IT Shared Services Costing

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Service costing for IT Shared Services Centers

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IT Shared Services Costing

  1. 1. Costing, Cross Charging and Performance Management in Shared Services BusinessObjects Profitability and Cost Management in IT and other shared services Department, Board Area or Team Date
  2. 2. Agenda 1. The challenge for IT and shared service function today 2. Customer benefits from using shared service costing 3. Activity-based costing and the foundation for IT performance management 4. SAP BusinessObjects Profitability and Cost Management overview 5. Benefits of using SAP BusinessObjects Profitability and Cost Management 6. Screen walk through of the solution © SAP 2008 / Page 2
  3. 3. Agenda 1. The challenge for IT and shared service function today 2. Customer benefits from using shared service costing 3. Activity-based costing and the foundation for IT performance management 4. SAP BusinessObjects Profitability and Cost Management overview 5. Benefits of using SAP BusinessObjects Profitability and Cost Management 6. Screen walk through of the solution © SAP 2008 / Page 3
  4. 4. Many would say IT Management has not kept pace with the demand for IT or the spending on IT 1,000 IT Demand IT Spend 800 IT Management Capability management IT business 600 gap 400 200 0 1960s 1970s 1980s 1990s 2000s Source : 2006, IT Management SW © SAP 2008 / Page 4
  5. 5. IT is a complex business Typical breakdown of IT expenses Other Controls a myriad of 13% assets, applications, People technologies and skills 45% Application Software Provides complex products, 13% services and projects to a Network 11% multitude of business users Hardware Has a large amount of 18% indirect costs that cannot be easily understood using traditional cost accounting: Supervision and management Infrastructure CRM system Systems architects Marketing Security E mail © SAP 2008 / Page 5
  6. 6. New challenges for IT costing and charge out Virtualization Client 1 Client 2 Client 3 Virtual Server Images (VMs) App A App B App C Application A Application B Application C OS OS OS Dedicated Dedicated Dedicated Charge Out Charge Out Charge Out Metered Charge Out Dynamic Resource Allocation Priority 3 Business Service Priority 2 Priority 2 Priority 1 Priority 2 Requests Priority 1 Priority 3 Dynamic Resource Allocation Service awareness | Business Priorities | Optimization | Automation Metered Charge Out Priority 1 Priority 2 Priority 3 Services Server Network Storage Orientated Physical / Virtual Infrastructure © SAP 2008 / Page 6
  7. 7. Questions that IT often struggle to answer How much is Where can IT find cost savings without compliance costing me? compromising service levels? What exactly is the total cost of projects, How can we applications and services once IT support convince the business to get costs have been factored in? rid of redundant systems? How do we resolve all the internal dissent around cross charging? What are the cost benefits of consolidating What information can IT provide to business suppliers? units to help them make informed decisions about their consumption of IT services? What is the total Are there any pockets of excess capacity cost of providing e-mail service? within IT? What information should IT provide to show How do we the business that we are in control? demonstrate that we are in control of IT costs? © SAP 2008 / Page 7
  8. 8. What we believe – and where IT needs to get to! CIO is in charge of a large, complex business and a huge amount of IT as a business No real IT costs expenditure and Performance partner Management Both boards and business units High expect IT to make improvements in EXCELLENCE terms of transparency, focusing on the right investments - and Impact on Business optimizing the use of previous IT Performance RELEVANCE Efficient IT Costs & investments Performance Management IT needs business solutions that CONSISTENCY help it better manage its resources, make better decisions and facilitate Production of informed discussion with the reliable information INNOCENCE business Low Low Maturity of IT Costing & High Performance management © SAP 2008 / Page 8
  9. 9. Agenda 1. The challenge for IT and shared service function today 2. Customer benefits from using shared service costing 3. Activity-based costing and the foundation for IT performance management 4. SAP BusinessObjects Profitability and Cost Management overview 5. Benefits of using SAP BusinessObjects Profitability and Cost Management 6. Screen walk through of the solution © SAP 2008 / Page 9
