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The IT Financial Management Cost Transparency Journey

The document discusses Ernst & Young's IT Financial Management journey framework to help organizations improve transparency and increase satisfaction around IT costs and services. The framework is a 6 step process that includes: 1) conducting a current state assessment, 2) defining IT services, 3) calculating unit costs for each service, 4) establishing metrics and reporting, 5) implementing a chargeback model, and 6) creating a bill of IT. The goal is to break down IT costs and clearly show how they align with specific services in order to demonstrate value to the business.

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IT Financial Management Journey Ernst & Young Perspectives ITFMA – Chicago, 2016 Pete Hidalgo & Shashank Aggarwal
Page 1 Competitor analysis Agenda The ITFM Journey2 Client case study3 1 Current challenges Q & A4
Page 2 Current Challenges Business executives want to clearly understand the IT organization’s value and how it supports the business strategy ► Increase the value received from IT ► Make sure IT is supporting the business strategy ► Measure and manage IT appropriately ► Use IT to improve the business ► Develop a common language for communicating with IT ► Make IT a part of the team ► Demonstrate the value IT provides to the business ► Secure the resources IT needs to deliver results ► Have a place at the executive table ► Have a common language for communicating with business leaders CEO/CFO Senior Business Leaders CIO/ Senior IT Leaders Stakeholders Stakeholder Priorities for IT
ITFM Journey
Page 4 The EY IT Financial Management (ITFM) Journey EY’s ITFM journey provides a clear and easy to follow path to enable the delivery of cost effective services to the business, improve transparency and increase satisfaction. Step 1 Current state assessment Step 2 Service definition Step 3 Unit service costing Step 4 Metrics and reporting Step 5 Chargeback model Step 6 Bill of IT  Transparency  Cost efficiency  Customer satisfaction
Step 1 Current State Assessment
Page 6 Current State Assessment You need to understand where you are before determining where you need to go Utilizing the EY ITFM framework as a reference Current State Assessment Data collection Interviews Maturity Assessment Gaps
Page 7 EY IT Financial Management Framework ITIL based, but also incorporates our view of leading practice
Page 8 Cu IT Financial Management Maturity Model Used to determine where you are and where you want to be Value High DetailandComplexity Low High 1 Cost Center DefendingcostAddingvalue 2 Commodity 3 Utility 4 Advisor 5 Business Partner Current State Target State
Page 9 # Maturity Level Maturity Description 1 Cost Center • IT organization has a very tactical focus • Low interaction between Business and IT • Costs are defined and allocated at a high-level (People, Software, Hardware, etc) based on Revenues, FTEs • Lack of cost transparency 2 Commodity • IT works closely with the business but does not drive strategic initiatives • IT costs are broken down into sub-categories (example: software & infrastructure costs) • IT costs are aligned based on resources rather than consumption • Business has little influence over IT costs 3 Utility • IT works closely with the business but does not drive strategic initiatives • IT costs are broken down into sub-categories (example: software & infrastructure costs) • IT costs are aligned based consumption with SLAs in place • Business has little influence over IT costs 4 Advisor • IT advises the business on execution of strategic initiatives • IT costs are reported at the business application/process level • Business has a good understanding of its IT costs • Business can influence IT costs by optimizing and rationalizing applications / processes • Driver based planning 5 Business Partner • IT is proactive in initiating strategic initiatives • IT costs are service-based • Business can influence its IT costs by managing its consumption of IT resources • End-to-end view of financial data – from resources to services to applications • Driver based planning ITFM Maturity Model Criteria Used to determine maturity levels
Step 2 Service Definition
Page 11 IT Service Catalog Foundational element for all IT organizations Benefits 1) Improved transparency and customer satisfaction 2) Demonstrates the value of IT 3) Ease of service ordering and interfacing with IT 4) Documents service levels for each service (SLAs) 5) Leads to more efficient consumption of services  Provides a single reference source for all IT services offered
Page 12 What is a service catalog? A communication tool to have a productive dialogue with the business about what services IT can deliver to help make them successful The foundation for any type of allocation or chargeback process An easy to use document to help customers understand how to request services, what the service performance levels are, and what they cost A Service Catalog is… A Service Catalog is not… a X Constrained by the current structure of outsourcing service contracts A detailed technical process list that shows how to deliver IT services A self-service portal for the business A leading practice framework for defining services which can be benchmarked An IT Operating or Service Delivery model.
