The document discusses implementing financial transparency and chargeback/showback policies when transitioning to an IT-as-a-Service model. It outlines an eight step process for understanding costs, defining services, allocating costs, determining unit prices, measuring consumption, and invoicing business units. Financial transparency is presented as key for IT to run more like a business, compete with external providers, and ensure efficient service delivery through cost analysis and business collaboration.
This document provides an overview of Value Based Management (VBM), a framework for measuring the value of IT services. It discusses how VBM helps IT leaders understand how their services align with business goals, quantify the value delivered, and make better decisions around resource allocation. The document outlines the key components of VBM, including the IT value chain, service portfolio, and value realization. It also provides examples of how organizations have used VBM to cut costs without reducing value, manage resources to meet demand, and measure the impact of improvements.
Digital Fuel offers IT cost management solutions to provide visibility into IT costs and help manage spending. Their solutions model IT costs, allocate expenses, track cost drivers, and provide notifications of budget overruns. While other vendors also offer these capabilities, Digital Fuel got an early start and offers modular solutions that can be implemented incrementally. Taking a phased approach starting with basic cost modeling for a few key services can provide value even before implementing an automated solution. Nationwide Insurance uses Digital Fuel's solutions to analyze unit costs, facilitate cost reductions, and provide departments cost information based on consumption.
Forrester report Digital Fuel IT financial management case-studyyisbat
This document summarizes an article about how Nationwide Mutual Insurance implemented IT operations financial management to increase transparency and collaboration between IT and business units. It discusses how Nationwide collects financial data on IT costs, allocates costs to business units based on services consumed, and provides reporting to help business units optimize their IT spending. This transparency has helped Nationwide transition IT from a cost center to a collaborative business partner and driven better joint decisions to control costs while meeting business needs.
This document discusses automating IT cost transparency using the Apptio software as a service offering. It provides an overview of the benefits of IT cost transparency, such as identifying cost savings opportunities and improving scenario planning and decision making. The Apptio solution allows users to model IT costs and relationships visually, import data from multiple sources, and gain insights through interactive reporting, analytics, and scenario analysis. This helps IT organizations optimize costs and communicate value to the business.
Connecting IT and Business Value Through Balanced ScorecardGlen Alleman
As IT searches for its seat at the table, negotiating IT’s
value to the business and the business’s need for the
value IT provides reveals a visible gap in many organizations.
When the CIO acts like a CTO, he or she provides
the technologies needed for the business but does
not engage in a conversation about the strategic needs
for these technologies. IT then continues to provide services
and focus on operational excellence.
The document discusses how an IT service catalog can help achieve alignment between IT and business goals. It describes three key views that a service catalog should provide: a user view that defines available services and service levels for customers, an IT view that maps infrastructure and workflows to services, and a portfolio view that allows senior leaders to understand IT spending and value. Taken together, these three views establish shared expectations and make IT investments and responsibilities more transparent and accountable, thereby promoting business/IT alignment.
The document discusses three IT imperatives for CIO-led enterprise transformations:
1. IT executives began transformations by consolidating redundant IT systems into a single system of record to improve visibility and standardization.
2. CIOs made IT more intuitive, approachable and business-friendly by implementing employee self-service portals to modernize interactions between IT and employees.
3. IT leaders accelerated responsiveness and innovation by automating workflows using IT service models and extending automation to business processes like HR and facilities.
This white paper discusses how IT organizations can operate more like businesses by tracking costs, delivering value to customers, and proving their worth. To transform, IT must define its mission as delivering capabilities to support business objectives. IT should track costs at the individual service level and use this data to address conflicting demands from business departments. Operating with business processes around areas like governance, operations, and customer service will also help IT deliver value rather than just products and services. Finally, IT must promote its services' benefits and prove their value through metrics in order to drive demand and secure budgets.
This document provides an overview of Value Based Management (VBM), a framework for measuring the value of IT services. It discusses how VBM helps IT leaders understand how their services align with business goals, quantify the value delivered, and make better decisions around resource allocation. The document outlines the key components of VBM, including the IT value chain, service portfolio, and value realization. It also provides examples of how organizations have used VBM to cut costs without reducing value, manage resources to meet demand, and measure the impact of improvements.
Digital Fuel offers IT cost management solutions to provide visibility into IT costs and help manage spending. Their solutions model IT costs, allocate expenses, track cost drivers, and provide notifications of budget overruns. While other vendors also offer these capabilities, Digital Fuel got an early start and offers modular solutions that can be implemented incrementally. Taking a phased approach starting with basic cost modeling for a few key services can provide value even before implementing an automated solution. Nationwide Insurance uses Digital Fuel's solutions to analyze unit costs, facilitate cost reductions, and provide departments cost information based on consumption.
Forrester report Digital Fuel IT financial management case-studyyisbat
This document summarizes an article about how Nationwide Mutual Insurance implemented IT operations financial management to increase transparency and collaboration between IT and business units. It discusses how Nationwide collects financial data on IT costs, allocates costs to business units based on services consumed, and provides reporting to help business units optimize their IT spending. This transparency has helped Nationwide transition IT from a cost center to a collaborative business partner and driven better joint decisions to control costs while meeting business needs.
This document discusses automating IT cost transparency using the Apptio software as a service offering. It provides an overview of the benefits of IT cost transparency, such as identifying cost savings opportunities and improving scenario planning and decision making. The Apptio solution allows users to model IT costs and relationships visually, import data from multiple sources, and gain insights through interactive reporting, analytics, and scenario analysis. This helps IT organizations optimize costs and communicate value to the business.
Connecting IT and Business Value Through Balanced ScorecardGlen Alleman
As IT searches for its seat at the table, negotiating IT’s
value to the business and the business’s need for the
value IT provides reveals a visible gap in many organizations.
When the CIO acts like a CTO, he or she provides
the technologies needed for the business but does
not engage in a conversation about the strategic needs
for these technologies. IT then continues to provide services
and focus on operational excellence.
The document discusses how an IT service catalog can help achieve alignment between IT and business goals. It describes three key views that a service catalog should provide: a user view that defines available services and service levels for customers, an IT view that maps infrastructure and workflows to services, and a portfolio view that allows senior leaders to understand IT spending and value. Taken together, these three views establish shared expectations and make IT investments and responsibilities more transparent and accountable, thereby promoting business/IT alignment.
The document discusses three IT imperatives for CIO-led enterprise transformations:
1. IT executives began transformations by consolidating redundant IT systems into a single system of record to improve visibility and standardization.
2. CIOs made IT more intuitive, approachable and business-friendly by implementing employee self-service portals to modernize interactions between IT and employees.
3. IT leaders accelerated responsiveness and innovation by automating workflows using IT service models and extending automation to business processes like HR and facilities.
This white paper discusses how IT organizations can operate more like businesses by tracking costs, delivering value to customers, and proving their worth. To transform, IT must define its mission as delivering capabilities to support business objectives. IT should track costs at the individual service level and use this data to address conflicting demands from business departments. Operating with business processes around areas like governance, operations, and customer service will also help IT deliver value rather than just products and services. Finally, IT must promote its services' benefits and prove their value through metrics in order to drive demand and secure budgets.
The document discusses the findings of a survey conducted by IBM of 421 IT leaders regarding how the economic downturn is affecting IT decision making. Some key findings include:
1. While overall budgets are being cut, most organizations are maintaining their IT budgets at current levels to fuel business productivity and efficiency.