  10. 10. Proven experience in improving financial performance In a review paper Accenture concluded that ABC can help to reduce a company’s overall cost structure by between 3% and 5% CFO Project Vol. 2 October 2003 After doing an IT services and cross changing implementation a European bank saw a 20% decrease in the number of PC’s and a 30% decrease in the cost of providing a fully loaded PC – amongst other benefits A European bank eliminated unnecessary numerous new projects – 1 in 3 was no longer wanted by the business users once they saw the costs involved After improving the transparency of its cross charging, users stopped treating IT as a “free buffet” and a retailer curtailed the rapid growth in its IT spend … then there’s the intangible benefit of managers making more informed, and quicker, decisions! © SAP 2008 / Page 10
  11. 11. Compelling ROI Quick improvement in Reduce IT spend vs. bottom line competitors For the business Realized Benefits Within IT Within the business Identification and Removal of Rational (and reduced) Non Value Activities in IT consumption of IT services Actionable insight for better cost Accurate reflection of IT costs in management business decisions Better information for supporting Less bickering about cross investment plans charges Faster and more accurate budgeting Removal / Optimization of Excess Capacity © SAP 2008 / Page 11
  12. 12. Analyst rating for Profitability and Cost Management Maximum for SAP BusinessObjects 5/ Profitability and Cost 5 Management © SAP 2008 / Page 12
  13. 13. Agenda 1. The challenge for IT and shared service function today 2. Customer benefits from using shared service costing 3. Activity-based costing and the foundation for IT performance management 4. SAP BusinessObjects Profitability and Cost Management overview 5. Benefits of using SAP BusinessObjects Profitability and Cost Management 6. Screen walk through of the solution © SAP 2008 / Page 13
  14. 14. Stove pipe or integrated? Key performance Line item budgeting as IT services costing and indicators part of corporate cross charging Separate Performance metrics budgeting process Benchmarking implementations – frequently supported by a myriad of offline Plan and Costing and Measure spreadsheets Budget Cross and Resources Charging Monitor Data management and data integrity issues Tend to be historically focused © SAP 2008 / Page 14
  15. 15. Unique, integrated approach “What-if?” Scenario planning Key performance indicators Capacity planning Performance metrics All functionality Driver-based budgeting Benchmarking provided in a single Activity-based budgeting “What-if?” scenarios user interface All data accessible to any type of model Plan and Measure Budget and Resources Monitor Change any data item once only Optimize On demand “What-if?” Costs and Profitability analysis and calculation IT services costing and cross charging © SAP 2008 / Page 15
  16. 16. Type of services costing and cross-charging practiced today is inadequate Circa 50% of IT Indirect costs of expenses is for projects, IT Expenses and support functions, applications and Assets administration and services are management and frequently this is POORLY overlooked understood – Gartner G00138617 Different types “Identifiable” costs of “Identifiable” costs of specific business unit specific shared services Residual cost of IT expense applications and projects e.g. Helpdesk, Desktops Different types Low level Direct High level of charge-back assignment of apportionment apportionment identified costs e.g. # calls, e.g. # staff, Revenue # desktops Apportionment may Lack of not reflect actual transparency of how usage cross-charge is made up Internal Customers © SAP 2008 / Page 16
  17. 17. Activity-based Costing (ABC) is the key What’s needed to do the work? Resources Properties Assets People Capital Technology ASSIGNMENT ASSIGNMENT DRIVES DRIVES COST COST What work is performed? COST REASSIGNMENT Direct Indirect Activities Activities DRIVES Processing Storing Providing support Designing systems Managing ASSIGNMENT DRIVES COST What do we Services, need to do? Applications, Internal Customers CRM system E mail Marketing © SAP 2008 / Page 17
  18. 18. Bringing it all together around ABC Reforecast Resources and Line Item Expenses RESOURCES & COSTS Activity-based Costing Resource Cost Assignment Activity-based Budgeting Drivers Performance Cost Drivers Activity-based Management ACTIVITIES Management Activity Cost Drivers Assignment COST OBJECTS Services, Applications, Projects, Internal Customers etc Reforecast Demand from Robust and Business Units Transparent Costing © SAP 2008 / Page 18
  19. 19. Activity-based budgeting Reforecast Resources and Line Item Expenses RESOURCES Resources 1 additional support staff 1 new HW lease & COSTS 50 new SW licenses 10% more disk space Resource Activity-based Budgeting Drivers Activity ACTIVITIES 20 GB more storage 50 User set ups 20 Password resets 15 Helpdesk calls Activity Drivers COST OBJECTS Service Product, Services, Projects, Internal Customers etc 10% more email accounts Reforecast Customer Demand from Forecasts 10% increase in staff Business Units Marketing © SAP 2008 / Page 19
