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The Path To Effective
IT Chargeback
Ernst & Young Perspectives
ITFMA – New Orleans, August 2017
Pete Hidalgo, Shashank Aggarwal – EY
Joseph Gualandri - Caterpillar
Page 1
Agenda
► Introduction
► Session overview
► The ITFM and Chargeback Journey
► Data requirements
► Guiding principles
► Model types and maturity
► Automation
► Lessons learned
► Q & A
Page 2
Session overview
Objective
Share the story of how Caterpillar worked to improve cost transparency and
their IT chargeback model
Method
The Caterpillar journey will be shared, which followed the EY ITFM framework
over the course of one and one half years of working together
Outcomes
Sharing the lessons learned from Caterpillar’s journey will benefit those
contemplating undertaking the same journey. Your engagement during this
presentation is essential so please ask questions along the way.
1
2
3
Page 3
The EY 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
Today’s
Focus
Page 4
The chargeback journey – each one is unique
Below is the Caterpillar journey
Page 5
The chargeback journey
Caterpillar had a multi-year plan and established criteria to measure success
Page 6
The chargeback journey
Implementing chargeback is an evolutionary process vs. “big bang”…
Usage
reporting
Showback
(Usage + $)
Chargeback
Time
Chargeback
process
Page 7
Chargeback data requirements
To chargeback on a unit cost basis, unit consumption and cost data is needed…
Datagranularity
Level of effort
Page 8
Chargeback data requirements
Data quality must be quantitatively assessed in order to measure improvement…
Data quality will determine the maturity level of the desired model…
Page 9
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
Page 10
Service definition – first year example
Must first define services in order to allocate costs….below is the Caterpillar example
Portfolios and services can be expanded as process maturity increases…
IT services can be initially organized into five portfolios comprised of 20 individual services
Site & Business
Enablement
• On-site support for infrastructure and
applications
Application Delivery &
Support
• ADM (Development, maintenance,
support and Software of applications)
• Infra - Data Center & Connectivity
• Infra - Compute / Servers
• Infra - Storage & Back-Up
• Databases, Java, .NET, tools
• Integration
Staffing Enablement
• Identity and End User Computing
• Service desk and support
• Conferencing (video, WebEx)
• Email & collaboration tools
• Telephones
• Network connectivity
• Mobility
Enterprise Support
Services
• Security Risk Management
• Strategy, Architecture, Governance,
and PMO
• Industry and innovation - TES
• BI, Data warehouse
• Business Resources, Human Resources
New Initiatives
• New projects requested from GIS by
the business
Global Infra
Services
PMO
Security Risk
Management
IT
App Delivery &
Support
Site Support
Strategy, Arch.,
Governance
Finance
Human Resources
Page 11
Service definition – first year Caterpillar example
Also creates a foundation for the development of a complete service catalog…
# Service Name Service Owner Service Description
Staffing Enablement
1 Identity and End User Computing TBD
Lifecycle management of End-User devices including procurement, imaging & patching, installation of software, identity
and access management services, desk-side support and printers.
2 Service desk and support TBD Resolution (incl. management) of service requests, incidents and tickets raised by end-users to the help desk.
3 Conferencing (video, webex) TBD
Solutions enabling employees to organize meetings, conferences & other sessions using Telepresence, Webex, video,
& enterprise audio conferencing, network based broadcast services, Video@work, and enterprise supported digital
signage (facility messaging).
4 Email & collaboration tools TBD
Enabling communication and collaboration across the organization through email, messaging, and enterprise
collaboration tools.
5 Telephones TBD
Telephony services including Call Center, voice mail, extension licensing & fees, softphone (IPC and Jabber) and
associated equipment and maintenance (Excludes circuit & toll charges and equipment such as phones sets &
headsets installed at sites).
6 Network connectivity TBD
Data and voice networks per site that allow secure connectivity across the enterprise (Data Centre related networks
costs are captured separately).
7 Mobility TBD
Mobile device security and management, mobile application standards, and corporate owned cell phone
management/standards.