2. IT leaders are challenged to enable greater value from existing resources through smarter ways of working.
3. CIOs are taking a business-driven approach to reprioritizing investments based on critical business functions supported by IT and leveraging service management best practices.
This document discusses how IT asset management is evolving to focus on organizing assets to support business needs and processes. Assets are increasingly viewed as resources that enable environments needed for business processing. Effective asset management now focuses on aligning assets to business needs, managing operations, and viewing assets as resources that provide value through availability of environments and services on demand.
The document discusses how IT needs to transform into a business technology organization (BTO) to better align with business needs. It proposes a reference model called "Open ITSM Solutions" that integrates five domains - COBIT for control objectives, ITIL for IT service management, project management methods for resource management, quality improvement methods, and security standards. This model provides a framework to help IT adopt best practices, integrate service delivery across internal and external providers, and operate as an internal service provider focused on business value.
The document discusses organizing IT asset management. It argues that assets should be managed to support availability of environments for business processes on demand. This requires aligning assets to business needs, managing assets as resources through their utilization impacts, and creating value through flexible and efficient resource utilization. Key goals are to turn existing investments into private clouds and coordinate new approaches to delivering business functions from external applications and services.
The BMC IT Business Management Suite is an integrated solution that provides CIOs and IT leaders visibility and control over the business aspects of running an IT organization. It supports centralized management of IT financials, vendors, projects, activities, personnel, and compliance. The suite delivers transparency and enables improved business alignment, reduced costs, and increased business value. It consists of applications that manage costs, resources, projects, finances, suppliers, and regulatory compliance.
The document discusses the rise of the internal outsourcer model for IT organizations. As technology commoditizes and outsourcing alternatives increase, IT must shift from maintaining technology to creating business value. To adapt, IT will take on characteristics of an internal service provider like focusing on value over costs, simplifying infrastructure, making strategic sourcing decisions, and developing capabilities to deliver services. Internal outsourcers act as brokers managing both internal and external services across the enterprise's value network.
The document discusses how globalization and new technologies have flattened the world and increased competition. It argues that IT needs automation to deal with infrastructure growth, skills shortages, and business demands. Specifically, it proposes that IT adopt a supply chain automation model and centralized configuration management database to automate processes, reduce costs and errors, and improve compliance, risk management and ROI. However, challenges to IT automation include limited visibility, product integration issues, and lack of flexibility. Overall, the document argues that automation is key for IT to efficiently deliver business value and emulate the cost advantages of supply chain models.
Cloud Computing, outsourcing your IT infrastructure?Rien Dijkstra
Although IT infrastructure delivers no direct business value, for many organizations information systems are tightly interwoven within the fabric of their primary processes that creates business value. The puzzle is how to source your IT and if Cloud Computing is the solution of this puzzle.
Presentation following the publication of the book 'Rightsourcing: Enabling Collaboration' ISBN 978-1481792806
Finding a common ground between finance and it it management templatesIT-Toolkits.org
Regardless of the size of the business, in most companies IT leads and heads of finance speak very different languages. It is this barrier which all but defines the Business-IT divide and largely because of it, IT struggles to establish a strategic role for itself, forced to continually manage costs as little is understood by Finance of each “IT expense” line item’s value.
The document discusses IT best practices for mergers and acquisitions (M&A) in the communications services provider (CSP) industry. It recommends involving IT early in the M&A decision process to better estimate integration costs and timelines. It also suggests assessing cultural fit between merging IT departments. During planning, companies should make an inventory of merging technologies, processes, and people, and document existing IT systems. For execution, the document advises following an M&A roadmap in phases and avoiding incomplete decommissioning of redundant assets.
This whitepaper sets out the 1E view of how organizations could dramatically reduce help desk costs and increase the value that the IT help desk delivers to the business by empowering end users to search for, find and download the applications they need, when they need them.
White Paper - Enterprise Content Management for Efficiency, Compliance and Co...Karim Ismail
This document discusses how enterprise content management (ECM) can help enable shared services strategies. It notes that shared services are implemented to reduce costs, improve efficiency, and provide services that could not be achieved alone. ECM plays a key role by providing a single system to manage all content across business processes and locations. This allows for consistency, efficiencies, and the ability to access complete information. The document explores how ECM supports compliance requirements and handles different communication channels. It argues that ECM is well-suited to enable shared services centers and provides examples of how ECM can improve processes like accounts receivable.
The document discusses the role of information technology (IT) in supporting modern business environments. As businesses globalize and virtualize, IT resources are crucial for enabling business agility and the ability to adapt processes quickly. Key technologies that help manage IT from a business perspective include configuration management databases, automatic discovery of IT assets, and service impact modeling. These tools provide visibility of business processes and how IT resources support them. To further support dynamic business needs, organizations must view IT as an enabler of business objectives rather than just a provider of basic services.
A consolidated data center has been an attractive alternative for CIOs to protect the IT investment as many of them have realized that centralized infrastructure and processes help optimize the shared resources and in turn bring greater ROI from their IT investments. This whitepaper explains the various benefits of data center consolidation and how CIOs can work collaboratively with service providers to build an outcome based IT framework that can deliver cost efficiencies, savings and innovation in an organization.
1) The document discusses making IT costs transparent to business managers by creating an inventory of all IT assets, determining the total cost of supporting each asset, and providing managers with reports on how much their business unit spends on different IT resources and products.
2) Once managers understand exactly what they are paying for IT, they can make better decisions about managing demand and focusing spending on higher-value investments. They may reduce consumption of certain costly resources.
3) Implementing an IT cost transparency program requires effort but can result in annual IT cost savings of 5-10% through both reduced consumption from the business side and improved cost controls on the IT side.
This document discusses IT business management and the need for IT organizations to adopt an IT business management approach. It provides an overview of key concepts in ITBM including: developing an IT cost model; allocating costs to services and business units; chargeback and showback; and using metrics for continuous improvement and benchmarking. The document also discusses how ITBM helps organizations gain transparency over IT costs, align IT with business needs, control and optimize budgets, and enable the CIO transformation.
This document provides an executive summary and overview of key topics relating to the transition to cloud computing and a variable cost operating model. Some of the main points discussed include:
- Moving to variable costs can help companies be more agile and responsive to changing markets by shifting IT costs from capital to operational expenses.
- Information technology is becoming a utility in the same way that electricity became a utility over 100 years ago, with providers able to deliver reliable computing power at cost-effective prices due to economies of scale.
- Cloud computing enables variable costs through on-demand access to computing resources that can be scaled up or down as needed without long-term commitments or large capital outlays.
New Skills for the Service-Oriented IT OrganizationEMC
The document discusses the skills needed for IT leaders and organizations to transition to a service-oriented model where IT competes for business internally and must acquire new skills. Key points:
1) IT will need to operate more like competitive external service providers by focusing on things like sales, marketing, standardization, and continually improving offerings to encourage internal consumption.
2) New roles will be required in areas like product management, business analysis, and service catalog development that don't exist in traditional IT.
3) While some existing technical roles can transition, the change requires a focus on soft skills and a mindset shift within IT to think more like competitive service providers.
MANAGING IT INNOVATION: RECESSIONARY AND POST-RECESSIONARY SERVICE AND STAFFI...IJMIT JOURNAL
This document discusses managing IT innovation through recession and post-recession service and staffing models. It proposes a framework involving establishing an IT service catalog, optimizing application portfolios, aligning service-oriented architectures, identifying emerging services, and generating sustainability. During recessions, IT budgets and staffing are often cut, limiting innovation; however, organizations that continue innovating through downturns will be better positioned post-recession. The framework is intended to help organizations dedicate resources to innovation through various economic cycles.
