CSC Proprietary and Confidential 1 OLM NBF Model Guidance: Costing Steve Coxon July 2013

CSC Proprietary and Confidential 1

OLM NBF Model Guidance:

Costing

Steve Coxon

July 2013

2

• Context – Inform on a standard cost and pricing ‘capture’ process

• OLM Model Versions– Catering for simplicity / complexity

• Cost Construction – Cost Framework

• Cost Construction – Using CST Files

• Cost Construction – “Ten Commandments”

• Support Contacts

Agenda


OLM NBF Model

Context

4

Context• Each Offering environment for cost and pricing is unique………but a common framework

is required• Standardization is not possible at the ‘owner’ level……….but is at the OLM ‘process’ level?• Without guidance, a cost and pricing ‘smorgasbord’ will result…….so there is a need to

provide structure• The structure must facilitate each unique Offering……..provide direction not prescription

Concept• Standardize the offering OLM reporting requirement………..including Resource Unit (RU)

cost and price • Standardize the Financial Management (FM) methodology that delivers OLM reporting

and decision making information• Enable the ‘owner’ level to have cost & price build capability……..with the details

‘interfacing’ into the standard FM file structure

Solution• Use the existing CSC New Business Finance (NBF) files and methodology to provide

information structure, standardization and direction to enable a consistent financial output and OLM performance level

Purpose – Inform on ‘Standard’ Cost & Pricing ‘Capture’

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Portfolio Management

Deliver BC / Updates

Prepare BC / Updates

Plan

Conceive

Cost & Pricing ‘Capture’: Conceptual Overview

Financial Management

PRC File (Pricing / Revenue)

CST Cost File

FM File

(Financial P & L)

Financial Overview

Offering Cost Management

Infra structure /

BOM

Third Party

CSC Allocation

CST Cost File

Offering Specific ‘Back End’

Preparation’

NBF Files:Interface to the OLM Standard

Process

Offering Price Management

Resource Units

Target Market

Target Price

PRC Price File

OLM Standard ‘Front End’

Delivery

Offering Lifecycle Management

Portfolio Management

Portfolio Strategy

Portfolio Optimization

Portfolio Realization

G2G1 G4G3 G6 G7G5G0

Early Adopters

Launch Offering

Scope Offering

Generate Business

Case

Develop Offering

OptimizeOffering

Retire OfferingConcept

6

Cost Model

Pricing Model

Finance Pricing

OLM Project Cost

Project Manager

Market Launch Operate

Early Adopter Operate

Billing (RU’s) WBS Structure

Project Costs

Early Adopter Revenue

Market Launch

Revenue GeographyIndustry

OrganisationPortfolio

Offering LineOffering

SAP Reporting & Performance Management

Record & Report

PerformanceMetrics

Create Legal & Commercial Framework

Legal Commercial

Supply Chain Alliance Partners

Investment Request

Investment Request

Financial Justification


OLM Finance Overview

G2G1 G4G3 G6 G7G5

Scope Offering

Generate Business

Case

Retire Offering

Develop Offering

Early Adopters

Launch Offering

Optimize Offering

Gate 1Exec

Presentation

Gate 2Exec

Presentation

Gate 3Exec

Presentation

Gate 4Exec

Presentation

Gate 5Exec

Presentation

Gate 6Exec

Presentation

Gate 7Exec

Presentation

Offering Manager

Finance, Sales &

Marketing

Preliminary Business

Assessment

InvestmentRequest

PortfolioStrategy

Offering Metrics

Create Cost & Pricing Framework

Sales & DeliveryPerformance Management

Pipeline Management

NBF BC Models

CST

FM PRC

Sales & Marketing

Delivery

Performance Management


Early Adopters& New

Customers

NBF Deal Models

CST

FM PRC

Business Case Business Case Business Case Business Plan Business Plan Retirement Plan


OLM NBF Model

OLM Model Versions

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• Manual – using limited files to support direct input of cost / revenue• Direct input of Market price & volume to derive Revenue• Direct Input of cost details to derive Total Cost (inc. Overhead)

• Basic – using CST (cost) file(s) to supplement the ‘Manual’ version• Option to Use NBF CST (cost) file(s) to provide cost• Option to use Model ‘Fee’ based ‘mark up’ to derive Revenue