Page 13 The EY reference framework for structuring the service catalog – focused on “The What” The What (Service Offering & Service Performance) The How (Service Delivery) Service Portfolio (Employee Enablement) PC Email Telephony Technology Service Tiers SLA’s Availability Response Time Tools Infrastructure Service Tier 2 (Silver) Service Tier 3 (Bronze) Service Tier 1 (Gold) Delivery Model (Logical grouping of services offerings) (Discrete services provided to a customer ) (Specific capabilities or features that constitutes a service) (Service performance expectations) (Delivery of one service) (Core technologies and tools to deliver service) Services Service Performance People Processes
Page 14 Service catalog evolution “Don’t let perfect be the enemy of good” 1. Catalog includes improved SLAs and unit service costs 2. Catalog includes tiered services, resolution time SLAs, and partial costs 3. Initial catalog includes basic services, only response time SLAs, not resolution times Services are not defined or ad- hoc definitions are in place with few synergies Maturity Time High Low 1 2 3 4 No catalog Basic services and response time SLAs Tiered services and resolution time SLAs Improved SLAs and unit service costs 1 2 3 4
Step 3 IT Service Costing
Page 16 IT Service Costing Definition ► IT Service Costing (ITSC) is the process of calculating the actual unit costs of providing IT services Key Points ► Once actual unit service costs are determined they can be compared to market rates to identify potential savings opportunities ► One key goal for the IT organization is to have the cost of their services be at or below external service providers Dependencies 1) Services must be defined first 2) Must have good consumption data 3) Need cost data that is aligned with services 4) Effective chargeback implementation requires unit service costs
Page 17 ► Benchmarking ► Build vs. buy ► Internal & External ► Drives efficient consumption ► Align demand to capacity ► Customer focused ► Service oriented ► Visibility ► Consistency ► Accuracy ► Cost drivers ► Cost of service ITSC – Benefits Service based costing empowers executive decision making ability through improved IT cost visibility Aligns IT to Business Strategy Performance Management Cost Transparency Allocations / Chargeback Cost Management Resource Management
Page 18 Others ►Cost per server ►Cost per application ►Cost per GB of disk storage ►Cost per help desk call ►Cost per PC ►Cost per telephone ►Etc. Remote Services HR FIN Others Sales BI Others Hosting Services Application Mgmt. Telecom Services Others ►Helpdesk ►Server mgmt. ►Voice ►WAN/LAN ►Storage ►Etc. Cost Drivers: ►Servers ►Storage ►Applications ►FTEs ►Etc. Labor Maintenance Depreciation IT Departments Services Cost Pools Service Costs Consumption Drivers EY Service Costing Framework Service Costing Framework Translates IT department costs into service costs that are meaningful to users/customers and enables benchmarking / savings identification Linkage to Chargeback Service Catalog Usage Data
Page 19 Data Quality Cost and consumption data are BOTH required in order to calculate unit service costs ► The EY data quality framework enables the assessment of both cost and consumption data in order to: ► Identify gaps for improvement ► Determine readiness for chargeback Inventory Weight Data Received Score Inventory Weight Data Received Score Identity and End User Computing Number of PCs per BU 0.5 90% 0.45 Service Cost 0.5 100% 0.5 0.95 95% Service Desk and support Number of incidents per BU 0.5 80% 0.4 Service Cost 0.5 85% 0.425 0.825 83% Conferencing (video, webex) Telepresence location per building with usage by BUs 0.5 80% 0.4 Telepresence cost data by locations or BU 0.5 85% 0.425 0.825 83% Email & collaboration tools Number of email accounts per BU 0.5 100% 0.5 FTE/Agency workers information supporting collaboration tools 0.5 85% 0.425 0.925 93% Telephones Number of handsets/extensions per business unit and their consumption 0.5 95% 0.475 Cost incurred for the usage of the extensions per BU 0.5 85% 0.425 0.9 90% Network connectivity LAN/WAN site information 0.5 85% 0.425 Cost of circuits and networks 0.5 85% 0.425 0.85 85% Mobility Number of Mobile Apps 0.5 25% 0.125 Service Cost 0.5 85% 0.425 0.55 55% 0 0% 0 FTE/Agency workers information per BU 0.5 75% 0.375 - 0 0% 0 Cost of software provisioned for PCs 0.5 75% 0.375 Infrastructure (DC & Connectivity) Servers associated applications and quantities 0.5 75% 0.375 Servers costs associates with their usage and services 0.5 75% 0.375 0.75 75% Infrastructure (Compute / Servers) Storage associated servers and quantities 0.5 75% 0.375 Storage costs associates with their usage and services 0.5 75% 0.375 0.75 75% Infrastructure (Storage & Back-Up) Data Center associated servers with applications 0.5 75% 0.375 Data Center costs associated with hosting servers and applications 0.5 75% 0.375 0.75 75% Databases, JAVA, .NET, tools Number of databases, associated applications and usage per BU 0.5 75% 0.375 FTE/Agency workers supporting databases per BU 0.5 100% 0.5 0.875 88% Integration Applications supported for integrations purposes and the corresponding BUs using those applications 0.5 100% 0.5 FTE/Agency numbers per BU for developing/supporting/maintaining the service 0.5 100% 0.5 1 100% Number of sites and locations 0 95% 0 FTE/Agency workers per BU for service provided 0.5 40% 0.2 - 0 0% 0 Non-Labor costs (Software / Infrastructure) 0.5 40% 0.2 NA 0 0% 0 FTE/Agency workers per BU for service provided 0.5 100% 0.5 NA 0 0% 0 Non-Labor costs (Software / Infrastructure) 0.5 85% 0.425 NA 0 0% 0 FTE/Agency workers per BU for service provided 0.5 100% 0.5 0 0% 0 