White Paper: Automating IT Cost TransparencyApptio
IT organizations spend over $3 trillion per year on IT, but many do not have visibility into where that money goes. Automating cost transparency through a solution like Apptio can help IT minimize costs and maximize business value by understanding cost drivers, improving planning, and communicating IT's value to business stakeholders. Apptio's software-as-a-service offering allows customers to model IT costs, gain insights through reporting and analysis, and improve strategic decision making through "what if" scenario planning.
Technology Business Management: Managing the Cost, Quality and Value of IT Se...Apptio
The document discusses how Technology Business Management (TBM) can help IT organizations manage costs, quality, and value. TBM provides software and methodology to track the full cost of delivering IT services. This gives IT leaders transparency into costs so they can optimize operations and have credible discussions with business stakeholders. TBM solutions also help IT finance teams provide accurate reporting on costs to different parts of the business and simplify budgeting processes.
The document discusses the findings of a survey conducted by IBM of 421 IT leaders regarding how the economic downturn is affecting IT decision making. Some key findings include:
1. While overall budgets are being cut, most organizations are maintaining their IT budgets at current levels to fuel business productivity and efficiency.
2. IT leaders are challenged to enable greater value from existing resources through smarter ways of working.
3. CIOs are taking a business-driven approach to reprioritizing investments based on critical business functions supported by IT and leveraging service management best practices.
This document discusses how IT asset management is evolving to focus on organizing assets to support business needs and processes. Assets are increasingly viewed as resources that enable environments needed for business processing. Effective asset management now focuses on aligning assets to business needs, managing operations, and viewing assets as resources that provide value through availability of environments and services on demand.
The document discusses how IT needs to transform into a business technology organization (BTO) to better align with business needs. It proposes a reference model called "Open ITSM Solutions" that integrates five domains - COBIT for control objectives, ITIL for IT service management, project management methods for resource management, quality improvement methods, and security standards. This model provides a framework to help IT adopt best practices, integrate service delivery across internal and external providers, and operate as an internal service provider focused on business value.
The document discusses organizing IT asset management. It argues that assets should be managed to support availability of environments for business processes on demand. This requires aligning assets to business needs, managing assets as resources through their utilization impacts, and creating value through flexible and efficient resource utilization. Key goals are to turn existing investments into private clouds and coordinate new approaches to delivering business functions from external applications and services.
The BMC IT Business Management Suite is an integrated solution that provides CIOs and IT leaders visibility and control over the business aspects of running an IT organization. It supports centralized management of IT financials, vendors, projects, activities, personnel, and compliance. The suite delivers transparency and enables improved business alignment, reduced costs, and increased business value. It consists of applications that manage costs, resources, projects, finances, suppliers, and regulatory compliance.
The document discusses the rise of the internal outsourcer model for IT organizations. As technology commoditizes and outsourcing alternatives increase, IT must shift from maintaining technology to creating business value. To adapt, IT will take on characteristics of an internal service provider like focusing on value over costs, simplifying infrastructure, making strategic sourcing decisions, and developing capabilities to deliver services. Internal outsourcers act as brokers managing both internal and external services across the enterprise's value network.
The document discusses how globalization and new technologies have flattened the world and increased competition. It argues that IT needs automation to deal with infrastructure growth, skills shortages, and business demands. Specifically, it proposes that IT adopt a supply chain automation model and centralized configuration management database to automate processes, reduce costs and errors, and improve compliance, risk management and ROI. However, challenges to IT automation include limited visibility, product integration issues, and lack of flexibility. Overall, the document argues that automation is key for IT to efficiently deliver business value and emulate the cost advantages of supply chain models.
Cloud Computing, outsourcing your IT infrastructure?Rien Dijkstra
Although IT infrastructure delivers no direct business value, for many organizations information systems are tightly interwoven within the fabric of their primary processes that creates business value. The puzzle is how to source your IT and if Cloud Computing is the solution of this puzzle.
Presentation following the publication of the book 'Rightsourcing: Enabling Collaboration' ISBN 978-1481792806
Finding a common ground between finance and it it management templatesIT-Toolkits.org
Regardless of the size of the business, in most companies IT leads and heads of finance speak very different languages. It is this barrier which all but defines the Business-IT divide and largely because of it, IT struggles to establish a strategic role for itself, forced to continually manage costs as little is understood by Finance of each “IT expense” line item’s value.
The document discusses IT best practices for mergers and acquisitions (M&A) in the communications services provider (CSP) industry. It recommends involving IT early in the M&A decision process to better estimate integration costs and timelines. It also suggests assessing cultural fit between merging IT departments. During planning, companies should make an inventory of merging technologies, processes, and people, and document existing IT systems. For execution, the document advises following an M&A roadmap in phases and avoiding incomplete decommissioning of redundant assets.
This whitepaper sets out the 1E view of how organizations could dramatically reduce help desk costs and increase the value that the IT help desk delivers to the business by empowering end users to search for, find and download the applications they need, when they need them.
White Paper - Enterprise Content Management for Efficiency, Compliance and Co...Karim Ismail
This document discusses how enterprise content management (ECM) can help enable shared services strategies. It notes that shared services are implemented to reduce costs, improve efficiency, and provide services that could not be achieved alone. ECM plays a key role by providing a single system to manage all content across business processes and locations. This allows for consistency, efficiencies, and the ability to access complete information. The document explores how ECM supports compliance requirements and handles different communication channels. It argues that ECM is well-suited to enable shared services centers and provides examples of how ECM can improve processes like accounts receivable.
The document discusses the role of information technology (IT) in supporting modern business environments. As businesses globalize and virtualize, IT resources are crucial for enabling business agility and the ability to adapt processes quickly. Key technologies that help manage IT from a business perspective include configuration management databases, automatic discovery of IT assets, and service impact modeling. These tools provide visibility of business processes and how IT resources support them. To further support dynamic business needs, organizations must view IT as an enabler of business objectives rather than just a provider of basic services.
A consolidated data center has been an attractive alternative for CIOs to protect the IT investment as many of them have realized that centralized infrastructure and processes help optimize the shared resources and in turn bring greater ROI from their IT investments. This whitepaper explains the various benefits of data center consolidation and how CIOs can work collaboratively with service providers to build an outcome based IT framework that can deliver cost efficiencies, savings and innovation in an organization.
1) The document discusses making IT costs transparent to business managers by creating an inventory of all IT assets, determining the total cost of supporting each asset, and providing managers with reports on how much their business unit spends on different IT resources and products.
2) Once managers understand exactly what they are paying for IT, they can make better decisions about managing demand and focusing spending on higher-value investments. They may reduce consumption of certain costly resources.
3) Implementing an IT cost transparency program requires effort but can result in annual IT cost savings of 5-10% through both reduced consumption from the business side and improved cost controls on the IT side.
This document discusses IT business management and the need for IT organizations to adopt an IT business management approach. It provides an overview of key concepts in ITBM including: developing an IT cost model; allocating costs to services and business units; chargeback and showback; and using metrics for continuous improvement and benchmarking. The document also discusses how ITBM helps organizations gain transparency over IT costs, align IT with business needs, control and optimize budgets, and enable the CIO transformation.
This document provides an executive summary and overview of key topics relating to the transition to cloud computing and a variable cost operating model. Some of the main points discussed include:
- Moving to variable costs can help companies be more agile and responsive to changing markets by shifting IT costs from capital to operational expenses.