• Standard ***– using the full suite of NBF models• Option to use alternative cost summary file• Option to use additional files to derive bundled component item

prices

*** It is recommended that the additional functionality of the ‘Standard’ NBF model suite is only used with the support of an NBF team member

OLM NBF Model Versions

9

OLM NBF File Overview: Manual Version

Rates File

Input Required:

• Offering Name• Duration

• Country Location• $ Rate

Conversion

‘Manual’ Entry File Set:

• Rates File• FM File

• PRC File

FM File PRC File

Input Required:

• None

Input Required:

• Manual File Selection

• Price / Volume OR

• Revenue• Cost Summary

Financial Summary

Cost & Revenue Details

Standard Financial Output:

Executive Presentation Summary

10

OLM NBF File Overview: Basic Version

Rates File

Input Required:



Conversion

‘Basic’ File Set:


• PRC File• CST File (For Replication)

FM File PRC File

Input Required:

• None

Input Required:

• Revenue / Cost File Use Selection


• Fee Based Revenue

• Cst Cost File(s) Link

Financial Summary




CST File(s)CST File(s)


Input Required:

• Cost details ‘Mapped’ to

Standard CSC Cost Categories

Capital Summary Cost Summary

Cst File Replication

11

OLM NBF File Overview: Standard Version

Rates File

Input Required:



Conversion

‘Standard’ File Set:


• PRC File• CST File (100)

• Advanced Analysis Files

FM File PRC File

Input Required:

• None

Input Required:

• Revenue / Cost File Use Selection


• Fee Based Revenue

• Cst Cost File(s) Link

Financial Summary






Input Required:

• Cost details ‘Mapped’ to

Standard CSC Cost Categories

Capital Summary Cost Summary

Cst Files (100 Available)

CCS_CURR File

PRC Unit Price

Volumes Master

Alternate Cost View

Advanced Pricing / Offering Breakdown – Contact NBF Team

in the USReview Detail

PRC Extract / Analysis

Files


OLM NBF Model

Cost Construction:

Cost Framework

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Establish the cost ‘framework’ for the Offering under consideration

Cost Framework

• How we intend to deliver the Offering,the work activities involved and the associated risks

• Explanation of the value to be delivered by the Offering

• Consideration of the OLM project development costs to establish operating capability

• Operating and Technical assumptions which ‘drive’ the underlying cost base

• Businesss activity estimates for ‘run and maintain’ to support investment decisions

• The specific service & support levels required for the product / service / capability / solution

• The impact of Changes over time arising from productivity or technical improvement

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Establish the Cost Detail ‘Foundations’ for the Offering

• How are we going to perform the work?• Who? (CSC vs. subs) How organized?• When? Over what timescale?• How? (What processes and tools?)• Where? (Consolidation? Remote support? “Your place or mine?”)• How can we leverage strategic relationships?

• What service levels will we be held to?• What? How measured? When?

• Who is responsible for what?• Operationally? • Financially?

• What OLM Project support is required for set up / transition

• What is the Capital structure• Capex / Opex• Lease / Buy / Utility• Hardware / Software

Cost Detail

vs.


OLM NBF Model

Cost Construction:

Using CST Files

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A means of defining CSC capital and operating costs in a standard format for ease of reference, consolidation and evaluation in support of effective commercial decisions

• The NBF Model Suite is capable of handling up to 100 individual CST cost files

• The Model Suite comprising a series of linked excel files which support the consolidation of cost, both capital and operating, together with a means to derive a cost+ fee based revenue total which collectively enables a standardised view of Financial information to be established:

• Profit & Loss Account• Balance Sheet• Cash Flow Forecast• Investment Decision Metrics (OI, ROI, IRR, NPV)

• The Model Suite contains Overhead, both Operating and Corporate, Commissions, Royalties, and Commissions costs to ensure alignment with the requirements for actual Financial Reporting

• Regional or Local entities are catered for via a specific ‘Rates’ file for FX rate determination (to $) and local condition overhead and fee rates

CST Cost File - Outline

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“Cost Model” – Three required types of input…

CST Cost File – Spreadsheet Structure

Source data option:

“Feeder” files?

Direct Input?

Offering Mgt. decide

Headcount / Salary

Cost Element

Detail Capital Expense

…Mapped onto Standard CSC

Cost categories…….

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CST File - Cost Model Sheet – Element Detail

9293

9495969798

99100101102103104106110111112113114118119122123124128129132133134135136137138139140141

142

A B C D E F G H I J K L M

yellow Input to these cells is the responsibility of the estimator. All other cells are computed by this model.