  20. 20. Costing and pricing scenarios Pricing and Cost Recovery for “mature” services and products Change behaviour to control consumption GL and reduce IT costs Reconcile Expenses with Charge Outs Calculated cost based Unit Rate for Detailed Invoice to ABC model on demand or usage Charging Out Internal Customer from Business Users Actual as calculated With a Mark Up Bundled (i.e. Laptop + Office + Support) Overridden with a Fixed Rate Pricing and Cost Recovery for “new” services and products (e.g. Virtualization) Enjoys savings Calculated cost of compared with a GL excess capacity dedicated server Remains with IT until sold to other users Detailed Invoice to Calculated cost based Unit Rate for Internal Customer ABC model on optimal capacity Charging Out based on metered usage © SAP 2008 / Page 20
  21. 21. Inputs and outputs Inputs Uses Cost Analysis Finance systems (GL) Cost of Service Levels, Non Value Added Costs, Fixed Costs vs. Variable Costs Transparent and Accurate Cross Asset Management Charging Systems Informed consumption – Reduce buffet mentality Standard IT Services Process Improvement Process costs, Process Re-engineering Libraries E.g. ITIL, CoBIT etc Performance Measures / Time Management Benchmarking Systems Unit rates, Cost drivers, Internal, External Costs across Planning and Budgeting IT Business Management Capacity planning, Resource Planning, Marginal Tools E.g. Project Portfolio Management various dimensions Costing Service | Project | Business Unit etc Investment Decisions Metering and Measurement Make or Buy, TCO, Replacement E.g. CPU, RAM, HDD, Time etc Cost Reduction Removal of Non Value Adding Activities, Changing Web-based data entry Behaviours © SAP 2008 / Page 21
  22. 22. Integration with SAP Solution Manager SAP BusinessObjects Profitability and Cost SAP Solution Monitoring Management Key source of driver volumes for true cause- Real time monitoring Change request Process oriented and effect assignments System usage monitoring monitoring of the most Service request critical business and accurate costing Performance monitoring monitoring processes Measured usage using data from SAP Solution System Service Business Monitoring Level Process Manager provides fair Monitoring Monitoring and equitable cross charging SAP Solution Manager Enabling end-to-end solution operations Implementation Solution Monitoring Support Service Desk Upgrade Management Root Cause Analysis Change Request Management SAP Service Deliver © SAP 2008 / Page 22
  23. 23. ITIL V3 financial management and service economics Service Consumption Modeling and Valuation Visible and Service Quantifies funding sought for a defined set of Consistent Cost Consumption Services Structure Modeling and Valuation Service Investment Analysis Investment appraisals, ROI, TCO Planning Confidence Financial Service Investment Analysis Budgeting based on demand and supply Compliance Service Portfolio Modeling Customer Compares external vs. internal costs for optimal provisioning Commonality of Interests and Benefits Variable Cost Dynamics Service Provider Establish what fixed and variable costs are linked to a Service Service Planning Provisioning Confidence Service Provisioning Optimization Optimization Capacity management and continual improvement Financial Compliance Proper and consistent accounting methods Variable Cost Service Portfolio Dynamics Management Visible and Consistent Cost Structure Robust accounting methodology © SAP 2008 / Page 23
  24. 24. Agenda 1. The challenge for IT and shared service function today 2. Customer benefits from using shared service costing 3. Activity-based costing and the foundation for IT performance management 4. SAP BusinessObjects Profitability and Cost Management overview 5. Benefits of using SAP BusinessObjects Profitability and Cost Management 6. Screen walk through of the solution © SAP 2008 / Page 24
  25. 25. User friendly, rapid and efficient model building Pre-defined dimensionality for ABC Versions, periods, Attributes for alternate RC’s, currencies hierarchies Sophisticated security Easy model control Up to 5 cost object dimensions Data aliases for Revenue types languages etc. Services dimension Flexible rules engine Point and click assignments across multiple dimensions © SAP 2008 / Page 25
  26. 26. User friendly, rapid and efficient model building Rapid point and click assignments Select activity, service Either “cascade” or line item by costs to Cost Responsibility Center Objects in a user defined order OR Optional override by Assign activity cost Version and Period multi- dimensionally to the exact intersection of cost objects in a single step Select the activity Select the Cost Objects driver from the either individually or available list – and simply assign to all override by Responsibility Center if required © SAP 2008 / Page 26