- Information technology is becoming a utility in the same way that electricity became a utility over 100 years ago, with providers able to deliver reliable computing power at cost-effective prices due to economies of scale.
- Cloud computing enables variable costs through on-demand access to computing resources that can be scaled up or down as needed without long-term commitments or large capital outlays.
New Skills for the Service-Oriented IT OrganizationEMC
The document discusses the skills needed for IT leaders and organizations to transition to a service-oriented model where IT competes for business internally and must acquire new skills. Key points:
1) IT will need to operate more like competitive external service providers by focusing on things like sales, marketing, standardization, and continually improving offerings to encourage internal consumption.
2) New roles will be required in areas like product management, business analysis, and service catalog development that don't exist in traditional IT.
3) While some existing technical roles can transition, the change requires a focus on soft skills and a mindset shift within IT to think more like competitive service providers.
MANAGING IT INNOVATION: RECESSIONARY AND POST-RECESSIONARY SERVICE AND STAFFI...IJMIT JOURNAL
This document discusses managing IT innovation through recession and post-recession service and staffing models. It proposes a framework involving establishing an IT service catalog, optimizing application portfolios, aligning service-oriented architectures, identifying emerging services, and generating sustainability. During recessions, IT budgets and staffing are often cut, limiting innovation; however, organizations that continue innovating through downturns will be better positioned post-recession. The framework is intended to help organizations dedicate resources to innovation through various economic cycles.
White Paper: Automating IT Cost TransparencyApptio
IT organizations spend over $3 trillion per year on IT, but many do not have visibility into where that money goes. Automating cost transparency through a solution like Apptio can help IT minimize costs and maximize business value by understanding cost drivers, improving planning, and communicating IT's value to business stakeholders. Apptio's software-as-a-service offering allows customers to model IT costs, gain insights through reporting and analysis, and improve strategic decision making through "what if" scenario planning.
Technology Business Management: Managing the Cost, Quality and Value of IT Se...Apptio
The document discusses how Technology Business Management (TBM) can help IT organizations manage costs, quality, and value. TBM provides software and methodology to track the full cost of delivering IT services. This gives IT leaders transparency into costs so they can optimize operations and have credible discussions with business stakeholders. TBM solutions also help IT finance teams provide accurate reporting on costs to different parts of the business and simplify budgeting processes.
This document discusses how IT organizations can improve operating leverage through cost transparency and IT business management practices. It describes how IT business management helps bridge the gap between business and technology by providing visibility into IT costs and demand. This allows IT to better plan services and transform from a cost center to a true service provider that can scale back costs during economic downturns. The document contains several articles that discuss approaches like software as a service, service-oriented architecture, and selective sourcing to optimize operating leverage through more variable costs.
Technology Cost Management 4D Framework: A Smarter Way to Manage IT CostsCognizant
A framework for financial services IT cost management optimization based on a 4D approach: defining business vision, documenting current state, delineating business architecture and deciding build vs. buy.
This white paper discusses implementing an IT financial management and cost recovery system. It notes that understanding true IT costs is challenging due to limited resources but is important for good governance. The paper recommends analyzing costs related to the IT portfolio, vendors, and resources. Building awareness of cost drivers across these areas provides opportunities for financial optimization. Developing a formal cost recovery plan with this insight allows IT to help the organization simplify cost allocations, improve visibility into cost structures, and optimize resource management. Implementing such a system provides benefits like improving economic decisions and demonstrating IT's value.
IT Financial Transparency: EMC’s Successful Journey to Achieving Enterprise C...EMC
This white paper documents EMC IT's progress from planning for financial transparency to executing enterprise-wide chargeback, transforming them into a service provider adept at mapping IT investments to corporate priorities.
The document discusses how IT financial management (ITFM) can be expanded beyond traditional activities like budgeting and forecasting to improve business outcomes. It identifies 9 key focus areas for ITFM, including investment analysis, chargebacks, benchmarking, and vendor management. ITFM tools can provide visibility into IT costs and consumption to support decision making. The document recommends organizations assess their ITFM capabilities and prioritize expanding into areas that provide the most benefit.
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.
This document discusses how IT organizations are evolving from reactive operations models focused on maintaining existing systems, to more proactive models that drive business goals through strategic technology investments. It describes a three phase process where virtualization initially provides server consolidation benefits, then automation and management efficiencies, and finally a fully virtualized, software-defined data center enabling an IT-as-a-service model. This allows IT to shift resources from operations to new initiatives that generate revenue and growth for the business. The evolution transforms the CIO's role from functional manager to business strategist focused on innovation.
An IT-as-a-Service Handbook: 10 Key Steps on the Journey to ITaaS EMC
The document provides 10 key steps to guide an organization's transformation to an IT-as-a-Service (ITaaS) delivery model based on EMC's experience. Step 3 involves defining a program plan, scope, and milestones for building the ITaaS model. The plan should have a lighter, more agile structure compared to traditional IT projects due to different risk/cost trade-offs. Scoping depends on resources and should consider how each of ITIL's 26 processes will be impacted in a iterative process with acquiring resources. Tools like financial management can be separated from the main transformation program to keep focus.
Free Gartner Report: Aligning Supply and Demand for IT Services
Cloud computing is transforming how IT manages costs and standards, but its impact extends into how IT itself is managed as a business. Public cloud computing puts pressure on the entire IT cost structure to become wiser and more efficient about balancing the supply and demand for IT services.
While cloud commoditization is driving down prices, IT is forced to manage resulting increases in consumption. The report recommends steps CIOs should take to improve the maturity of their approach to IT service management, installing:
• Benchmarking and chargeback to manage demand for cloud services
• Expand their strategic vendor management and IT procurement practices
• Become a broker of services, including external cloud computing.
Consider using IT cost transparency improvement as a cultural change agent to transform the IT organization from a focus on “speed and quality” to one of “IT cost and business value”.
For more cloud management insights visit http://vmware-erdos.com
IT Transformation is quickly becoming one of the primary responses from Enterprises are seeking to convert IT from an Operational Asset to a Tactical and Strategic Asset.
The paper describes the methodology created by Action Research Foundation for Practical ITSM transformation
The document discusses the importance of financial transparency for organizations considering moving IT services to the cloud. It argues that to determine which services can be moved cost-effectively, organizations need to understand the current costs of delivering specific services. A 5-step process is outlined to achieve financial transparency: 1) Inventory services and costs, 2) Build cost models, 3) Identify service utilization, 4) Provide user bills, 5) Analyze cost-benefit of cloud options. Financial transparency is presented as key to making informed decisions about cloud computing cost-effectiveness.
Equipping IT to Deliver Faster, More Flexible Service ManagementCognizant
IT must apply new strategies and tools to the service management function, in order to address fundamental changes in how end-users consume technology and services. Here's how IT can increase service delivery speeds and user satisfaction, while delivering greater business value.
Outcome-Focused IT Delivery: The Next Step in the Continuous Improvement JourneyCognizant
The document discusses a new framework called the best-in-class (BIC) framework for achieving IT delivery excellence. The BIC framework focuses on both process improvements and measurable business outcomes. It also takes an end-to-end view of the IT value chain rather than focusing on individual silos. The key elements of the BIC framework include maturity levels, a hierarchy of performance indicators mapping to outcomes and value measurements, and an assessment methodology for continuous improvement.