Non-Labor costs 0.5 100% 0.5 NA 0 0% 0 FTE/Agency workers per BU for service provided 0.5 100% 0.5 0 0% 0 Non-Labor costs 0.5 100% 0.5 NA 0 0% 0 FTE/Agency workers per BU for service provided 0.5 100% 0.5 0 0% 0 Non-Labor costs 0.5 100% 0.5 NA 0 0% 0 FTE/Agency workers per BU for service provided 0.5 100% 0.5 0 0% 0 Non-Labor costs 0.5 100% 0.5 NA 0 0% 0 FTE/Agency workers per BU for service provided 0.5 100% 0.5 0 0% 0 Non-Labor costs 0.5 100% 0.5 Organizational Data Employee headcount by BU/Country/Region across the organization 0.5 100% 0.5 IT Organization/Services budgets 0.5 100% 0.5 1 100% Site Information Building data and BUs associated with it 1 100% 1 0 100% 0 1 100% 1 100% 5%1 1 1 100% 100% 100% 100% Category Quality Category Weight Overall Data Quality ADM 0.75 75% 81% 29% Cost Data 83% 11% 82% Total Weighted Score Data Item Quality 100% 0% 13% Projects New projects requested from GIS by the business 93% 42% Local Support On-site support for infrastructure and applications 40% 93% Service Name Service Cost Quantity Consumption Data Budgets $ 275 $ 125 $ 400 $ 50 Service Category $ - Staffing Enablement 0.4 40% 0.925 Application Delivery & Support Foundational Cost / Consumption Data Security Risk Management 1 100% Strategy, Architecture, & Governance Industry and innovation BI, Data warehouse HR, Business Resources Corporate Services $ 100 Data quality heat map Data quality assessment tool
Step 4 Metrics & Reporting
Page 21 Metrics & Reporting ► Purpose ► Necessary for effective management and customer satisfaction ► “What gets measured gets done” ► Emphasis on quality over quantity ► Metrics ► KPIs ► Key Performance Indicators that are measured and reported internally to manage services or processes ► SLAs ► Service Level Agreements, which are a formal commitment to a predetermined and agreed to level of service between IT and the business/customer ► Reporting ► Metrics - three levels: Business, executive, operational ► Usage - shows consumption of IT services by the business
Page 22 Usage Reporting Example Customers need to understand their consumption and costs in order to manage them ► Highest benefit and maturity level is to produce monthly for each service via self-service on an automated platform ► Can be produced manually as an initial solution using Excel Automated Example – ITFM Tool Manual Example - Excel
Step 5 Chargeback
Page 24 Why implement chargeback? ► To understand the true costs of providing IT services ► To educate IT customers on the value of the IT services that are being provided ► As a tool to improve operating efficiencies and lower costs ► To enable customers to manage their own consumption of services and associated costs -
Page 25 Benefits of Implementing Chargeback 1) Reduce spend/costs 2) More effective IT spending 3) Improve demand & expense forecasting for the IT organization and its customers 4) Key component of ITIL Financial Management
Page 26 Chargeback Model Maturity Curve Used to determine where you are and where you want to be Implementation Time Long Maturity Short High 1 Overhead allocation 2 Flat fee 3 Consumption based 4 Incentive based 5 Service based 6 External pricing 7 Value based pricing Current State Target State
Page 27 Chargeback Model Definitions and Features IT chargeback methodology Methodology description 1. Overhead allocation 2. Flat fee 4. Incentive based 5. Service based 6. External pricing 7. Value based pricing 3. Resource consumption based ► IT costs are allocated to LOBs as a corporate overhead cost based on a simple driver not directly related to resource consumption (e.g. revenue, asset balance, etc.) ► Fixed annual cost negotiated with BUs; normally based on a “crude” estimate of resource consumption ► IT charges are manipulated to drive specific behavior (e.g., lower charges to influence use of network or servers during off-peak times) ► IT service charges to BUs are based on consumption of specific activities; quality and availability of services are explicitly defined, service “choice” provided for key products ► IT service fees are based on market (external) prices; products offered are comparable to those available in the marketplace ► IT service fees are based on perceived value delivered to LOBs (e.g., business value created, customer satisfaction, timely delivery of new financial products) ► IT costs are allocated based on specific unit of resource consumed (e.g., number of dedicated servers, network ports, etc.) CostAwareness Cost Measurement Effort Costsand Complexity CostManagement Effort 0. No chargeback ► IT costs are not charged back = Low = Medium = HighKEY:
Page 28 The Chargeback Journey Implementing chargeback is an evolutionary process vs. “big bang” Usage reporting Showback (Usage + $) Chargeback Time Maturity
Page 29 Automation Frequency Chargeback Automation and Frequency To perform more frequent chargebacks increasing levels of automation are needed
Page 30 Chargeback Data Requirements To chargeback on a unit cost basis, unit consumption and cost data is needed Datagranularity Type of model
Page 31 Guiding Principles Consistency Effort Fairness Transparency ► Are IT chargeback methods aligned with cost allocation and profitability measurement used throughout the organization? ► How much effort (e.g., data collection, transformation, calculation, reconciliation, and billing) is appropriate and is it in keeping with the value provided? ► To what degree should chargeback be based on actual consumption versus an estimated allocation? ► What costs should be included/excluded? ► What insight should customers have into how IT manages IT— including which costs are fixed and which are variable? ► What behaviors, if any, should chargeback drive (e.g. reduced consumption, investment in new products, incentives to move users from old technologies, etc.)? Influence Chargeback guiding principles
