Driving Digital Transformation Moving from Cost Allocation to Value-Based Service Optimization

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Driving Digital Transformation
Moving from Cost Allocation
to Value-Based Service
Optimization
About BluLogix
BluLogix has delivered advanced monetization
solutions to enterprises for more than a decade.
The history of the platform dates back even
further as a billing platform built for telecom
and mobile carriers.
For the past decade BluLogix has been focused
on the Managed Service Providers and ISVs
enabling billing automation and agile
monetization for broad technology portfolios.
Today, BluLogix is a recognized leader for
complex agile monetization, operating in three
countries, across a spectrum of industries to
include Public Sector
Government CIOs must go on the offensive to lead digital
transformation by focusing on the transforming Shared Service
Organizations (SSO) from Simple Cost Allocation to the Value Based
Service Optimization.
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Introduction
BluLogix is a relatively new entrant to the
Shared Services model with some big wins
against established incumbents. BluLogix
success in Shared Services is largely based on
automating the billing or chargeback process,
based on Generally Accepted Accounting
Principles (GAAP), to address the migration
to Cloud and SaaS services. Working from
this viewpoint gives BluLogix a different
perspective than legacy ITFM solutions
focused on IT general ledger (GL) analytics
and data presentation.

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Introduction
Key Challenges:
In many cases GL analytics and data presentation meets the requirement of aligning IT Cost with
business value. However, as the world shifts to public/private cloud and SaaS, there is a requirement to
manage and consume expanding amounts of usage data, from multiple sources, to account for business
cost based on use.
Moving to a usage enabled shared services model fixes problems other allocation methods ignore, one of
the most significant of which is adherence to GAAP. GAAP adherence ensures de-risking of financial
audits focused on how expenses and funds are allocated across an enterprise. GAAP is a federal
requirement for public sector organizations that receive federal funding and allocate cost (OMB Circular
A-87).
Many SSOs were built to support shared
use of data center resources and
enterprise software licensing. These
structures are challenged with
management of public/private cloud and
Software as a Service.
SSOs have traditionally provided one to
one chargeback for resources sourced by
IT. Product definitions don’t translate to
business service definitions making it
difficult for business stakeholders to
associate cost to value.
Business stakeholders are not satisfied with
primitive high-level and low-level allocation
methods that do not align with competitive
commercial usage-based consumption pricing.
It is difficult for IT to accurately assess usage in
virtualized environments —which IT resources
are being utilized, how much they are being
utilized, and who is utilizing them.
Business stakeholders cannot determine
whether IT is offering a competitive service or
whether the service can be procured more cost
efficiently elsewhere.
What is OMB Circular A-87?
OMB Circular A-87, also known as "Cost Principles for State, Local, and
Indian Tribal Governments," is a set of guidelines issued by the Office of
Management and Budget (OMB) that establishes principles for
determining the allowable costs of federal awards to state, local, and tribal
governments.
The circular provides guidance on the types of costs that can be charged to
federal awards, as well as the documentation and reporting requirements
for those costs.
It also includes information on indirect cost rates, audits, and other related
issues. The circular is intended to ensure that federal funds are used
efficiently and effectively, and that the costs charged to federal awards are
reasonable, allowable, and allocable.
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BluLogix BluIQ is a shared services management platform that enables organizations to
track, manage, allocate, and bill end users for IT resources. It assists with:
Recommended:
There are three primary components to BluIQ’s SSO Solution:
BluIQ Solution Overview
Redefining service catalog descriptions
and bundles to represent services that
align with business value.
Establishing a method to manage an
inventory of digital assets based on
service identifiers.
Enabling advanced billing code
management for both cost sharing and
project codes where costs can be directly
attributed to value.
Incorporating more advanced
chargeback methods based on use with
the ability to capture and mediate near
real-time usage data from potentially
dozens of internal and external data
sources.
Capturing both internal and external costs
for services delivered to the business unit,
as well as the rate the business unit will pay.
Reconciling vendor invoices against
expected cost and use. Manage exceptions
between the expected (contract) cost data
and the vendor invoice data.
Mapping chargeback to ERP General
Ledger to roll-up charges for reporting and
reconciliation at the GL level.
Integrating transaction transparency and
self-management into customer portal
functionality.
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Service Catalog & Portfolio Management
Service Financial Management
Service Asset Management