The document outlines 6 steps to successful outsourcing: 1) managing the vendor relationship, 2) implementing effective change management, 3) monitoring outsourced service performance, 4) managing finances, 5) adhering to contract terms, and 6) demonstrating service value. Senior IT leadership must be involved in the outsourcing relationship and ensure metrics are in place to evaluate performance, finances, and value delivery. With proper planning and management, outsourcing need not be painful.
The overwhelming challenges of IT infrastructure managementNIIT Technologies
CIOs are now looking at IT infrastructure management as a mean to drive business transformation. To transform the way businesses work, CIOs need responsive systems and processes to bridge the gap between operations and business. With this understanding, IT leaders need to align IT with business and manage IT infrastructure as a service model. This paper surveys the challenges service providers face in managing IT infrastructures. It also lists down solutions for the effective management of IT infrastructures.
This document summarizes an article from the DITY Newsletter about overcoming isolation in IT financial management. The newsletter is published by itSM Solutions and provides practical guidance on implementing ITIL best practices. The article discusses how IT finance is often isolated in a "stovepipe" and must work with other IT processes to develop alignment with business strategy. It emphasizes that no single IT process is strategic on its own. The article also examines how understanding service costs through activities like service level agreements can help IT communicate better with customers and optimize operations.
Total IT spending as a percentage of revenue, total IT spending per user, and total IT spending per PC are three useful metrics for managing an IT organization and benchmarking against other companies. Total IT spending as a percentage of revenue indicates how efficiently a company spends on IT compared to industry standards and allows identification of opportunities for improvement. Total IT spending per user and per PC provide additional perspectives beyond total spending as a percentage of revenue to account for factors like shared devices. Benchmarking against other companies using these metrics helps identify best practices and areas for process improvement to increase efficiency and reduce costs.
Not knowing your costs is an expense you can’t afford.
Your Challenge
While IT departments provide valuable services to their organizations, it is frequently unclear how much these services cost. CIOs often find themselves in a position where they cannot articulate exactly how much it costs to deliver a given service in order to justify the service’s value.
Our Advice
Critical Insight
IT capital and operational costs are captured in accounting ledgers using financial constructs that lend themselves well to financial reporting, but obscure the true cost to deliver each IT service.
Translating accounting ledgers to IT service costs is a difficult process that may sometimes appear arbitrary.
The data required for detailed service-based costing is often unavailable.
Service-based costing is not for everyone. It requires clearly defined goals and commitment to be successful.
You don’t have to be perfect to gain value from service-based costing. Imperfect analysis can still point you in the right direction for improvement.
Nobody trusts a “black box.” Be transparent with results.
Impact and Result
Use a method of determining the full cost of services that provides a reasonable level of accuracy without overburdening staff with excessive analysis and investigation.
Optimize the balance between analytical effort and accuracy of service costing by understanding your service cost accuracy needs and matching them to an appropriate level of service-based costing capability.
Develop the right level of service-based costing capability by applying the methods in this blueprint.
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1. White Paper
Abstract
Transitioning to IT-as-a-Service (ITaaS) is a fundamental shift in how IT is
built, run, delivered, and consumed. A key characteristic of providing
ITaaS is the ability to understand the costs of delivering those services
and thus being able to price them appropriately. Once costs are
understood and shared, especially with a chargeback and/or showback
policy, everyone in IT has a higher stake in ensuring that it is done
efficiently and transparently—from allocating and defining costs and
service prices to measuring demand and consumption—while
communicating continually across IT, finance, and the business.
The goal of financial transparency is to show what IT services cost.
Intended for IT leadership and IT Finance organizations, this white paper
explores financial transparency and how to develop simple, fair, and
accurate chargeback/showback policies.
October 2011
IT-AS-A-SERVICE:
GUIDING PRINCIPLES FOR ACHIEVING
FINANCIAL TRANSPARENCY
AN EMC IT OVERVIEW ON EMBRACING FINANCIAL TRANSPARENCY
3. 3Guiding Principles for Achieving Financial Transparency
Table of Contents
EXECUTIVE SUMMARY.............................................................................................. 4
INTRODUCTION........................................................................................................ 5
RUNNING IT MORE LIKE A BUSINESS ...................................................................................6
AN EIGHT-STEP PROCESS FOR SIMPLE, FAIR, AND ACCURATE CHARGEBACK/SHOWBACK .....8
STEP 1: DEFINE YOUR SERVICE CATEGORIES........................................................................9
STEP 2: ALLOCATE ALL COSTS.............................................................................................9
STEP 3: DETERMINE UNIT DRIVERS....................................................................................11
STEP 4: DERIVE UNIT COSTS..............................................................................................13
STEP 5: DETERMINE UNIT PRICES ......................................................................................13
STEP 6: MEASURE SERVICE CONSUMPTION.......................................................................14
STEP 7: INVOICE BUSINESS UNITS ....................................................................................15
STEP 8: FUNDS TRANSFER FROM BUSINESS UNITS TO IT....................................................16
WHAT ITaaS MEANS TO THE IT ORGANIZATION AND BUSINESS................................. 17
THE POWER OF A ROBUST CHARGEBACK/SHOWBACK STRATEGY.............................. 19
References............................................................................................................ 20
4. 4Guiding Principles for Achieving Financial Transparency
EXECUTIVE SUMMARY
With cloud computing and IT-as-a-Service, IT organizations are better positioned to
speed service delivery and reliably support the dynamic needs of the business in a
highly-automated, and agile infrastructure that enables business units to rapidly
provision resources and incur costs based on usage. However, to accomplish this, the
CIO and team must build a set of financially transparent processes that capture the
true usage and costs to showback – and even chargeback – the business for the IT
services consumed. Please note: the terms chargeback and showback are used
interchangeably in this document.
Although it is only one component of ITaaS, financial transparency is a key driving
force for organizations to elevate the importance of thinking through services and to
deliver them with efficiency and with a balance between demand and supply.
Whether you decide to showback or chargeback, financial transparency offers IT and
the business tremendous benefits including:
Detailing what goes into determining actual costs to deliver services
Showing greater transparency into business performance and value
Tracking the details of services rendered clearly and accurately
Enabling the transfer of budgets from traditional IT to the business units
Offering business units clarity they’ve never had before to enable real-time
decision-making as business needs change
Helping IT and the business to be more prudent and reduce over-allocation of resources
Enabling IT to “market” and “sell” competitive service offerings to the business
Giving IT a higher stake in ensuring that services are delivered properly
Providing an opportunity for IT, finance, and the business to have fact-based
conversations to improve delivery, consumption, and more predictive growth for
planning purposes
In this paper, we explore how EMC IT (with initial engagement with EMC Consulting)
implemented financial transparency in support of our IT-as-a-Service transformation.
By taking an eight step approach, EMC has been able to implement IT service costing
and a chargeback/showback approach that provides both IT leaders and our
business units with visibility into the costs and consumption of IT. You will learn
about these steps and key considerations for each, and discover how transparency is
a critical success factor in our transformational journey.
EMC’s IT-as-a-Service Definition
5. 5Guiding Principles for Achieving Financial Transparency
INTRODUCTION
The ability to deliver IT-as-a-Service (ITaaS) is the culmination of a successful private
cloud strategy that transforms the way IT infrastructure is built and how new
technology, operations, and consumption models are implemented. Within this new
operational paradigm, IT leaves behind the inflexible and labor-intensive provisioning
models of the past to deliver value to the business through on-demand, self-service
access to IT assets that advance business initiatives with speed and agility.