Page 32 Chargeback Models Not one size fits all, and that’s okay HighImplementation complexity Low High Businessbenefitsandtransparency Resource- based allocations Differentiated service levels and pricing 1. Overhead allocation 2. Flat fee 6. External pricing 7. Value based pricing 4. Incentive based 3. Resource consumption based 5. Service based Service pricing Resourced-Based Allocations distributes costs through allocations or simple consumption estimates Service Pricing measures specific consumption and drives behavior through tiered services and prices (e.g. incentives for off-peak usage) Differentiated Service Levels and Pricing reflects a more market-based approach to cost recovery High
Automation
Page 34 Why automate? ► Improve unit service costing and benchmarking accuracy, leading to lower costs ► Increase transparency into consumption and costs ► Needed to provide monthly reporting and chargeback – manual models require large amounts of labor ► Provide self-service capabilities to customers, so that they can understand and regulate their consumption ► More efficient than manual processes
Page 35 Tool selection ► You should first consider if you are ready for a tool. Some key points to keep in mind: ► Are services well defined? ► Are ITFM roles and processes defined and mature? ► Service consumption data ownership, availability, and quality are key requirements ► There are multiple tools available in the market, so you should evaluate them based on your specific requirements using well defined criteria and use cases ► You can use resources such as Gartner as a guide
Case Study
Page 37 Client ITFM case study overview This is one of many examples of the benefits of implementing ITFM processes ► Client objectives ► Create financial transparency for all products and services provided by IT infrastructure services ► Continue to reduce infrastructure support costs, optimize operations ► Achieve or exceed cost benchmarks in all elements of IT Infrastructure Services ► Derive benefits from the previously purchased ITFM tool ► Results ► Developed a comprehensive end state architecture and two year roadmap to success ► Identified $6M - $10M in initial savings ► Designed the chargeback model, roles, metrics, and processes to provide additional transparency to the business ► Developed an implementation plan to operationalize their ITFM tool
Page 38 Peter Hidalgo, Jr ITFM Services Lead Senior Manager IT Transformation Advisory Services Ernst & Young LLP 5 Times Square New York, NY 10036-6530, United States of America Pete.Hidalgo@ey.com Mobile: 973-223-5616 Education West Point - USMA BS – Engineering Columbia University MBA Certification(s) PMP ITIL Financial Management ► Senior Manager with over 20 years of experience in I.T. Financial Management, Telecom and I.T. infrastructure, Cost Optimization, Program Management, and I.T. Shared Services Transformation. ► Deep industry experience in managing and optimizing I.T. costs. Previous responsibilities included serving as the Global I.T. Financial Manager for a Fortune 100 company, where he managed an annual operating budget of over $100 million. In that role he also developed and implemented an ITIL based service costing and chargeback process, resulting in improved client satisfaction and major, recurring cost savings. ► Currently serves as the I.T. Financial Management Service Leader within Ernst & Young’s IT Advisory practice Relevant experience ► Assisted a Fortune 50 global manufacturing client with redesigning their current IT allocation model and processes for over $1 billion in annual spend ► Advised a Fortune 50 pharmaceutical client with improving their IT financial management processes, cost transparency, data management, chargeback model redesign, service owner framework, and automation ► Advised and assisted a leading media and entertainment company to transform their IT operations into a shared services model encompassing 11 major service domains. Also assisted in the development of a data center strategy, a WAN architecture review, and a detailed IT service cost analysis, to include the development of a service catalog, and a chargeback model. ► Assisted in an IT infrastructure (voice, data, and data center) strategic assessment and financial analysis for a Fortune 500 corporation, which resulted in identifying the strategies to improve network and data center performance and availability, in addition to saving $32M - $53M over three years in IT operating expenses. ► Supported an IT Cost Optimization study for the premium spirits and wine supplier in the U.S., which addressed their telecom and infrastructure spend. Identified annual savings of 10% to 19%. ► Advised in the strategic assessment of the voice and data networks for a Fortune 500 high tech manufacturing firm, which resulted in a new technology direction (VOIP) and Identified over $9M in annual savings. ► Assisted in performing an IT Operations strategic assessment for a Fortune 100 manufacturing corporation, focusing on data center consolidation. Developed data center consolidation and disaster recovery strategies, in addition to Identifying over $5M in annual savings. ► Advised a leading medical device manufacturing company in the evaluation of their outsourced infrastructure service contracts, resulting in overall savings of $5M - $6M, or 35% - 45%. ► Assisted a Fortune 100 consumer staples company with the assessment of their wireless telecom services contracts, resulting in overall savings of $6M - $9M, or 45% - 55%.
