Service costing for IT Shared Services Centers

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Analyst rating for Profitability and
Cost Management
Maximum for SAP BusinessObjects
5/ Profitability and Cost
5 Management
© SAP 2008 / Page 12

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. “BusinessObjects Profitability and Cost Internal Use Only
Management for IT” sample references
© SAP 2008 / Page 49

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Reconciliation
Users can compare the budgeted amount with the
calculated invoice per customers
© SAP 2008 / Page 60

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. 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. 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. 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. 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. 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. 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. Thank you!
© SAP 2008 / Page 68

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