Financial transparency is a key driver forcing IT organizations to rethink how they
deliver value to the business by getting them to think about how to bundle, market,
price and deliver their services in a way that meets the end consumer’s needs. It also
enables IT to compare its services directly to those of external cloud service
providers. When IT has to compete with outside service providers, the mindset shifts
to diving efficiency, increasing business agility and meeting service levels.
An important benefit of financial transparency is the ability to share that information
with the business. Once costs start to be shared, IT has a higher stake in ensuring
that services are delivered properly. Activities like allocating per-unit and per-service
costs, determining service prices and measuring demand and consumption become
more scrutinized and lead to standing up more efficient services.
Figure 1: IT financial transparency provides distinct business benefits to different stakeholders, from
business leaders to IT and finance.
6. 6Guiding Principles for Achieving Financial Transparency
With cost transparency, IT and business units gain a clear picture of their IT spend
that they’ve never had before. However, this does not automatically mean IT charges
back 100 percent. An IT organization should ideally showback 100 percent of its
costs (and value provided) and then determine how to handle the actual chargeback
process.
The decision to chargeback could be based on whether an enterprise would like to
allocate IT costs to its individual business unit profit and loss statements rather than
in general and administrative expenses. This can be a phased approach, choosing
services with simple units of consumption first. For example, end-user services
(email, client computing support, service desk, network connectivity, etc.) are
typically consumed based on headcount, an easily measured and simple
consumption metric. More complex application services could move to chargeback in
later phases because these services typically rely on labor and data center capacity
consumption. A phased approach will enable an organization to tackle more complex
consumption datasets before embarking on chargeback.
RUNNING IT MORE LIKE A BUSINESS
IT-as-a-Service is a fundamental shift in the way IT is structured and paid for.
This dramatically changes how IT and business units work together to further
the enterprise’s mission and goals.
With cloud computing and ITaaS, IT organizations are better positioned to speed
service delivery and reliably support the dynamic needs of the business with a highly-
automated and agile infrastructure that enables business units to rapidly provision
resources and incur costs based on usage. IT and the business are also more prudent
and are less likely to over-allocate resources, so ITaaS encourages closer alignment
between technology consumption and actual demand.
A well-crafted, transparent and flexible chargeback/showback policy is critical for
overcoming resistance in paying for resources that were not directly charged to the
business units in the past. It also:
Details what goes into determining actual costs to deliver services
Shows greater transparency into business performance and value
Tracks the details of services rendered clearly and accurately
Leverages strong executive support
Enables the transfer of budgets from traditional IT to the business units
7. 7Guiding Principles for Achieving Financial Transparency
Figure 2: EMC’s IT-as-a-Service Strategy – Running IT as a Business
WHY PROVIDE FINANCIAL TRANSPARENCY?
If IT was truly run as a business, the argument could be made that it should be
profitable. However, while a corporation cannot allow IT to fail, there may be tax,
accounting, regulatory, compliance and/or security reasons that impact whether
or not profitability is allowed. Consequently, there are some constraints and
considerations to running IT like a business.
If the ultimate goal is not profitability when running IT as a business, why provide
financial transparency at all? First, running IT as a business enables an
organization to benefit from market forces that influence the behavior of the
business units, as well as the consumption of services. Second, transparency
also improves IT accountability and focuses the mission on what’s important to
the business. Third, transparency helps the business determine better buy versus
build decisions, including brokering external services.
Transparency can also drive business for an IT organization. Once chargeback is
implemented, business units may choose to use their OPEX and CAPEX budgets for
more or fewer IT services by balancing project priority with the business value
of the service. This could potentially drive higher overall IT spend compared to the
pre-chargeback state. To maintain proper balance, it is important that the CFO
define and institute enterprise-wide policies with IT leadership and IT finance.
8. 8Guiding Principles for Achieving Financial Transparency
AN EIGHT-STEP PROCESS FOR SIMPLE, FAIR, AND ACCURATE
CHARGEBACK/SHOWBACK
On its journey to cloud computing, EMC IT made significant progress in designing
and implementing a chargeback/showback policy that captures the true costs of
IT services and validates IT cost transparency and operational accountability. The
following steps exemplify a work in progress detailing the experiences and lessons
learned. They are offered here to help IT leadership initiate a workable strategy to
achieve financial transparency for their own chargeback/showback model.
Figure 3: The eight steps span the costing of IT services and showback or chargeback to the business.
Measuring service consumption based on published service prices helps IT ensure services continue
to provide value to the business.
Throughout each step, it is important for representatives from IT, finance, and the
business to discuss and exchange ideas regarding the status and evolution toward a
chargeback/showback policy. Communicating must not only be across the business,
but also up the financial management chain in a corporation, so the strategy can be
adjusted to better align with other key efforts within the company such as financial
budgeting and planning for IT services management. Ongoing communication is
paramount and an essential part of the process.
A critical element for successfully achieving financial transparency is the whole
notion of “good” data. A solid system(s) of records with good quality controls is an
essential tool set. Data quality and financial transparency is such an extensive topic
that it can be covered in a completely separate paper.
9. 9Guiding Principles for Achieving Financial Transparency
STEP 1: DEFINE YOUR SERVICE CATEGORIES
Choose services that align to industry offerings
EMC defined five key categories of services/activities to determine and allocate costs
on the road to showback and chargeback as follows:
1. End user services include non-discretionary type services that are consumed by the
entire company such as email, IT service desk, client compute support and network
connectivity, which are driven by headcount.
2. Business application services include IT supported business consuming
applications where most existing chargeback is reflected today. Billing is based on
development labor, supporting infrastructure costs, and depreciation.
3. Hosting services (Platform-as-a-Service and Infrastructure-as-a-Service) are the
services that involve providing platforms from which business applications can
run. EMC IT weighs the number of servers used by an application and application
classification as a proxy to allocate server costs.
4. Professional services include work that is done to deliver projects and programs.
EMC IT pulls actual hours and hourly rates from its Project Portfolio Management
(PPM) system.
5. Premium services are item-specific and are an ongoing effort as new services are
defined and brought online.
STEP 2: ALLOCATE ALL COSTS
Allocate all IT costs—both fixed and variable—to specific services.
For EMC IT, there were two considerations. First, determine the process used to
allocate costs. Second, identify how it is actually executed. EMC IT defined all of the
different activities and associated costs that occurred within IT and segmented these
activities into five key service categories with approximately 12 subcategories. This
became the foundation for EMC IT’s cost model.
In its initial phase of Cost Transparency, EMC IT focused on Cost Sources, Cost Pools,
IT Products & IT Services. Once matured, EMC IT’s business facing organization will
use the cost model output to have business capability discussions with its respective
business unit customers.
EMC IT looked collectively at cost sources from its general ledger, including labor,
maintenance, telecom, and fixed assets. This provided a view of all the raw costs that
existed in IT, which were then analyzed and rolled into cost pools. These pools could
be assigned, mapped, or allocated to EMC IT’s portfolio of products and services. For
example, hosting services consume facilities, storage, labor, and server products. For
10. 10Guiding Principles for Achieving Financial Transparency
every defined service, EMC IT collaborates with finance, operations, and service
managers to understand what is needed to deliver that service.
Figure 4: Costs are allocated from cost sources such as the general ledger up through IT products (e.g.,
applications) and projects to IT services using common IT data sources.
Initially, EMC IT built an extensive cost model by taking and scrubbing existing data
sets, some of which were quite granular with details about applications, services, and
consumption models. However, at this point, EMC IT left other services in higher-level
buckets and then broke down larger categories later in the process.
For example, Internet cost allocation could be fine-tuned from just cost per number of
locations or headcount to being allocated by facility based on users in each location.