Page 39 Q & A
EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. © 2016 Ernst & Young LLP. All Rights Reserved. BSC no. 1602-1728497 ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com

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The IT Financial Management Cost Transparency Journey

  • 1.
    IT Financial Management Journey Ernst& Young Perspectives ITFMA – Chicago, 2016 Pete Hidalgo & Shashank Aggarwal
  • 2.
    Page 1 Competitoranalysis Agenda The ITFM Journey2 Client case study3 1 Current challenges Q & A4
  • 3.
    Page 2 Current Challenges Businessexecutives want to clearly understand the IT organization’s value and how it supports the business strategy ► Increase the value received from IT ► Make sure IT is supporting the business strategy ► Measure and manage IT appropriately ► Use IT to improve the business ► Develop a common language for communicating with IT ► Make IT a part of the team ► Demonstrate the value IT provides to the business ► Secure the resources IT needs to deliver results ► Have a place at the executive table ► Have a common language for communicating with business leaders CEO/CFO Senior Business Leaders CIO/ Senior IT Leaders Stakeholders Stakeholder Priorities for IT
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    Page 4 The EYIT Financial Management (ITFM) Journey EY’s ITFM journey provides a clear and easy to follow path to enable the delivery of cost effective services to the business, improve transparency and increase satisfaction. Step 1 Current state assessment Step 2 Service definition Step 3 Unit service costing Step 4 Metrics and reporting Step 5 Chargeback model Step 6 Bill of IT  Transparency  Cost efficiency  Customer satisfaction
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  • 7.
    Page 6 Current StateAssessment You need to understand where you are before determining where you need to go Utilizing the EY ITFM framework as a reference Current State Assessment Data collection Interviews Maturity Assessment Gaps
  • 8.
    Page 7 EY ITFinancial Management Framework ITIL based, but also incorporates our view of leading practice
  • 9.
    Page 8 Cu IT FinancialManagement Maturity Model Used to determine where you are and where you want to be Value High DetailandComplexity Low High 1 Cost Center DefendingcostAddingvalue 2 Commodity 3 Utility 4 Advisor 5 Business Partner Current State Target State
  • 10.
    Page 9 # MaturityLevel Maturity Description 1 Cost Center • IT organization has a very tactical focus • Low interaction between Business and IT • Costs are defined and allocated at a high-level (People, Software, Hardware, etc) based on Revenues, FTEs • Lack of cost transparency 2 Commodity • IT works closely with the business but does not drive strategic initiatives • IT costs are broken down into sub-categories (example: software & infrastructure costs) • IT costs are aligned based on resources rather than consumption • Business has little influence over IT costs 3 Utility • IT works closely with the business but does not drive strategic initiatives • IT costs are broken down into sub-categories (example: software & infrastructure costs) • IT costs are aligned based consumption with SLAs in place • Business has little influence over IT costs 4 Advisor • IT advises the business on execution of strategic initiatives • IT costs are reported at the business application/process level • Business has a good understanding of its IT costs • Business can influence IT costs by optimizing and rationalizing applications / processes • Driver based planning 5 Business Partner • IT is proactive in initiating strategic initiatives • IT costs are service-based • Business can influence its IT costs by managing its consumption of IT resources • End-to-end view of financial data – from resources to services to applications • Driver based planning ITFM Maturity Model Criteria Used to determine maturity levels
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    Page 11 IT ServiceCatalog Foundational element for all IT organizations Benefits 1) Improved transparency and customer satisfaction 2) Demonstrates the value of IT 3) Ease of service ordering and interfacing with IT 4) Documents service levels for each service (SLAs) 5) Leads to more efficient consumption of services  Provides a single reference source for all IT services offered
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    Page 12 What isa service catalog? A communication tool to have a productive dialogue with the business about what services IT can deliver to help make them successful The foundation for any type of allocation or chargeback process An easy to use document to help customers understand how to request services, what the service performance levels are, and what they cost A Service Catalog is… A Service Catalog is not… a X Constrained by the current structure of outsourcing service contracts A detailed technical process list that shows how to deliver IT services A self-service portal for the business A leading practice framework for defining services which can be benchmarked An IT Operating or Service Delivery model.
  • 14.
    Page 13 The EYreference framework for structuring the service catalog – focused on “The What” The What (Service Offering & Service Performance) The How (Service Delivery) Service Portfolio (Employee Enablement) PC Email Telephony Technology Service Tiers SLA’s Availability Response Time Tools Infrastructure Service Tier 2 (Silver) Service Tier 3 (Bronze) Service Tier 1 (Gold) Delivery Model (Logical grouping of services offerings) (Discrete services provided to a customer ) (Specific capabilities or features that constitutes a service) (Service performance expectations) (Delivery of one service) (Core technologies and tools to deliver service) Services Service Performance People Processes
  • 15.