Application Delivery & Support
8
ADM (Development,
maintenance, support &
Software)
TBD
Application development, maintenance and support activities for all applications including software purchased from 3rd
party vendors.
9
Infrastructure - Data Center &
Connectivity
TBD Management of Data Centers including equipment, labor involved and network connectivity in providing the service.
10
Infrastructure - Compute /
Servers
TBD
Management of Servers and Operating Systems including equipment and labor involved in providing the service,
directly for business applications and other GIS key services (Mainframes, Windows, Linux, Unix).
11
Infrastructure - Storage & Back-
Up
TBD
Management of Storage & Back-Up including equipment and labor involved in providing the service, directly for
business applications and other GIS key services (NAS, SAN).
12 Databases, Java, .net, tools TBD
Primarily; Database platforms, licenses and the labor associated for DB maintenance (Oracle, MySQL, DB2, SQL
Server). Supporting JAVA type tools for ad-hoc support and development.
13 Integration TBD
Services related to developing, supporting and maintaining the integration functionality across the multitude of
enterprise and local applications.
Page 12
Services and chargeback model progression
From high level bundle in year 1 to individual services and per unit charging in year 3…
Staff Enablement
Service 2015 2016 2017
• Identity and End User
Computing
• Primarily bundled and allocated by total
headcount
• allocated by total headcount
• Bundled and allocated to the BU’s by
the #of assigned PC’s
• Standardized methodology
• Set-up structure to move to Service
Based Costing in 2017
• By # of PC’s per BU
• Service desk and
support
• By ticket-count per BU
• Conferencing (audio,
video, web)
• By # of telepresence locations per BU
• Email and
collaboration tools
• By # of Email accounts per BU
• Telephones • By # of extensions per BU
• Network connectivity • Direct cost per Site / BU
• Mobility • By # of Mobile Devices per BU
► It takes more than one year to get to the desired level of service and cost
transparency
► The goal is to move to a consumption based chargeback model with unit service
costs
Page 13
Guiding principles for model design
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 and considerations
Consistency
Effort
Fairness
Transparency
Influence
Page 14
Chargeback models
Not one size fits all…
Caterpillar moved from a level 1-2 model to a level 3 model initially
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
Page 15
Chargeback model details
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.)
Cost
Awareness
Cost
Measurement
Effort
Costsand
Complexity
Cost
Management
Effort
0. No chargeback ► IT costs are not charged back
= Low = Medium = HighKEY:
Page 16
Chargeback model maturity
Used to understand where you are, where you want to go, and to measure progress…
High
BenefitsandTransparency
Low
High
2
Flat Fee
3 Consumption
Based
4
Incentive
Based
5
Service Based
6
External Pricing
7
Value Based
Pricing
Implementation Complexity
1 Overhead
Allocation
Current State
Target State
Page 17
Chargeback model maturity criteria
# Maturity Level Maturity Description
1 Overhead Allocation
• IT costs are allocated to Business Partners (BUs) as a corporate overhead cost
based on a simple driver not directly related to resource consumption (e.g.
revenue, asset balance, etc.)
2 Flat Fee
• Fixed annual cost negotiated with BUs; normally based on a “crude” estimate of
resource consumption
3 Resource Based Consumption
• IT costs are allocated based on specific unit of resource consumed (e.g., number
of dedicated servers, network ports, etc.)
4 Incentive Based
• IT charges are manipulated to drive specific behavior (e.g., lower charges to
influence use of network or servers during off-peak times)
5 Service Based
• 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
6 External Pricing
• IT service fees are based on market (external) prices; products offered are
comparable to those available in the marketplace
7 Value Based Pricing
• IT service fees are based on perceived value delivered to BUs (e.g., business
value created, customer satisfaction, timely delivery of new financial products)
Automation
Page 19
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 20
Chargeback model
Need to automate to drive and fully realize the benefits of chargeback…
Benefits
Time
Page 21
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
Page 22
Lessons learned
Understand that this is a
multi-year journey and set
expectations both for time
and investment required
Service definition is a key first
step in the chargeback
process. You don’t have to do
a full catalog, but services and
their owners must be defined.