By initially creating high-level categories, EMC IT has been able to move forward
quicker while being able to adjust its cost model for more granularity as the model
matures. EMC IT chose to focus on Application Services and End User Services first
because these accounted for more than 70 percent of its non-chargeback spend.
Key Considerations
To lay a solid foundation, it is critical for all parties to determine the:
Major service categories
The subcategories that fall within those buckets
The costs associated with each
11. 11Guiding Principles for Achieving Financial Transparency
This information becomes the basis for a working document where categories and/or
subcategories can be discussed, placed accordingly, or omitted due to similarities
with an existing group. This strategy becomes an effective means of reining in
category proliferation and keeping things as simple and direct as possible because
getting too detailed slows down efforts to build the cost model. You can refine your
cost model as you go and map your allocation costs accordingly. It is critical to
maintain simplicity as much as possible when starting out toward cost transparency.
STEP 3: DETERMINE UNIT DRIVERS
Establish unit drivers for costs and prices in each service category,
and build a reusable and flexible model that enables you to refine
unit drivers in the future.
EMC IT first developed a taxonomy of services within major categories, such key
areas as business application services, end-user services, professional services,
and hosting services. Next, the company determined unit drivers—something that
measures the consumption of the services.
For example, a hosting service might include unit drivers based on the number and
type of servers and storage needs, the number of OS images the application is
consuming, and the headcount resources required for things like development and
maintenance. Business application services allocations are based on the total cost
of ownership of any application that is made up of infrastructure, labor, software
maintenance, and depreciation. Professional services are allocated based on labor
and expenses for those services. As another example, end-user services might
provide details about what an end-user is consuming, as well as billing based on
phone minutes, different types of laptop configurations, and so on. For end-user
services, EMC IT used a simplified, one-size-fits-all approach that allocated costs
based on headcount. While this approach has some disadvantages, it was
straightforward to execute and easy for business users to understand. The total cost
for end-user services was divided by the number of EMC employees to arrive at a
standard charge. The driver for the total cost is the number of employees within each
business unit.
12. 12Guiding Principles for Achieving Financial Transparency
BEWARE OF CATEGORY PROLIFERATION
In the final analysis, EMC IT relied on its PPM time entry system to understand the
labor costs associated with delivering services. The information is a crucial
component of its cost model. For the service catalog, which is currently being
developed to include lower-level services, EMC will use the cost model to select
pieces that fit into those services.
As part of this process, labor costs, labor allocations, and EMC’s PPM time entry
system for projects or requests were critical to the success of this financial
transparency initiative. Previously, there were hundreds of disjointed labor
activities that an EMC IT employee could choose from. The team needed to clearly
define service categories that employees could log their time against. The result?
EMC IT was able to distill hundreds of different activities into 40 or 50 and then roll
them up to only a few major buckets of activities. This became the foundation for
building EMC IT’s cost model.
Today, when a new category or subcategory is presented for consideration,
consensus is reached from the team as to whether it should be added, or if it may
already belong within an existing category. This strategy becomes an effective
means of reining in category proliferation and keeping things as simple and direct
as possible.
Key Considerations
In an ideal world, step zero is defining the service catalog or defining services by
dividing IT’s work into business-consumable services. However, you do not need
to have it strictly defined to proceed. It’s better if you have it, but you don’t have
to wait.
As you go through these steps in achieving financial transparency, it’s important to
remember that whatever you are doing will become part of your service catalog type
definitions. Make sure you are developing your cost model with some granularity, so
you can break things apart as needed and potentially uncover key issues that must
be addressed.
When developing a service catalog, it is most effective to bring your team together,
define what you are doing, and work toward limiting, streamlining, or consolidating
the activities. Agreement about the activities you provide is essential because this
effort will likely become the foundation for building your cost model around your key
categories.
13. 13Guiding Principles for Achieving Financial Transparency
STEP 4: DERIVE UNIT COSTS
Steps 2 and 3 will help you derive unit costs for each service by dividing service costs
into the service unit driver.
To create a simple, standard monthly charge for a specific category of services,
EMC IT took the total annual cost for the service, for example end-user services, and
divided that by the number of EMC employees. The resulting number was divided
by 12 months to provide a cost per person per month.
Key Considerations
When deriving unit costs, usability and ease of analysis are more important than
going for precision. Be sure to test derived costs against your expectations.
Don’t overlook whom you include in your headcount. For example, if you include IT’s
headcount, you may be on your way to creating an invoice for your own services. If the
intent is full chargeback, develop a model that allocates IT’s own consumption to the
services that it delivers to the business units.
STEP 5: DETERMINE UNIT PRICES
Determine unit prices for each service category.
The prices should reflect corporate goals. EMC IT is determining unit prices based on
three factors:
A basic cross-charging approach to determine how and where costs will be
allocated for shared services across groups.
EMC plans to add a percentage to costs to allow for variances or potential
overages in projections. For instance, EMC IT is considering pricing strategies
across different services to smooth out the volatility of supply versus demand.
Strategic pricing should be used to influence service adoption and speed progress
toward an IT organization’s architecture for the future. This can be used as a tool
to encourage or discourage use of certain services. This practice would be
exercised infrequently, judiciously, transparently, and evolve over time. For
example, a business unit that is slow to leverage virtualized infrastructure for its
application hosting could be given surcharges.
Key Considerations
Cost does not equal price when considering your strategy. It is important to factor in a
slightly higher price, so unexpected costs have less of an impact on budgets, as well
as the internal user’s willingness to pay for desired services. Additionally, financial
considerations, such as tax structure, accounting rules, security, and regulatory
compliance will influence the final price.
Cost/price vs. consumption sensitivity analysis should be used to assist in
determining unit prices. It will enable you to determine when full service costs are
14. 14Guiding Principles for Achieving Financial Transparency
recovered and the service becomes profitable. Such analysis can also assist in
projecting future price adjustments based on demand and timeline of cost recovery.
There is risk to simply charge up cost. The key is not to maximize profitability, but to
become simple, transparent, and efficient, while still maintaining a competitive
stance with regard to value and cost when compared with external providers.
STEP 6: MEASURE SERVICE CONSUMPTION
Accurately measure service consumption for each service and map the appropriate
service unit drivers to generate chargeback/showback for each business unit.
In time, this process will become more automated and easier to execute.
To structure and measure service consumption for accurate and predictable invoicing,
EMC IT has been:
Determining who the end users are and what kinds of services they are consuming
Identifying which applications reside on each server and which business units
“own” them
Tracking specific hours for professional services to determine approximate
engagement lengths
Securing accurate headcounts across the enterprise and within specific business
units
Maturing the organization’s processes of measuring service consumption
By tracking and verifying these details, EMC IT achieved several ancillary benefits.
For example, by knowing exactly where applications live, EMC IT can more readily
address an issue if an application or server goes down. Consequently, change
management efforts are enhanced and an organization benefits from its increasingly
optimized operations and infrastructure.
Key Considerations
Measuring service consumption is an intensive exercise that may take longer than
planned. The complexity of your business and the ability to glean the right answers
during discovery will most likely determine the speed with which you can work
through this step.
You can’t measure what you don’t know. If you only know, with some level of
reliability, who owns a certain percentage of the servers, but don’t know the
applications (and business units) associated with the servers, you can’t measure
consumption accurately.
Hours must be tracked properly. The reliability and compliance of your time tracking
system is an important tool.