    Page 14 Service catalogevolution “Don’t let perfect be the enemy of good” 1. Catalog includes improved SLAs and unit service costs 2. Catalog includes tiered services, resolution time SLAs, and partial costs 3. Initial catalog includes basic services, only response time SLAs, not resolution times Services are not defined or ad- hoc definitions are in place with few synergies Maturity Time High Low 1 2 3 4 No catalog Basic services and response time SLAs Tiered services and resolution time SLAs Improved SLAs and unit service costs 1 2 3 4
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    Page 16 IT ServiceCosting Definition ► IT Service Costing (ITSC) is the process of calculating the actual unit costs of providing IT services Key Points ► Once actual unit service costs are determined they can be compared to market rates to identify potential savings opportunities ► One key goal for the IT organization is to have the cost of their services be at or below external service providers Dependencies 1) Services must be defined first 2) Must have good consumption data 3) Need cost data that is aligned with services 4) Effective chargeback implementation requires unit service costs
  • 18.
    Page 17 ► Benchmarking ►Build vs. buy ► Internal & External ► Drives efficient consumption ► Align demand to capacity ► Customer focused ► Service oriented ► Visibility ► Consistency ► Accuracy ► Cost drivers ► Cost of service ITSC – Benefits Service based costing empowers executive decision making ability through improved IT cost visibility Aligns IT to Business Strategy Performance Management Cost Transparency Allocations / Chargeback Cost Management Resource Management
  • 19.
    Page 18 Others ►Cost perserver ►Cost per application ►Cost per GB of disk storage ►Cost per help desk call ►Cost per PC ►Cost per telephone ►Etc. Remote Services HR FIN Others Sales BI Others Hosting Services Application Mgmt. Telecom Services Others ►Helpdesk ►Server mgmt. ►Voice ►WAN/LAN ►Storage ►Etc. Cost Drivers: ►Servers ►Storage ►Applications ►FTEs ►Etc. Labor Maintenance Depreciation IT Departments Services Cost Pools Service Costs Consumption Drivers EY Service Costing Framework Service Costing Framework Translates IT department costs into service costs that are meaningful to users/customers and enables benchmarking / savings identification Linkage to Chargeback Service Catalog Usage Data
  • 20.
    Page 19 Data Quality Costand consumption data are BOTH required in order to calculate unit service costs ► The EY data quality framework enables the assessment of both cost and consumption data in order to: ► Identify gaps for improvement ► Determine readiness for chargeback Inventory Weight Data Received Score Inventory Weight Data Received Score Identity and End User Computing Number of PCs per BU 0.5 90% 0.45 Service Cost 0.5 100% 0.5 0.95 95% Service Desk and support Number of incidents per BU 0.5 80% 0.4 Service Cost 0.5 85% 0.425 0.825 83% Conferencing (video, webex) Telepresence location per building with usage by BUs 0.5 80% 0.4 Telepresence cost data by locations or BU 0.5 85% 0.425 0.825 83% Email & collaboration tools Number of email accounts per BU 0.5 100% 0.5 FTE/Agency workers information supporting collaboration tools 0.5 85% 0.425 0.925 93% Telephones Number of handsets/extensions per business unit and their consumption 0.5 95% 0.475 Cost incurred for the usage of the extensions per BU 0.5 85% 0.425 0.9 90% Network connectivity LAN/WAN site information 0.5 85% 0.425 Cost of circuits and networks 0.5 85% 0.425 0.85 85% Mobility Number of Mobile Apps 0.5 25% 0.125 Service Cost 0.5 85% 0.425 0.55 55% 0 0% 0 FTE/Agency workers information per BU 0.5 75% 0.375 - 0 0% 0 Cost of software provisioned for PCs 0.5 75% 0.375 Infrastructure (DC & Connectivity) Servers associated applications and quantities 0.5 75% 0.375 Servers costs associates with their usage and services 0.5 75% 0.375 0.75 75% Infrastructure (Compute / Servers) Storage associated servers and quantities 0.5 75% 0.375 Storage costs associates with their usage and services 0.5 75% 0.375 0.75 75% Infrastructure (Storage & Back-Up) Data Center associated servers with applications 0.5 75% 0.375 Data Center costs associated with hosting servers and applications 0.5 75% 0.375 0.75 75% Databases, JAVA, .NET, tools Number of databases, associated applications and usage per BU 0.5 75% 0.375 FTE/Agency workers supporting databases per BU 0.5 100% 0.5 0.875 88% Integration Applications supported for integrations purposes and the corresponding BUs using those applications 0.5 100% 0.5 FTE/Agency numbers per BU for developing/supporting/maintaining the service 0.5 100% 0.5 1 100% Number of sites and locations 0 95% 0 FTE/Agency workers per BU for service provided 0.5 40% 0.2 - 0 0% 0 Non-Labor costs (Software / Infrastructure) 0.5 40% 0.2 NA 0 0% 0 FTE/Agency workers per BU for service provided 0.5 100% 0.5 NA 0 0% 0 Non-Labor costs (Software / Infrastructure) 0.5 85% 0.425 NA 0 0% 0 FTE/Agency workers per BU for service provided 0.5 100% 0.5 0 0% 0 Non-Labor costs 0.5 100% 0.5 NA 0 0% 0 FTE/Agency workers per BU for service provided 0.5 100% 0.5 0 0% 0 Non-Labor costs 0.5 100% 0.5 NA 0 0% 0 FTE/Agency workers per BU for service provided 0.5 100% 0.5 0 0% 0 Non-Labor costs 0.5 100% 0.5 NA 0 0% 0 FTE/Agency workers per BU for service provided 0.5 100% 0.5 0 0% 0 Non-Labor costs 0.5 100% 0.5 NA 0 0% 0 FTE/Agency workers per BU for service provided 0.5 100% 0.5 0 0% 0 Non-Labor costs 0.5 100% 0.5 Organizational Data Employee headcount by BU/Country/Region across the organization 0.5 100% 0.5 IT Organization/Services budgets 0.5 100% 0.5 1 100% Site Information Building data and BUs associated with it 1 100% 1 0 100% 0 1 100% 1 100% 5%1 1 1 100% 100% 100% 100% Category Quality Category Weight Overall Data Quality ADM 0.75 75% 81% 29% Cost Data 83% 11% 82% Total Weighted Score Data Item Quality 100% 0% 13% Projects New projects requested from GIS by the business 93% 42% Local Support On-site support for infrastructure and applications 40% 93% Service Name Service Cost Quantity Consumption Data Budgets $ 275 $ 125 $ 400 $ 50 Service Category $ - Staffing Enablement 0.4 40% 0.925 Application Delivery & Support Foundational Cost / Consumption Data Security Risk Management 1 100% Strategy, Architecture, & Governance Industry and innovation BI, Data warehouse HR, Business Resources Corporate Services $ 100 Data quality heat map Data quality assessment tool
  • 21.