  27. 27. User friendly, rapid and efficient modeling Complete flexibility with costing methodologies Use the best costing methodology Time-Splits Time-Driven for the situation Use the wizard for writing equations for time- driven costing for responsibility centers with high number of repetitious activities Use time splits in the other responsibility centers Totally flexible rules engine for bespoke model building Embedded rules engine with a front-end wizard for easy and rapid modeling of more complex business rules © SAP 2008 / Page 27
  28. 28. Scalable, enterprise class solution Logical data structure for minimal model maintenance Service Family Any new member detected in a hierarchy automatically inherits the assignments of its siblings - minimizing time and effort on model maintenance Service 1 Service 2 Service 3 New Service Web books for automated data collection direct to the database Expedite the collection off of non-system driver data using the work management functionality of automated alerts and reminders Removes the drudgery and enables more frequent reporting even with remote contributors © SAP 2008 / Page 28
  29. 29. Extending the value of profitability and cost management Single step multi-dimensional assignment Rather than “cascading” activity cost to each cost object in turn, if the driver data is Customer available, it can be assigned to the exact intersection - i.e. the cost when this customer buys this product through this Channel 1 2 Product 3 channel – avoids erroneous assumptions! 1 Comprehensive user defined trace-back Resources & Costs Resource Driver Ability to trace back all assigned costs to line Activities items and responsibility center Activity Driver Cost Objects © SAP 2008 / Page 29
  30. 30. Scalable, enterprise class solution Comprehensive context-aware views, security and audit trail Comprehensive security and access rights, by group, by role, by individual right down to cell level Context aware views means users only see their data – and a single report caters for many, minimizing deployment time Optional audit trail with date and time stamps Multilingual aliases and multi-currency functionality End users can view screens that use their local language and terminology - and entering financial amounts in their local currency, enabling cross border deployments © SAP 2008 / Page 30
  31. 31. Extending the value of profitability and cost management Services dimension for cross charging IT and other shared services Flexible methodologies for costing, pricing and cross-charging IT and other support services Detailed invoices that provide transparency into cross-charging and information for an informed discussion between business users and service providers Reiterative reallocation for accurate services costing Business IT Reiterative reallocations between Network Unit 1 departments consuming each other’s Maintenance services with full trace-back of Business reallocated costs Unit 2 Delivers more accurate costs that HR reflect reality Recruitment Business Unit 3 © SAP 2008 / Page 31 © SAP 2008 / Page 31
  32. 32. Reliable on-demand “what-if?” analysis and scenario modeling Unique on-demand query and what-if? analysis Users can slice and dice the data themselves with consolidated results being calculated on-demand and their Web book automatically refreshed Using this functionality they can test out the impact of changes before committing to them, resulting in better - and more incisive - decisions © SAP 2008 / Page 32
  33. 33. Extending the value of profitability and cost management Costing and driver-based / activity-based budgeting in a single solution Users can leverage the insight into the drivers of cost and profitability in planning and budgeting models. This provides integrated budgeting and costing solution giving deep insight into Adjust resource Resources Adjust capacity in the cost and profitability of products and costs in future periods & Line Item Expenses future periods customers in future periods Resource Cost Adjust Drivers Assignment consumption in Changing the driver volumes and then future periods “back-calculating” an existing ABC model Activities delivers an activity-based budget Adjust consumption in Activity Cost future periods Drivers Assignment Driver-based budgeting is based on a more iterative understanding of what drives cost Cost Objects Adjust demand in inside the organization future periods Revenues Product, Customer, Both can be rapidly re-forecast by Channel etc updating driver data enabling Profitability Adjust prices and Product, Customer, operational capacity to be tightly Channel etc sales mix aligned with demand © SAP 2008 / Page 33
  34. 34. Seamless IT metrics Single step multi-dimensional assignment Problem Management # Problems Minimize Impact of Resolve Incidents Incidents Efficiently Customer Impact Problem Reopen Problem Resolution Rate Rate Rate Average Resolution # Major Problems Problem Workaround Because all the assignments have been made Time Rate in a multidimensional data structure, drill through is automatic with no links to maintain KEY OBJECTIVE METRIC Consolidated measures are calculated by weighting “% achievement” © SAP 2008 / Page 34