Importance of service
consumption data – both
availability and data quality
1
2
3
Understand related initiatives
and their interdependencies,
such as CMDB
Need to present costs and
benefits at the beginning of
the journey in order to obtain
executive buy-in
When planning an ITFM tool
implementation, involve end
users when designing output
reports in order to capture
their requirements
4
5
6
Page 23
Q & A
Page 24
Joe Gualandri
Caterpillar – IT Finance Director
IT Finance Director
Global Information Services
Caterpillar Inc
812 W. Washington Street
East Peoria, IL 61630
United States of America
Joe.Gualandri@cat.com
Mobile: (309) 397-3111
Education
Illinois State University
MS Accounting
Certification(s)
CPA
CISA
► Business Manager with over 23 years of experience with Caterpillar (current)
► Responsible for the management of over $1 Billion in annual IT expenditures
► Certified Public Accountant with over 15 years of experience in public accounting (prior to Cat)
► Currently leading Caterpillar’s Global Information Services Division’s IT Financial Management
Transformation
Relevant experience
► Led the development and implementation of IT financial processes that utilized IT chargeback, service
management and program management, including business case analysis.
► Engaged with the GIS Director team to align the IT organization into clearly defined functional
disciplines (e.g., Strategy, Governance, Business CIOs, Develop & Deploy and Service Delivery).
► Prior experience in Caterpillar organizations included marketing and product support, large engines,
external logistics, mining and resource industries.
► Prior experience to Caterpillar included information systems auditing and consulting at Ernst & Young.
Page 25
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 26
Shashank Aggarwal
Manager
IT Transformation
Advisory Services
Ernst & Young LLP
5 Times Square
New York, NY 10036-6530,
United States of America
Shashank.Aggarwal@ey.com
Mobile: (646) 642-6756
Education
Monash Uni, Australia
Certification(s)
PMP
ICAA
► Manager with over 12 years of Global experience in data-driven Business Transformation, IT Shared Services
Transformation, IT Financial Management and Program Management.
► Deep industry experience in managing and optimizing IT costs. Previous responsibilities included serving as the
Global IT Finance Controller for a Fortune 500 company, where he managed an annual operating budget of over $50
million. In that role he also had responsibility for all commercial management including contract management and
vendor management.
► Key team member of Ernst & Young’s IT Financial Management practice
Relevant experience
► Led the development of a Cloud-first strategy for a leading financial ratings agency, focused on a cost neutral
approach over 5 years for Public Cloud transformation and Data Center shutdown. The strategy development
included assessment of current infrastructure, security and operations practices, a financial case and roadmap for
nearly 10,000 workloads and 5 major Data Centers
► Assisted a Fortune 50 global manufacturing client with redesigning their current IT cost allocation model and IT
Finance processes for over $1 billion in annual spend
► Led the development of pricing and underlying cost model for a Managed Services professional services organization
who was looking to provide visibility to both internal and external customers. Majority of Managed Services solutions
were provided through Cloud
► Led a Shared Services program implementation program for IT Infrastructure for a $7B global manufacturing
organization, managing teams of 20+ individuals across 4 towers: Service Desk, Client Services, Managed Hosting,
Network & Telecom
► Managed the IT Service Management Office and Finance Management functions at a leading medical device
manufacturer ($3B+ in revenue). Responsibilities included implementing ITIL V3 based ITSM processes and
developing a service costing framework to allocate IT costs to business partners based on actual consumption.
► Steering Committee member for a “Smart Retail” program focused on customer advocacy and increasing customer
value at a leading airline. He was a major contributor to developing data mining techniques using marketing concepts
of customer profitability and customer lifetime value.