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    Page 21 Metrics &Reporting ► Purpose ► Necessary for effective management and customer satisfaction ► “What gets measured gets done” ► Emphasis on quality over quantity ► Metrics ► KPIs ► Key Performance Indicators that are measured and reported internally to manage services or processes ► SLAs ► Service Level Agreements, which are a formal commitment to a predetermined and agreed to level of service between IT and the business/customer ► Reporting ► Metrics - three levels: Business, executive, operational ► Usage - shows consumption of IT services by the business
  • 23.
    Page 22 Usage ReportingExample Customers need to understand their consumption and costs in order to manage them ► Highest benefit and maturity level is to produce monthly for each service via self-service on an automated platform ► Can be produced manually as an initial solution using Excel Automated Example – ITFM Tool Manual Example - Excel
  • 24.
  • 25.
    Page 24 Why implementchargeback? ► To understand the true costs of providing IT services ► To educate IT customers on the value of the IT services that are being provided ► As a tool to improve operating efficiencies and lower costs ► To enable customers to manage their own consumption of services and associated costs -
  • 26.
    Page 25 Benefits ofImplementing Chargeback 1) Reduce spend/costs 2) More effective IT spending 3) Improve demand & expense forecasting for the IT organization and its customers 4) Key component of ITIL Financial Management
  • 27.
    Page 26 Chargeback ModelMaturity Curve Used to determine where you are and where you want to be Implementation Time Long Maturity Short High 1 Overhead allocation 2 Flat fee 3 Consumption based 4 Incentive based 5 Service based 6 External pricing 7 Value based pricing Current State Target State
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    Page 27 Chargeback ModelDefinitions and Features IT chargeback methodology Methodology description 1. Overhead allocation 2. Flat fee 4. Incentive based 5. Service based 6. External pricing 7. Value based pricing 3. Resource consumption based ► IT costs are allocated to LOBs as a corporate overhead cost based on a simple driver not directly related to resource consumption (e.g. revenue, asset balance, etc.) ► Fixed annual cost negotiated with BUs; normally based on a “crude” estimate of resource consumption ► IT charges are manipulated to drive specific behavior (e.g., lower charges to influence use of network or servers during off-peak times) ► IT service charges to BUs are based on consumption of specific activities; quality and availability of services are explicitly defined, service “choice” provided for key products ► IT service fees are based on market (external) prices; products offered are comparable to those available in the marketplace ► IT service fees are based on perceived value delivered to LOBs (e.g., business value created, customer satisfaction, timely delivery of new financial products) ► IT costs are allocated based on specific unit of resource consumed (e.g., number of dedicated servers, network ports, etc.) CostAwareness Cost Measurement Effort Costsand Complexity CostManagement Effort 0. No chargeback ► IT costs are not charged back = Low = Medium = HighKEY:
  • 29.
    Page 28 The ChargebackJourney Implementing chargeback is an evolutionary process vs. “big bang” Usage reporting Showback (Usage + $) Chargeback Time Maturity
  • 30.
    Page 29 Automation Frequency Chargeback Automationand Frequency To perform more frequent chargebacks increasing levels of automation are needed
  • 31.
    Page 30 Chargeback DataRequirements To chargeback on a unit cost basis, unit consumption and cost data is needed Datagranularity Type of model
  • 32.
    Page 31 Guiding Principles Consistency Effort Fairness Transparency ►Are IT chargeback methods aligned with cost allocation and profitability measurement used throughout the organization? ► How much effort (e.g., data collection, transformation, calculation, reconciliation, and billing) is appropriate and is it in keeping with the value provided? ► To what degree should chargeback be based on actual consumption versus an estimated allocation? ► What costs should be included/excluded? ► What insight should customers have into how IT manages IT— including which costs are fixed and which are variable? ► What behaviors, if any, should chargeback drive (e.g. reduced consumption, investment in new products, incentives to move users from old technologies, etc.)? Influence Chargeback guiding principles
  • 33.