  35. 35. Seamless functionality Single instance update filters through all models Cost analysis What are the resources involved? How much does it cost…? Pricing and billing How do I price my services? How do I justify invoices to customers? Are amounts paid in line with true costs and budget? Planning and budgeting Based on forecast volumes and service levels, what resources do I need? If the demand changes, how quickly can I reforecast? Performance Measurement Which indicator shall we use? What did we improve? How do we perform compared to others? © SAP 2008 / Page 35
  36. 36. Solution architecture Presentation layer Other 3rd party Microsoft Excel OLE-DB compliant OLAP End user data Model builders entry, query & Model structure / rules analysis End user drill Web or LAN through dials and gauges Business- Web or LAN Objects BusinessObjects Enterprise and Crystal Xcelsius SAP NetWeaver Work management Application layer MDX connector Profitability and Cost Management Data layer Single open database Oracle or MS SQL Export results Extract, Transform, Load to an external Data Integration Tools Data Warehouse GL, Data Warehouse, CRM, Other transaction systems © SAP 2008 / Page 36
  37. 37. Scalable multi-tier architecture Client layer Win 32 clients Web clients Several clients Application layer Application layer communicate with a database server via the PCM Web Server(s) middle-tier servers This architecture enables the connection of large numbers of client machines PCM Model PCM Main with minimal performance Server(s) Server(s) degradation Database layer Database layer Extract, Transform, Load Data Integration Tools ERP Database's GL, Data Warehouse, CRM, Profitability and Cost Management Other transaction systems Database SQL or Oracle © SAP 2008 / Page 37
  38. 38. Summary Benefits User-friendly rapid and efficient modeling Visibility Scalable enterprise-class solution Alignment Reliable on-demand what-if analysis and Incisive decision scenario modeling making Optimize costs and Extend the value of profitability and cost management profitability © SAP 2008 / Page 38
  39. 39. Summary Print version for take away/handouts User-friendly rapid and efficient modeling Benefits Predefined logical data structure and point and click assignments means Visibility rapid model build and minimal maintenance reducing your total cost of ownership (TCO) and accelerating your ROI Broad insight into the true drivers Model complex situations across multiple periods and versions impacting costs and profitability Supports multiple ABC methodologies including IT shared services via user friendly interface Scalable enterprise-class solution Alignment Speedy deployment, training and user adoption; centralized model admin; Keep operational capacity and Web books for collecting non system driver data from remote users support functions tightly aligned Ability to process high data volumes without compromising accuracy with both demand and strategy for Multi-currency and multi-language aliases support flawless execution Enterprise class security and traceback – with full audit trail Incisive decision making Reliable on-demand what-if analysis and scenario modeling Rapid identification of underlying Unique on-demand query and what-if analysis, with web-accessible data causes of changes in organizational allowing users to assess the impact of changes before committing to them cost and profitability with the Slice and dice data and analyze results, create charts, drill down to detailed capability to test out the impact of cost data and link to related budgeting and metrics models changes before committing to them Maintain data in central repository for greater efficiency and control Optimize costs and profitability Detailed understanding of costs Extend the value of profitability and cost management and profitability enables you to take Unique services costing and cross-charging action orientated decisions that Deliver activity-based and driver-based planning and budgeting models; reduce the cost to serve and change driver volumes and “back-calc” existing ABC models improve the profitability of products, Rapidly reforecast; update driver data and align capacity with demand customers and channels © SAP 2008 / Page 39
  40. 40. Agenda 1. The challenge for IT and shared service function today 2. Customer benefits from using shared service costing 3. Activity-based costing and the foundation for IT performance management 4. SAP BusinessObjects Profitability and Cost Management overview 5. Benefits of using SAP BusinessObjects Profitability and Cost Management 6. Screen walk through of the solution © SAP 2008 / Page 40