15. 15Guiding Principles for Achieving Financial Transparency
Learn as much about your end user business units as possible—this includes their IT
applications and assets. It may seem trivial, but it is more work than it appears and
will take time. By getting this information, you gain datasets that help you repeatedly,
predictably, and reliably measure consumption.
Involve senior staff to help you get the information you need to facilitate accurate
service consumption measurements. Near-perfect precision is critical to the success
of this effort.
Once you start providing better tracking and become financially transparent,
organizations will appreciate invoicing as a means to better understand what they
use and keep IT in check on service delivery.
STEP 7: INVOICE BUSINESS UNITS
Create monthly invoices based on detailed data by business unit and service.
Flexibility must be engineered into capabilities to support the ability to invoice any
group at any time for any period.
EMC IT constructed a prototype invoice and is working with select business unit
controllers throughout the business to socialize the topic and secure their feedback.
Proof-of-concept is expected to be an iterative process from which the invoice will be
refined.
Figure 5: IT service costs and project costs are billed to business units based on consumption, such as
the number of devices, logins, amount of storage used or other consumption-related factors, where
practical and beneficial.
16. 16Guiding Principles for Achieving Financial Transparency
Key Considerations
While developing invoices seems like a simple process, it is an important one to
get right.
Invoices should be created by IT Operations and IT Finance and be user-friendly,
clear, and easy to understand.
This should be an ongoing process so you can gain feedback, which in turn will result
in buy-in and cooperation from the business units.
Start with services that are easy to invoice and work toward more services as they
become defined and/or have consumption measurements available. Do not worry if
some IT services are ready for invoicing while others are not.
STEP 8: FUNDS TRANSFER FROM BUSINESS UNITS TO IT
Set up a mechanism for easy funds transfer.
Business unit leads must be able to pay automatically by approving invoices or have
the option to dispute charges. Some companies may stop at showback.
Still a work in progress, financial transparency enables EMC IT to have a clear view of
IT spend. For example, today, EMC charges back software development directly to end
users. Financial transparency is enabling the IT organization to have conversations
with the business about shifting the core IT budget to the business units and then
using chargeback/showback for services.
Key Considerations
Cost transparency enables IT and business units to have an unprecedented view into
IT spend. Cost transparency doesn’t automatically mean you embrace 100 percent
chargeback, but it does mean you at least showback 100 percent of your costs.
You may still decide not to charge back anything to your business units or cross-
charge IT costs based on headcount. However, by employing cost transparency, you
can introduce a monthly showback invoice so business units can see what it is
costing the company from an IT perspective—and not from just a flat headcount
perspective.
17. 17Guiding Principles for Achieving Financial Transparency
WHAT ITaaS MEANS TO THE IT ORGANIZATION AND BUSINESS
IT-as-a-Service, from an infrastructure perspective, is the ability to offer on-demand
provisioning of the entire IT stack via a standardized self-service catalog. For IT,
this model represents a transition to a new role as service provider—one that
necessitates a more market-driven stance and fosters an environment of transparency
through greater financial and operational accountability.
In essence, it is an evolution from IT-centric costing to a new operational style that
maps costs and prices of business-relevant services based on business-controllable
drivers.
For the business, IT-as-a-Service provides clarity into what it is getting from IT and
where the value lies. This new on-demand, self-service model also brings with it a
change to metered usage and chargeback—with the tools and incentives to facilitate
greater awareness of IT spend for better control of IT cost. However, moving to
chargeback is not risk-free and the transition must be carefully managed.
Some pitfalls are as follows:
Business units’ misunderstanding of the chargeback model and tools can result in
rejection. This model is often perceived as new or additional cost or the business
may not be familiar with the portfolio of services offered and their consumption.
Therefore, IT, finance, and the business must communicate early and often to
jointly develop the chargeback model. This includes the service catalog reflecting
business (not IT) categories and terminology.
Tracking, billing, and adjudication require significant new effort every month that
undermines the value proposition of the program and results in frequent billing
disputes. To avoid these issues, cost tracking should not be excessively granular
and the design of the catalog, service contracts, and bills should be carefully
evaluated for clarity and usability.
IT may lack the capacity to fulfill service requests. IT must obtain funding to
prepare the infrastructure to meet expected demand. One way to “generate” the
funding for the additional IT infrastructure would be to shift a portion of business
unit CAPEX infrastructure budgets to IT.
IT fails to respond quickly to service reduction requests resulting in a decrease in
a business unit’s ability to control costs. To address this challenge IT must ensure
that it has adequate systems to respond quickly and must be willing
to absorb costs related to delayed response. When this is the result of an
economic or company specific slowdown, the IT organization will need to have
strategic conversations with the CFO to determine whether the slowdown is
transitory or longer term. This will help determine the amount of service
reductions and whether any additional corporate funding is needed (in the case of
a transitory slowdown).The business may reject some IT services and use external
providers, which may cause fragmentation of technical platforms. Though IT
should be required to compete with external vendors for many services, all parties
will still have to rely on corporate governance and policy to ensure cohesiveness
18. 18Guiding Principles for Achieving Financial Transparency
of the corporate-wide IT platform. Some services will always be provided by
internal IT, due to security and/or corporate strategies. In these cases, it is still
important to compare IT’s internal delivery model and benchmark costs to
external providers to have meaningful conversations with business unit leaders.
IT misses the budget due to an overestimate of demand. To help ensure budget
and demand align, IT must anticipate potential demand shortfalls and carefully
monitor this and adjust prices throughout the year. The organization could also
maintain flexibility in its own capacity by subcontracting with other vendors for
some hosting. However, please note that mid-year price adjustment may be
frowned upon by the business.
Don’t fall into the “build it and they will come” trap. Demand analysis must be
done because investing in and offering a service that ultimately has little demand
will quickly consume any buffer in your overall pricing policies. Cost/price versus
consumption sensitivity analysis is an important tool for determining when a
service becomes profitable or fully cost recovered. Sensitivity analysis is an
important tool that should be deployed to determine whether or not a service
could be offered internally or would be better serviced by an external provider.
19. 19Guiding Principles for Achieving Financial Transparency
THE POWER OF A ROBUST CHARGEBACK/SHOWBACK STRATEGY
A robust chargeback/showback strategy is more than just a cost recovery tool—it can
unleash a powerful competitive advantage that can be leveraged indefinitely.
Figure 6: Achieving Financial Transparency Benefits Everyone
Such a strategy also provides the flexibility for IT resources that enable business units
to be more responsive to market shifts and opportunities. It eliminates waste in IT
infrastructure spending which enables companies to conserve resources and better
manage costs. Savings can then be reallocated in ways that further promote
success—from speeding the adoption of powerful enabling technologies to fostering
strategic new business. And, ultimately the approach helps IT support
the business to become a more agile enterprise.
20. 20Guiding Principles for Achieving Financial Transparency
References
Read the following for more information:
www.emc.com/EMCITProven
EMC IT’s Journey to the Private Cloud blog at http://itblog.emc.com/
EMC IT’s Journey to the Private Cloud white paper series. Topics include:
EMC IT’s Journey to the Cloud: A practitioner’s guide
Backup and Recovery
Applications and Cloud Experience
Virtual Desktop
Server Virtualization
ESG IT Audit: EMC’s Journey to the Private Cloud
CONTACT US
To learn how EMC products, services, and solutions can help solve your business and
IT challenges, contact your local representative or authorized reseller—or visit us at
www.EMC.com.
EMC Corporation
Hopkinton, Mass. 01748-9103
1-508-435-1000 (in North America 1-866-464-7381)