► Managed the development and implementation of a transformation plan for the North American operations of a
Global HR staffing organization. Focusing on sales business processes and enabling IT systems, the project
redesigned over 50 core business processes, and developed a new operating model for the sales, delivery, and
customer service functions.
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 Path To Effective IT Chargeback

  • 1. The Path To Effective IT Chargeback Ernst & Young Perspectives ITFMA – New Orleans, August 2017 Pete Hidalgo, Shashank Aggarwal – EY Joseph Gualandri - Caterpillar
  • 2. Page 1 Agenda ► Introduction ► Session overview ► The ITFM and Chargeback Journey ► Data requirements ► Guiding principles ► Model types and maturity ► Automation ► Lessons learned ► Q & A
  • 3. Page 2 Session overview Objective Share the story of how Caterpillar worked to improve cost transparency and their IT chargeback model Method The Caterpillar journey will be shared, which followed the EY ITFM framework over the course of one and one half years of working together Outcomes Sharing the lessons learned from Caterpillar’s journey will benefit those contemplating undertaking the same journey. Your engagement during this presentation is essential so please ask questions along the way. 1 2 3
  • 4. Page 3 The EY 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 Today’s Focus
  • 5. Page 4 The chargeback journey – each one is unique Below is the Caterpillar journey
  • 6. Page 5 The chargeback journey Caterpillar had a multi-year plan and established criteria to measure success
  • 7. Page 6 The chargeback journey Implementing chargeback is an evolutionary process vs. “big bang”… Usage reporting Showback (Usage + $) Chargeback Time Chargeback process
  • 8. Page 7 Chargeback data requirements To chargeback on a unit cost basis, unit consumption and cost data is needed… Datagranularity Level of effort
  • 9. Page 8 Chargeback data requirements Data quality must be quantitatively assessed in order to measure improvement… Data quality will determine the maturity level of the desired model…
  • 10. Page 9 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
  • 11. Page 10 Service definition – first year example Must first define services in order to allocate costs….below is the Caterpillar example Portfolios and services can be expanded as process maturity increases… IT services can be initially organized into five portfolios comprised of 20 individual services Site & Business Enablement • On-site support for infrastructure and applications Application Delivery & Support • ADM (Development, maintenance, support and Software of applications) • Infra - Data Center & Connectivity • Infra - Compute / Servers • Infra - Storage & Back-Up • Databases, Java, .NET, tools • Integration Staffing Enablement • Identity and End User Computing • Service desk and support • Conferencing (video, WebEx) • Email & collaboration tools • Telephones • Network connectivity • Mobility Enterprise Support Services • Security Risk Management • Strategy, Architecture, Governance, and PMO • Industry and innovation - TES • BI, Data warehouse • Business Resources, Human Resources New Initiatives • New projects requested from GIS by the business Global Infra Services PMO Security Risk Management IT App Delivery & Support Site Support Strategy, Arch., Governance Finance Human Resources
  • 12. Page 11 Service definition – first year Caterpillar example Also creates a foundation for the development of a complete service catalog… # Service Name Service Owner Service Description Staffing Enablement 1 Identity and End User Computing TBD Lifecycle management of End-User devices including procurement, imaging & patching, installation of software, identity and access management services, desk-side support and printers. 2 Service desk and support TBD Resolution (incl. management) of service requests, incidents and tickets raised by end-users to the help desk. 3 Conferencing (video, webex) TBD Solutions enabling employees to organize meetings, conferences & other sessions using Telepresence, Webex, video, & enterprise audio conferencing, network based broadcast services, Video@work, and enterprise supported digital signage (facility messaging). 4 Email & collaboration tools TBD Enabling communication and collaboration across the organization through email, messaging, and enterprise collaboration tools. 5 Telephones TBD Telephony services including Call Center, voice mail, extension licensing & fees, softphone (IPC and Jabber) and associated equipment and maintenance (Excludes circuit & toll charges and equipment such as phones sets & headsets installed at sites). 6 Network connectivity TBD Data and voice networks per site that allow secure connectivity across the enterprise (Data Centre related networks costs are captured separately). 7 Mobility TBD Mobile device security and management, mobile application standards, and corporate owned cell phone management/standards. Application Delivery & Support 8 ADM (Development, maintenance, support & Software) TBD Application development, maintenance and support activities for all applications including software purchased from 3rd party vendors. 9 Infrastructure - Data Center & Connectivity TBD Management of Data Centers including equipment, labor involved and network connectivity in providing the service. 10 Infrastructure - Compute / Servers TBD Management of Servers and Operating Systems including equipment and labor involved in providing the service, directly for business applications and other GIS key services (Mainframes, Windows, Linux, Unix). 11 Infrastructure - Storage & Back- Up TBD Management of Storage & Back-Up including equipment and labor involved in providing the service, directly for business applications and other GIS key services (NAS, SAN). 12 Databases, Java, .net, tools TBD Primarily; Database platforms, licenses and the labor associated for DB maintenance (Oracle, MySQL, DB2, SQL Server). Supporting JAVA type tools for ad-hoc support and development. 13 Integration TBD Services related to developing, supporting and maintaining the integration functionality across the multitude of enterprise and local applications.