    Page 32 Chargeback Models Notone size fits all, and that’s okay HighImplementation complexity Low High Businessbenefitsandtransparency Resource- based allocations Differentiated service levels and pricing 1. Overhead allocation 2. Flat fee 6. External pricing 7. Value based pricing 4. Incentive based 3. Resource consumption based 5. Service based Service pricing Resourced-Based Allocations distributes costs through allocations or simple consumption estimates Service Pricing measures specific consumption and drives behavior through tiered services and prices (e.g. incentives for off-peak usage) Differentiated Service Levels and Pricing reflects a more market-based approach to cost recovery High
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    Page 34 Why automate? ►Improve unit service costing and benchmarking accuracy, leading to lower costs ► Increase transparency into consumption and costs ► Needed to provide monthly reporting and chargeback – manual models require large amounts of labor ► Provide self-service capabilities to customers, so that they can understand and regulate their consumption ► More efficient than manual processes
  • 36.
    Page 35 Tool selection ►You should first consider if you are ready for a tool. Some key points to keep in mind: ► Are services well defined? ► Are ITFM roles and processes defined and mature? ► Service consumption data ownership, availability, and quality are key requirements ► There are multiple tools available in the market, so you should evaluate them based on your specific requirements using well defined criteria and use cases ► You can use resources such as Gartner as a guide
  • 37.
  • 38.
    Page 37 Client ITFMcase study overview This is one of many examples of the benefits of implementing ITFM processes ► Client objectives ► Create financial transparency for all products and services provided by IT infrastructure services ► Continue to reduce infrastructure support costs, optimize operations ► Achieve or exceed cost benchmarks in all elements of IT Infrastructure Services ► Derive benefits from the previously purchased ITFM tool ► Results ► Developed a comprehensive end state architecture and two year roadmap to success ► Identified $6M - $10M in initial savings ► Designed the chargeback model, roles, metrics, and processes to provide additional transparency to the business ► Developed an implementation plan to operationalize their ITFM tool
  • 39.
    Page 38 Peter Hidalgo,Jr ITFM Services Lead Senior Manager IT Transformation Advisory Services Ernst & Young LLP 5 Times Square New York, NY 10036-6530, United States of America Pete.Hidalgo@ey.com Mobile: 973-223-5616 Education West Point - USMA BS – Engineering Columbia University MBA Certification(s) PMP ITIL Financial Management ► Senior Manager with over 20 years of experience in I.T. Financial Management, Telecom and I.T. infrastructure, Cost Optimization, Program Management, and I.T. Shared Services Transformation. ► Deep industry experience in managing and optimizing I.T. costs. Previous responsibilities included serving as the Global I.T. Financial Manager for a Fortune 100 company, where he managed an annual operating budget of over $100 million. In that role he also developed and implemented an ITIL based service costing and chargeback process, resulting in improved client satisfaction and major, recurring cost savings. ► Currently serves as the I.T. Financial Management Service Leader within Ernst & Young’s IT Advisory practice Relevant experience ► Assisted a Fortune 50 global manufacturing client with redesigning their current IT allocation model and processes for over $1 billion in annual spend ► Advised a Fortune 50 pharmaceutical client with improving their IT financial management processes, cost transparency, data management, chargeback model redesign, service owner framework, and automation ► Advised and assisted a leading media and entertainment company to transform their IT operations into a shared services model encompassing 11 major service domains. Also assisted in the development of a data center strategy, a WAN architecture review, and a detailed IT service cost analysis, to include the development of a service catalog, and a chargeback model. ► Assisted in an IT infrastructure (voice, data, and data center) strategic assessment and financial analysis for a Fortune 500 corporation, which resulted in identifying the strategies to improve network and data center performance and availability, in addition to saving $32M - $53M over three years in IT operating expenses. ► Supported an IT Cost Optimization study for the premium spirits and wine supplier in the U.S., which addressed their telecom and infrastructure spend. Identified annual savings of 10% to 19%. ► Advised in the strategic assessment of the voice and data networks for a Fortune 500 high tech manufacturing firm, which resulted in a new technology direction (VOIP) and Identified over $9M in annual savings. ► Assisted in performing an IT Operations strategic assessment for a Fortune 100 manufacturing corporation, focusing on data center consolidation. Developed data center consolidation and disaster recovery strategies, in addition to Identifying over $5M in annual savings. ► Advised a leading medical device manufacturing company in the evaluation of their outsourced infrastructure service contracts, resulting in overall savings of $5M - $6M, or 35% - 45%. ► Assisted a Fortune 100 consumer staples company with the assessment of their wireless telecom services contracts, resulting in overall savings of $6M - $9M, or 45% - 55%.
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    EY | Assurance| Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. © 2016 Ernst & Young LLP. All Rights Reserved. BSC no. 1602-1728497 ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com