  41. 41. Benefits of sound financial management in IT Costing General Makes justified investment decisions Accurate costing information to Measurement drives cost effectiveness support investment decisions and TCO Have informed discussion with More efficient use of IT resources business users in financial terms Increase professionalism with peers Cross Charging Budgeting Charge out is equitable Ensure funding is aligned with service Drives accountability by business users commitments Provides basis for balancing provision of Ensures services can be maintained services with needs of the business Provides early warnings of under- or over- Encourages informed discussion about consumption of resources service levels and price Increased confidence in setting and managing budgets © SAP 2008 / Page 41
  42. 42. The discriminating business user I’ve told my folk – the free buffet’s over! Everyone with a laptop and a What’s the saving if desktop? – it’s no I accept a lower longer acceptable level of service? Rather than incur Let’s set a date to more cost, we’ll decommission limit e-mail storage If that’s the saving Just virtualize all from pushing out our stuff as soon as replacement, we’ll you can live with it © SAP 2008 / Page 42
  43. 43. For you as a Partner Improved time-to-value for your customers Speed of implementation – packaged product with great deal of flexibility vs. custom build More projects in less time – means further billable opportunities Build expertise – assist in speeding up subsequent implementations Elevate customer relationship Process re-engineering opportunities – executive level visibility Ease of use – reduces training, encourages project adoption Customer able to participate more – potential for more strategic projects Increase revenue and expertise Drive revenue for competitive vendor migration services Develop expertise in SAP FPM to capitalize on services opportunities Possibly to integrate services across ERP, GRC and EPM Strategic focus on SAP Revisit competitive implementations which are complex, suffer from lack of user adoption or are poorly integrated with SAP Engage with the larger SAP ecosystem © SAP 2008 / Page 43
  44. 44. European bank Internal Use Only Description Founded as a merger between the IT “Profitability and Cost departments of Crédit Lyonnais, Calyon and Crédit Agricole, SILCA implemented services costing and cross charging “ Management allowed us to produce reliable reports and the reduce the time and complexity in producing them.” Benefits 20% decrease in the number of PC’s Dorothée Massat CFO of SILCA 30% decrease in the cost of providing a fully loaded PC 20% decrease in server costs Reduced to produce costing reports Gained financial credibility through transparency © SAP 2008 / Page 44
  45. 45. European bank Internal Use Only Description Informatique CDC is the IT shared services “What really shows the function that supports CDC, CNP Assurances, CNCE and Natexis “ quality of an IT budget or forecast is whether the unit price of the service is decreasing and other productivity indicators. Benefits Profitability and Cost Management provides the 30% decrease in the number of PC’s required visibility on both.” 15% decrease in printing costs Eliminated unnecessary new projects – 1 in 3 no longer wanted by the business user Jean-Louis Barsottini Improved the quality and accuracy of the IT CFO of I-CDC budget Reduced the running cost of most applications © SAP 2008 / Page 45
  46. 46. European retailer Description “What convinced us to Groupe Casino operates 9,123 retail outlets under 40 different fascias in 15 countries with “ select the application ahead of the competition was its open architecture. brands such as Casino, Monoprix, Franprix, Plus, the modeling Leader Price and Geant capabilities using an activity-based costing method and the ease with Benefits which data collection occurs and accounting Every department, branch or subsidiary is billed reports can be generated with highest degree of accuracy for IT services and circulated via our used Intranet.” Visibility ensures better control over the volumes of services and hardware purchases Joel Rouressol Provided tools for controlling costs of projects Head of Analysis © SAP 2008 / Page 46
  47. 47. U.S. government agency Internal Use Only Description With 15,000 employees, based at 2,359 local The Presidents USDA Service Centers, USDA has an annual budget of $30B. It provides 2.2 million farmers with support and assistance for disaster “ Management Agenda challenges all Agencies to recovery, income support, conservation and be responsible and development loans accountable for all taxpayer dollars Benefits This helped USDA Ability to better justify spending modernize the FY09 budget formulation Replaced a system where USDA was trying to process… a critical first deliver PBB through thousands of spreadsheets step to Budget and involving a lot of non-value adding work for Performance Integration analysts and limited ability to trace commitments –running the risk of failing to comply with regulatory guidance and public law © SAP 2008 / Page 47