  • 13. Page 12 Services and chargeback model progression From high level bundle in year 1 to individual services and per unit charging in year 3… Staff Enablement Service 2015 2016 2017 • Identity and End User Computing • Primarily bundled and allocated by total headcount • allocated by total headcount • Bundled and allocated to the BU’s by the #of assigned PC’s • Standardized methodology • Set-up structure to move to Service Based Costing in 2017 • By # of PC’s per BU • Service desk and support • By ticket-count per BU • Conferencing (audio, video, web) • By # of telepresence locations per BU • Email and collaboration tools • By # of Email accounts per BU • Telephones • By # of extensions per BU • Network connectivity • Direct cost per Site / BU • Mobility • By # of Mobile Devices per BU ► It takes more than one year to get to the desired level of service and cost transparency ► The goal is to move to a consumption based chargeback model with unit service costs
  • 14. Page 13 Guiding principles for model design 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 and considerations Consistency Effort Fairness Transparency Influence
  • 15. Page 14 Chargeback models Not one size fits all… Caterpillar moved from a level 1-2 model to a level 3 model initially 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
  • 16. Page 15 Chargeback model details 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.) Cost Awareness Cost Measurement Effort Costsand Complexity Cost Management Effort 0. No chargeback ► IT costs are not charged back = Low = Medium = HighKEY:
  • 17. Page 16 Chargeback model maturity Used to understand where you are, where you want to go, and to measure progress… High BenefitsandTransparency Low High 2 Flat Fee 3 Consumption Based 4 Incentive Based 5 Service Based 6 External Pricing 7 Value Based Pricing Implementation Complexity 1 Overhead Allocation Current State Target State
  • 18. Page 17 Chargeback model maturity criteria # Maturity Level Maturity Description 1 Overhead Allocation • IT costs are allocated to Business Partners (BUs) as a corporate overhead cost based on a simple driver not directly related to resource consumption (e.g. revenue, asset balance, etc.) 2 Flat Fee • Fixed annual cost negotiated with BUs; normally based on a “crude” estimate of resource consumption 3 Resource Based Consumption • IT costs are allocated based on specific unit of resource consumed (e.g., number of dedicated servers, network ports, etc.) 4 Incentive Based • IT charges are manipulated to drive specific behavior (e.g., lower charges to influence use of network or servers during off-peak times) 5 Service Based • 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 6 External Pricing • IT service fees are based on market (external) prices; products offered are comparable to those available in the marketplace 7 Value Based Pricing • IT service fees are based on perceived value delivered to BUs (e.g., business value created, customer satisfaction, timely delivery of new financial products)
  • 20. Page 19 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
  • 21. Page 20 Chargeback model Need to automate to drive and fully realize the benefits of chargeback… Benefits Time
  • 22. Page 21 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
  • 23. Page 22 Lessons learned Understand that this is a multi-year journey and set expectations both for time and investment required Service definition is a key first step in the chargeback process. You don’t have to do a full catalog, but services and their owners must be defined. Importance of service consumption data – both availability and data quality 1 2 3 Understand related initiatives and their interdependencies, such as CMDB Need to present costs and benefits at the beginning of the journey in order to obtain executive buy-in When planning an ITFM tool implementation, involve end users when designing output reports in order to capture their requirements 4 5 6