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As with any service being bought or sold, it is important for all parties to be familiar with exactly what is
being transacted. This is true for the Shared Service Organizations (SSO) and the client organizations.
Ideally, a service catalog would be developed so that the customer can see exactly what they are
buying/expecting and will not expect new or desired enhancements as necessarily being free of charge.
If this is combined with the service portfolio that the customers have been involved in designing, then
there is little room for misplaced expectations to emerge, leading to any disagreement or dissatisfaction.
Clarity and transparency for all is vital.
Service Hierarchies manage the connection between product, service and value. Service hierarchies
typically start with the product source.
Products can be bundled into a Service Bundle with additional attributes that control how the bundle is
managed.
Price Plans or Rate Plans are created by selecting a product from the catalog assigning it to the price
plan input price and optionally cost.
Discount schemes can be created and added to the price plan to allow for price automation based on use.
Service Catalog & Portfolio Management
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Product/Service Source
Category
Sub-Category A
Sub-Category A1
Each product in the Service Catalog
can be managed with any number of
attributes that control
Billing Parameters
Product Attributes
Service Identifiers
External Attributes
Descriptions
General Ledger Data
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Service Asset Management
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Without effective Service Account Management discipline, in many cases
30% or more of SaaS/Cloud subscriptions remain unuse (Gartner)
With the software budget progressively under pressure and the SaaS/Cloud portfolio expanding
dramatically in parallel, the facility to eliminate waste, rightsize contracts and offset price increases
makes Service Asset Management fundamental to cost-containment.
In many cases the way IT products are procured is very different than the traditional billing models. In
turn, SSOs will need to chargeback for services as they are consumed.
SaaS/Cloud costs are driven by a series of factors that are increasingly difficult to address through
negotiation but can be effectively limited with usage data management and the directive and business
unit tools to manage consumption and drive out waste.
The ability to consume and associate usage data at the business unit or end-user level facilitates
self-management of resource consumption. This process requires a unique service asset identifier,
common in both the usage dataset and BluIQ, defined at the product level.
Before usage data can be consumed the data needs to be mediated. Usage data is typically captured from
a flat file or API. Data will inherently come in multiple formats and structures. The mediation engine
normalizes data into a single format to be processed for charging.
With large datasets, there are often exceptions where a conflict occurs between what in is BluIQ verses
usage data. In these cases, exception handling automation is required. Establishing exception rules
based on different use cases can automate most of the exception handling process, isolating the most
extreme cases for manual intervention, if needed.
Service asset identifiers can be managed both globally as part of an inventory of digital assets and at the
business unit or account level. An inventory of digital assets allows for assigning a digital asset as an
identifier at the order level to facilitate provisioning management or automation.

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Budgeting
Service Financial Management
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Agency
Division
Office Project
End-User
Organizations of all types struggle with information technology (IT) budgeting. This often happens
because the IT team doesn’t understand the budgeting process and the finance team doesn’t understand
IT. CFOs can remedy this disconnect by changing their organization’s approach to IT budgeting from
merely an annual “make it fit” exercise into a meaningful planning and ongoing management process.
The ability to associate the IT budget with business value begins with defining a business hierarchy, if
necessary, down to an individual user. Once the hierarchy is defined services can be associated at an
n-tier account or sub-account level. These accounts roll-up to stakeholder groups that evaluate IT’s role
in meeting business KPIs.
IT Management’s response to supporting goals and objectives would include enhancements and
additional services linked to business goals and objectives consumed by respective stakeholder group. IT
Managers making IT investments to achieve business stakeholder goals should be able to report on the
cost of those investments for each stakeholder group and the use or adoption of new services requested.
IT Managers should be able to easily budget for new and existing services based on projected
consumption by each stakeholder group. Stakeholder group leaders should be able to request a quote
from IT for projected resource utilization which in aggregate would inform the IT budget. Consumption
against budgeted services can then be managed against the budget forecast.
Defining annualized forecasted consumption provides IT Managers an important tool in negotiating with
vendors to drive down cost of consumption. Accurate forecasting provides additional opportunity to
drive down consumption cost in the form of paying vendors in advance for forecasted consumption.