  48. 48. French postal service Description “The actual cost of a Group La Poste is one of the top 3 major companies in France. The French Post Office is “ project is under continual monitoring. IT organized in four trades and a transverse entity : Management wants us to Mail (La Poste Courrier), Postal bank (La Banque explain any differences. Postale), Parcel (La Poste Colis) and LPGP (La Poste Grand Public) SAFIR helps us to make both our sector customers as well as our IT teams Benefits aware of the consequences Value creation – ability to trace costs and of these differences” expenses of IT costs and projects leading to ability to record these as assets for the company Muriel Fally Director of the SAFI project Automation – manager data preparation and processing takes around ten minutes…where had previously taken two days per month Accuracy – cost model is based on actual, not theoretical consumption © SAP 2008 / Page 48
  49. 49. “BusinessObjects Profitability and Cost Internal Use Only Management for IT” sample references © SAP 2008 / Page 49
  50. 50. Agenda 1. The challenge for IT and shared service function today 2. Customer benefits from using shared service costing 3. Activity-based costing and the foundation for IT performance management 4. SAP BusinessObjects Profitability and Cost Management overview 5. Benefits of using SAP BusinessObjects Profitability and Cost Management 6. Screen walk through of the solution © SAP 2008 / Page 50
  51. 51. Overview Cost Analysis What are the resources involved? How much does it cost…? Pricing and Billing How do I price my services? How do I justify invoices to customers? Are amounts paid in line with true costs and budget? Planning and Budgeting Based on forecast volumes and service levels, what resources do I need? If the demand changes, how quickly can I reforecast? Performance Measurement Which indicator shall we use? What did we improve? How do we perform compared to others? © SAP 2008 / Page 51
  52. 52. Out of the box dimensionality Versions, periods, RC’s Attributes currencies User-defined rules Up to 5 cost object dimensions Revenue dimension Data aliases for languages etc. Services dimension © SAP 2008 / Page 52
  53. 53. Activities and processes Process and activity dictionary Attributes are used to group activities on as many alternate hierarchies as necessary Useful for comparison against standard IT services libraries such as ITIL © SAP 2008 / Page 53
  54. 54. Activity re-assignments Support activities are reallocated onto operational activities For example, « 7.1 Management » is reassigned on all departments using the total number of FTEs © SAP 2008 / Page 54
  55. 55. Cost Object costs Select the activity, service or line item Select the activity by RC – override driver – override by by Version and RC if required Period if required Select the target Cost Objects either individually or by “All” © SAP 2008 / Page 55
  56. 56. Cost Object costs analysis Costs of services and projects per customer, period and version are automatically calculated and refreshed after any change in the model The full traceability on services and customers costs authorize access to underlying activity/process costs, source department and line items © SAP 2008 / Page 56
  57. 57. Pricing and billing Cost Analysis What are the resources involved? How much does it cost…? Pricing and Billing How do I price my services? How do I justify invoices to customers? Are amounts paid in line with true costs and budget? Planning and Budgeting Based on forecast volumes and service levels, what resources do I need? If the demand changes, how quickly can I reforecast? Performance Measurement Which indicator shall we use? What did we improve? How do we perform compared to others? © SAP 2008 / Page 57
  58. 58. Pricing Units costs are automatically calculated Users can manually input a price in place of the proposed one – or add a fixed or variable markup Split between budget and actual allows the IT department the choice of invoicing using the forecasted demand or the actual demand © SAP 2008 / Page 58
  59. 59. Cross charging Each row details unit price, budgeted price, real volumes, budgeted volumes and the total amount + tax if relevant © SAP 2008 / Page 59
  60. 60. Reconciliation Users can compare the budgeted amount with the calculated invoice per customers © SAP 2008 / Page 60
  61. 61. Planning and budgeting Cost Analysis What are the resources involved? How much does it cost…? Pricing and Billing How do I price my services? How do I justify invoices to customers? Are amounts paid in line with true costs and budget? Planning and Budgeting Based on forecast volumes and service levels, what resources do I need? If the demand changes, how quickly can I reforecast? Performance Measurement Which indicator shall we use? What did we improve? How do we perform compared to others? © SAP 2008 / Page 61
