve
transparency into the resources and associated costs
required to provide IT services. These solutions enable
you to model service costs and cost drivers, collect cost
and consumption data, and compare costs against
industry benchmarks. (Look for solutions that integrate
with the BMC Business Service Management (BSM)
portfolio of products so that you can leverage infor­
mation you already have with other BMC solutions
to support and automate service costing. BSM is
a comprehensive approach and unified platform for
running IT.)
Few, if any, business or business functions can provide
a competitive differentiator today without IT services.
But if IT can’t provide clear, accurate cost data to sup-
port your charges, your business customers will surely
question the worth of these charges. To maintain and
advance your competitive advantage, you need to
determine how you use IT services to support the
business and the associated costs of doing so.
b m c i N D U S T R Y INSI G HT s
Tracking costs and
usage enables you
to create a statement
or user bill that you
can use either as an
informational tool
or to charge back
to the business.

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About the Author
Steve O’Connor, BMC
Software’s general manager
for IT Business Management,
is responsible for leading
the organization that develops
solutions to provide better
transparency into IT resources, activities, financials,
and regulatory compliance. Prior to joining BMC,
O’Connor was a founder of ITM Software and was
responsible for product management, product
development, marketing, and professional services
and support. He also served as chief information
officer and vice president of Information Services
for Silicon Graphics, Inc., (SGI) and held various IT
leadership and management positions within Sun
Microsystems and Cullinet Software. Over the
span of his IT career, he has managed all major IT
disciplines, including applications development,
applications support, desktop computing, data
centers, networks, and telecommunications.
O’Connor earned a B.S. from Boston College,
School of Management, where he majored in
computer science. He also holds a J.D. from
Suffolk University, School of Law.
Business Runs on I.T.
I.T. Runs on BMC Software
Business thrives when IT runs smarter, faster,
and stronger. That’s why the most demanding IT
organizations in the world rely on BMC Software
across both distributed and mainframe environ-
ments. Recognized as the leader in Business
Service Management, BMC provides a comprehen­
sive and unified platform that helps IT organizations
cut cost, reduce risk, and drive business profit. For
the four fiscal quarters ended December 31, 2009,
BMC revenue was approximately $1.90 billion.
b m c i N D U S T R Y INSI G HT s
The right IT service cost management solutions can reduce the cost of modeling and analyzing
service costs dramatically. The solutions should enable IT to quickly gain insight into critical cost
drivers; collaborate with the lines of business and finance on investment priorities; and make faster,
fact-based decisions to positively impact the business while reducing IT costs. Being able to achieve
this level of visibility and additional business benefits from these solutions can make it easier to
justify your investment in them.
Follow the five steps outlined here to create financial transparency for your IT organization. With
financial transparency, you can make decisions based on real data and invest your limited resources
where they will have the biggest impact on business success. What’s more, the business will be
able to see the value IT provides for each service they use, and they won’t have to wonder what
they’re getting for the fees you charge.
The BMC IT Business Management Suite provides financial transparency for IT organizations. For
more information, visit: www.bmc.com/products/product-listing/ITBM.html.