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7Heads from "Headcount" Section 22.2 20.5 17.3 15.9 16.1 0.0 0.0Avg Salary from "Headcount" Section 57 58 59 60 61 0 0Direct Labor 1,257 1,184 1,019 955 987 0 0Fringe Rate 22.00% 22.00% 22.00% 22.00% 22.00% 22.00% 22.00%

Total Labor 1,533 1,444 1,243 1,165 1,204 0 0Other Employee Related - Training 28 24 21 22 22 0 0Other Employee Related - CSC PC Support 23 19 17 17 18 0 0Other Employee Related - Business Travel 75 64 56 57 59 0 0Other Employee Related - Type 4 0 0 0 0 0 0 0Hardware Lease - Type 1 0 0 0 0 0 0 0Software Lease - Type 1 0 0 0 0 0 0 0Hardware Purchase Expense 6 5 4 4 4 0 0Software Purchase Expense 109 114 120 125 132 0 0Hardware Maintenance - Computers 188 171 161 172 175 0 0Hardware Maintenance - Printers 69 58 49 52 53 0 0Hardware Maintenance - Terminals 0 0 0 0 0 0 0Software Maintenance - Type 1 193 492 540 592 278 0 0Software Maintenance - Type 2 (No Inflation) 0 0 0 0 0 0 0Outside Services - Moves/Adds/Changes 0 0 0 0 0 0 0Outside Services - Remote/Dedicated Desktop Support 0 0 0 0 0 0 0Outside Services - Disaster Recovery 0 0 0 0 0 0 0Subcontractor 1 0 0 0 0 0 0 0Subcontractor 2 0 0 0 0 0 0 0Facility (office space) 23 21 18 17 18 0 0Facility (machine space) 0 0 0 0 0 0 0Facility (power & cooling) 0 0 0 0 0 0 0Taxes except sales tax on Capital 90 154 188 219 211 129 97Network - Data Services 0 0 0 0 0 0 0Network - Voice Services 0 0 0 0 0 0 0DCeS Allocation Per Desktop 7 7 8 8 9 0 0Other - Type 2 0 0 0 0 0 0 0Other - FINANCE USE ONLY 0 0 0 0 0 0 0LOS Allocation GIS 101 101 103 104 97 25 10

Total Direct Cash Expenses 2,443 2,675 2,526 2,555 2,279 154 107

Hardware Maintenance - Type 1 = ($A$2) * (1-G280) * G$187

19

CST File - Cost Model Sheet – Cost Element Cell

Hardware Maintenance - Type 1 = ($A$2) * (1-G280) * G$187

Price Performance factor

from RATE file

do NOT delete

Inflation Index factor

from RATE file

do NOT delete

Overwrite $A$2

Your Link to the estimate:

Feeder File?

Direct Input?

“Computers” more informative than “Type 1”

Automatic Model adjustment for Inflation and Price inclusion driven by type of expense and

linked Rates file for the Region / Location

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CST File Standard Cost Model

File a

File c

File b

“CST_x”

Option 2: One or more separate “feeder” CST_ files

Mainframe

Midrange

Desktop

Servers

Applications

Option 1: Extra worksheets in a Single “CST_” file

Network

Help Desk

Account Management

Each Portfolio / Offering uses its own customized approach to “feeding” the CST-file……..

……but alignment of cost to the Resource Unit (RU) to be billed is advantageous and provides greater transparency

21

CST File Structure – Example

Sample Mapping of Cost Pools to “CST” Files – determined by Offering Portfolio Mgt, and solution leads at start of costing process

22

• Cost Model (Prime – The key bridge between Costing and Pricing)• Primarily linked from the customized supporting models• May be some manual input of key parameters• Established in ‘local’ currency

• CCS Local: Summary by Element of Cost (‘Cost Model ‘Mirror’ Image)• Formula driven - except “Monthly Volumes” which must be input / linked by user

• CCS is “Local Currency” converted to bid currency (Automatic via Rate-file)• CCS$ is “Local Currency” converted to $ (Automatic via Rate-file)• Depreciation

• Capital from Cost Model sheet, Depreciation Methods from RATE file• Completely driven by formula (No input required)

• Transition Summary• Seldom used anymore; transition is typically a separate model