  62. 62. Simulation using forecast volumes Collect forecast volumes from users .. Calculate new activity levels… .. resource requirements and budgets ... ...as well as new unit rates for coming year © SAP 2008 / Page 62
  63. 63. Budget follow-up The budget can be tracked at any level of detail in the model. Line items Activity costs Cost objects costs Performance indicators etc. Actual, budget and all re-forecasts are in the same database and model, making comparisons and follow up very easy © SAP 2008 / Page 63
  64. 64. Planning and budgeting Cost Analysis What are the resources involved? How much does it cost…? Pricing and Billing How do I price my services? How do I justify invoices to customers? Are amounts paid in line with true costs and budget? Planning and Budgeting Based on forecast volumes and service levels, what resources do I need? If the demand changes, how quickly can I reforecast? Performance Measurement Which indicator shall we use? What did we improve? How do we perform compared to others? © SAP 2008 / Page 64
  65. 65. Performance measurement Performance objectives and metrics can be calculated using: Line item values Activity costs Cost objects costs Activity drivers and resource volumes Any other external metic bought into the model Indicators can be displayed in the graphs and charts in PCM web books – or in drill through PCM gauges - or linked to other tools using the MDX connector © SAP 2008 / Page 65
  66. 66. On-demand – ‘What-if?’ analysis Users can drill through to the underlying data – and test out how changes they make impact the achievement of higher level objectives in future periods © SAP 2008 / Page 66
  67. 67. For more information See SAP.com for: White papers Costing and cross-charging IT services (WIP) Implementing customer, product and channel profitability analytics (WIP) Solution briefs Manage organizational costs and optimize profitability Solution in detail Manage organizational costs and optimize profitability Customer case studies Groupe Casino WH Smith Allied Irish Bank Morley BDL Hotel Group © SAP 2008 / Page 67
  68. 68. Thank you! © SAP 2008 / Page 68
  69. 69. Copyright 2009 SAP AG All Rights Reserved No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP AG. The information contained herein may be changed without prior notice. Some software products marketed by SAP AG and its distributors contain proprietary software components of other software vendors. SAP, R/3, xApps, xApp, SAP NetWeaver, Duet, SAP Business ByDesign, ByDesign, PartnerEdge and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. Business Objects and the Business Objects logo, BusinessObjects, Crystal Reports, Crystal Decisions, Web Intelligence, Xcelsius and other Business Objects products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of Business Objects S.A. in the United States and in several other countries. Business Objects is an SAP Company. All other product and service names mentioned and associated logos displayed are the trademarks of their respective companies. Data contained in this document serves informational purposes only. National product specifications may vary. The information in this document is proprietary to SAP. No part of this document may be reproduced, copied, or transmitted in any form or for any purpose without the express prior written permission of SAP AG. This document is a preliminary version and not subject to your license agreement or any other agreement with SAP. This document contains only intended strategies, developments, and functionalities of the SAP® product and is not intended to be binding upon SAP to any particular course of business, product strategy, and/or development. Please note that this document is subject to change and may be changed by SAP at any time without notice. SAP assumes no responsibility for errors or omissions in this document. SAP does not warrant the accuracy or completeness of the information, text, graphics, links, or other items contained within this material. This document is provided without a warranty of any kind, either express or implied, including but not limited to the implied warranties of merchantability, fitness for a particular purpose, or non-infringement. SAP shall have no liability for damages of any kind including without limitation direct, special, indirect, or consequential damages that may result from the use of these materials. This limitation shall not apply in cases of intent or gross negligence. The statutory liability for personal injury and defective products is not affected. SAP has no control over the information that you may access through the use of hot links contained in these materials and does not endorse your use of third-party Web pages nor provide any warranty whatsoever relating to third-party Web pages. © SAP 2008 / Page 69

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