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To achieve GAAP compliance Shared Service organizations, charging for services in advance (annual),
cannot recognize the charges against a billing code, until the services are rendered. Revenue recognition
tools should be incorporated in this case to correctly recognize billing codes as payments allocated
against services rendered.
Most organizations have IT cost data mapped to an enterprise or general ledger. However, this data, in
and of itself, does provide a complete picture of the total cost of IT services.
Providing business stakeholders with tools to easily associate cost with value can be achieved by defining
services specific to stakeholder needs and charging based on use.
As with competitive commercial service offerings, Shared Services Organizations should deliver
transparency to business stakeholder in real-time through a customer portal. Customer portals should
be enabled to support a complete business process:
Quoting services
Ordering services
Managing charges and billing codes
Forecasting
Reconciliation
Reporting
Transparency
Business Stakeholder Transparency
Services are composed of products provided by internal and external sources. Controlling the cost of
these sources is the job of IT. Real-time visibility and tracking of cost is essential in a usage-based
economy.
BluIQ’s ability to capture source cost data and reconcile expected (contract) costs against vendor invoice
data provides easy invoice reconciliation.
Without the benefits of complete IT cost information, the discussion of IT strategy with business peers is
often about who has the right information, the value of technology and whether the business can trust
IT’s numbers. When there is no debate on the data, business units and IT can focus on making informed
decisions for the company related to establishing and maintaining an optimal portfolio of business
capabilities and their respective costs.
The aggregation, allocation and representation of IT costs against definitions of business-valued services
are critical to providing meaningful IT financial transparency to business leaders. Financial transparency
and cost detail are not the same thing. Most business leaders want to understand the cost of IT in terms
of business goods and services that they understand and care about — the remaining cost is too much
detail and transparency.
In this case, IT should focus on optimizing the cost of the product components that make up a service and
defining the service in the context of business value.
IT Cost Transparency

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SSOs need to be agile enough to support all allocation methods to align with pricing, controlled by the
source. There is no question that usage based variable pricing is taking over most fixed price models.
These pricing models will continue to evolve, SSOs need the ability to adjust allocation methods based on
how they consume sourced resources.
BluLogix sees no additional complexity, or simplicity, for any allocation method. These allocation
methods, and variations of them, are predefined as an automated process with the variable being the
data that informs the process.
GARTNER is a registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S.
and internationally and is used herein with permission. All rights reserved.
Allocation
BluLogix has observed that inability to support advanced allocation methods constrains an
organizations adoption of cloud and SaaS.

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The growth in cloud services makes transparency, through measuring and managing software usage,
more complex and more critical. The Service Asset Management function must establish and maintain
visibility of all cloud services by measuring detailed functional and quantitative cloud services
consumption.
Without visibility of functionality consumed, and insight to identify optimization and rationalization
targets across the SaaS portfolio, potential to eliminate increases in cost and risk will be significantly
limited.
Success Prerequisite: Reliable Usage Data
About BluLogix
BluIQ™ Chargeback streamlines the process
of Public Sector and Enterprise IT chargeback,
making it easier for Shared Services to recover
IT cost, change consumption behavior and
effectively and efficiently demonstrate the
value of IT for department and agency
consumption of voice, cloud, desktop and
other IT services.
BluIQ Chargeback is designed to help
organizations struggling with legacy systems,
processes and resource gaps to modernize and
optimize their IT Financial Management to
allocate costs across agencies and
departments.
Public sector and enterprise shared services
groups are increasingly tasked with managing
expenditures, reducing costs, standardizing
infrastructure and leading digital
transformations to drive policies and
standards across their organizations. For
many, however, processes have become more
and more fragmented, with increasing cloud
usage, multicloud environments, legacy
systems that are no longer supported, key
resource and staffing gaps and the inability to
add data, products, rates or new members to
systems without development resources.
BluIQ™ Chargeback streamlines the process of
Public Sector and Enterprise IT chargeback,
making it easier for Shared Services to recover
IT cost, change consumption behavior and
demonstrate the value of IT for department and
agency consumption of voice, cloud, desktop
and other IT services.
BluIQ Chargeback provides the ability to
allocate and manage vendors and contracts,
chargeback and allocate costs to agencies,
quickly, easily, leveraging automation that
decreases time to process, improves error rates
and increases customer satisfaction for
departments and agencies.
With BluIQ chargeback, public sector and
enterprise shared services centers can optimize
their IT purchasing to
Take advantage of volume purchasing
across agencies and departments
Monitor and optimize consumption
behavior to drive awareness and change
behavior
Apply charges equitably across units,
ensuring fairness in cost distribution
Include any service offered in the
chargeback portfolio
Deliver against objectives for complex
consumption-based models and chargeback
based on actual usagelevels
443.333.4100 | info@blulogix.com | www.blulogix.com