CST File – Standard Cost Model Structure

Arrangement of the standard worksheets

CST Excel File extract

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• We need this level of “insight”• Cost element expenditure by year• Capital purchase plan• Staffing summary by

• Offshore

• Onshore

• Vended labor

• Equivalent “allocated” labor

CST File - Standard CST Consolidation Summary (inside the PRC File)

Year 1 Year 2 Year 3 Year 4 Year 5 TOTAL

Heads 0.00 0.00 0.00 0.00 0.00

Average Salary 0.000 0.000 0.000 0.000 0.000

Direct Labor 0 0 0 0 0 0

Fringe Rate 0.00% 0.00% 0.00% 0.00% 0.00%

Total Labor 0 0 0 0 0 0

Other Employee Related 0 0 0 0 0 0

Hardware Lease 0 0 0 0 0 0

Software Lease 0 0 0 0 0 0

Hardware Related 0 0 0 0 0 0

Software Related 0 0 0 0 0 0

Hardware Maintenance 0 0 0 0 0 0

Software Maintenance 0 0 0 0 0 0

Outside Services 0 0 0 0 0 0

Facility 0 0 0 0 0 0

Taxes 0 0 0 0 0 0

Network Charges 0 0 0 0 0 0

Other 0 0 0 0 0 0

Total Cash Operating Cost 0 0 0 0 0 0

CAPITAL EXPENDITURES


New EDP Equipment 0 0 0 0 0 0

Used EDP Equipment 0 0 0 0 0 0

Desktop Equipment 0 0 0 0 0 0

Distributed Equipment (Servers, UNIX) 0 0 0 0 0 0

Telecom Assets - Data 0 0 0 0 0 0

Telecom Assets - Voice 0 0 0 0 0 0

Other Computing Asset (a) 0 0 0 0 0 0

Other Computing Asset (b) 0 0 0 0 0 0

Software Assets 0 0 0 0 0 0

Transition 0 0 0 0 0 0

TOTAL CAPITAL 0 0 0 0 0 0

Network


Heads 0.00 0.00 0.00 0.00 0.00

Average Salary 0.000 0.000 0.000 0.000 0.000


Fringe Rate 0.00% 0.00% 0.00% 0.00% 0.00%











Taxes 0 0 0 0 0 0


Other 0 0 0 0 0 0















Midrange


Heads 0.00 0.00 0.00 0.00 0.00

Average Salary 0.000 0.000 0.000 0.000 0.000


Fringe Rate 0.00% 0.00% 0.00% 0.00% 0.00%











Taxes 0 0 0 0 0 0


Other 0 0 0 0 0 0















Desktop

ooo

Each tower feeds data to its

summary matrix in its own manner

CST ‘Tower’ selection in PRC File enables Cost Consolidation to align with RU Pricing………


OLM NBF Model

Cost Construction:

10 Commandments

25

1. Use the current version of the Cost Model and always start with a “Clean” model

2. Submit the number of models agreed to by Pricing Lead and Solution Lead, and use the agreed-to model names

3. Link to the correct Rate-file

4. Do not hard-code inputs if possible – link to source data wherever possible

5. Do not add or delete rows / columns from the CCS sheets or “Cost Model” sheet

6. Assumptions matter. Document them, and do not wait until the end

7. Understand the “Core” portion of your service, and the incremental portion.

8. Understand how the Financial Responsibility Matrix relates to your solution and cost models.

9. Volumes must be consistent throughout the Offering forecast period, and easy to update and validate.

10. Always quality-check your work before submitting and always submit your supporting work as well as Cost Models to Pricing & Offering management

10 CommandmentsS

olut

ion

Mec

hani

cs

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• Where can you get the current version of cost models?

The OLM NBF Suite of Models can be downloaded from the OLM Catalyst site – See Financial Analysis Section

The Finance Management (FM) File which is a prerequisite file for the correct use of these models is a protected file and is only available to Finance personnel. See instructions on the site for access to this protected file

1. Use the current version of the Cost Model and always start with a “Clean” model

27

• Emphasis will be on fewer Cost Models per stage of the project /’tower for ease of handling:• No need for one Model per Pricing Unit

• No need for one Model per CSC Catalog Service

• Each Cost Model can accommodate multiple Priced Services and/or catalog services.