  • 25. Page 24 Joe Gualandri Caterpillar – IT Finance Director IT Finance Director Global Information Services Caterpillar Inc 812 W. Washington Street East Peoria, IL 61630 United States of America Joe.Gualandri@cat.com Mobile: (309) 397-3111 Education Illinois State University MS Accounting Certification(s) CPA CISA ► Business Manager with over 23 years of experience with Caterpillar (current) ► Responsible for the management of over $1 Billion in annual IT expenditures ► Certified Public Accountant with over 15 years of experience in public accounting (prior to Cat) ► Currently leading Caterpillar’s Global Information Services Division’s IT Financial Management Transformation Relevant experience ► Led the development and implementation of IT financial processes that utilized IT chargeback, service management and program management, including business case analysis. ► Engaged with the GIS Director team to align the IT organization into clearly defined functional disciplines (e.g., Strategy, Governance, Business CIOs, Develop & Deploy and Service Delivery). ► Prior experience in Caterpillar organizations included marketing and product support, large engines, external logistics, mining and resource industries. ► Prior experience to Caterpillar included information systems auditing and consulting at Ernst & Young.
  • 26. Page 25 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%.
  • 27. Page 26 Shashank Aggarwal Manager IT Transformation Advisory Services Ernst & Young LLP 5 Times Square New York, NY 10036-6530, United States of America Shashank.Aggarwal@ey.com Mobile: (646) 642-6756 Education Monash Uni, Australia Certification(s) PMP ICAA ► Manager with over 12 years of Global experience in data-driven Business Transformation, IT Shared Services Transformation, IT Financial Management and Program Management. ► Deep industry experience in managing and optimizing IT costs. Previous responsibilities included serving as the Global IT Finance Controller for a Fortune 500 company, where he managed an annual operating budget of over $50 million. In that role he also had responsibility for all commercial management including contract management and vendor management. ► Key team member of Ernst & Young’s IT Financial Management practice Relevant experience ► Led the development of a Cloud-first strategy for a leading financial ratings agency, focused on a cost neutral approach over 5 years for Public Cloud transformation and Data Center shutdown. The strategy development included assessment of current infrastructure, security and operations practices, a financial case and roadmap for nearly 10,000 workloads and 5 major Data Centers ► Assisted a Fortune 50 global manufacturing client with redesigning their current IT cost allocation model and IT Finance processes for over $1 billion in annual spend ► Led the development of pricing and underlying cost model for a Managed Services professional services organization who was looking to provide visibility to both internal and external customers. Majority of Managed Services solutions were provided through Cloud ► Led a Shared Services program implementation program for IT Infrastructure for a $7B global manufacturing organization, managing teams of 20+ individuals across 4 towers: Service Desk, Client Services, Managed Hosting, Network & Telecom ► Managed the IT Service Management Office and Finance Management functions at a leading medical device manufacturer ($3B+ in revenue). Responsibilities included implementing ITIL V3 based ITSM processes and developing a service costing framework to allocate IT costs to business partners based on actual consumption. ► Steering Committee member for a “Smart Retail” program focused on customer advocacy and increasing customer value at a leading airline. He was a major contributor to developing data mining techniques using marketing concepts of customer profitability and customer lifetime value. ► Managed the development and implementation of a transformation plan for the North American operations of a Global HR staffing organization. Focusing on sales business processes and enabling IT systems, the project redesigned over 50 core business processes, and developed a new operating model for the sales, delivery, and customer service functions.
  • 28. 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