• BUT: ENSURE THAT THE COST DETAILS ALIGN WITH THE DEFINED RESOURCE UNITS FOR THE OFFERING THAT ARE TO BE PRICED WHEREVER POSSIBLE

• Submit the agreed-to number of Cost Models, and consistently use the agreed-to Model names• Do not add “version” numbers to the end of Cost

Model names. (Version control can easily be maintained be embedding dates and versions in a directory structure)

• Changing names or submitting more models than requested adversely impacts the Pricing process.

2. Submit the number of models agreed to by Pricing Lead and Solution Lead, and use the agreed-to model names

DISTRIBUTED COMPUTING EQUIPMENT VOLUME WORKSHEETHeaders, Descriptions, and Calculations

Year 1 Year 2 Year 3Device Type Designation

PC Desktops - Standard 12,514 12,514 12,514PC Desktops - VIP 100 100 100PC WkStationsPC DesktopsPC Laptops - StandardPC Laptops - VIPPC LaptopsPC LaptopsPrinters - B&W NW AttachedPrinters - Color NW AttachedPrintersTerminals(custom device type)(custom device type)TOTAL Computers Yes 12,614 12,614 12,614TOTAL Printers No 0 0 0TOTAL Terminals No 0 0 0TOTAL Custom Devices No 0 0 0

TOTAL Devices to be shown 12,614 12,614 12,614

Costing Input Cells

Equipment Volumes

This Offering had separate: DT, LT, Wkstn, Printer, IMAC models.

• Five used, one needed.

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• Controlled by NBF on a Global Basis

• Each “CST-file” must be linked to its required “RATE-file”

• Each Offering ‘may’ have multiple RATE-files if ‘component products / services / capability / solution cost construction is widely dispersed

• RATE-file controls cost factors such as those shown

3. Link to the correct Rate-file

OverheadsGroup and Divisional OHCorporate G&AOverhead on Subcontractor 1Overhead on Subcontractor 2Overhead on Offshore India LaborOverhead on Secondary Low Cost Center Labor

InflationOnshore Labor InflationInflation on Offshore India LaborInflation on Secondary Low Cost Center LaborODC Inflation

TaxesProperty Tax - Client SiteSales Tax on CSC Purchases - Client SiteSales Tax on Leases - Client SiteSales Tax on Maintenance - Client Site

Price Performance FactorsMaintenance Price PerformanceSoftware Lease (IBM) Price PerformanceSoftware Maint (ISV) Price Performance

29

• Hard-coding makes validating input data more difficult – adds to churn.• Source data seldom flows to only one destination – by linking to the source data,

updates can be made once.• It is very easy, in the heat of development / validation / presentation / update to

forget all of the places where numbers have been hard-coded

4. Do not hard-code inputs if possible – link to source data wherever possible

30

• These standard sheets feed the standard PRC (Pricing) models.• However, adding additional worksheets to Cost Models (as backup), or linking

additional workbooks to Cost Models, is not only fine, but sometimes a very good idea in order to link to source data – see Item 4

5. Do not add or delete rows / columns from the CST ‘CCS’ sheet or “Cost Model” sheet

31

6. Assumptions matter -document them - and do not wait until the end of the development process

Technical CostIntegral to Offering

These align with Technical material (LTM / PTM / LSM etc) and ‘drive’ the underlying cost structure of a

technology Offering.

Assumptions intent should be:

“If these are not true, CSC’s derived price may not produce a sufficient

financial return.THEREFORE, they need to be outlined

in the PRC (Pricing) File with an indicator of potential risk of variability”

– Prioritized– Clear, whole sentences– For Client or “CSC only”?

Ideally, included in cost model, but also submitted for consolidation to Solution

Manager for a complete, integrated list.

Identify Financial Risk – checklists are not good enough.

32

• Know what functional services are “Core” to your Offering / Tower (respective cost component that collectively make up the Offering), and understand the client volumes that drive our Target Core Costs.

• Know the sorts of functional services that are non-Core, and be prepared to participate in team discussions around the cost and benefit to the client in order to ensure that the ‘standard’ Offering is appropriately priced

7. Understand the “Core” portion of your service, and the incremental portion.

Sales &Mgmt

PricingTechnicalsolution& costs

33

• Participate in team discussions around which solution elements should be included in CSC’s cost and price, and which should be retained by the client.

• Make sure that your costs align with CSC’s strategy around:

• Resources

• Hardware

• Software

• Consumables

• Facilities

• Network carrier lines

• The inclusion of additional Offerings from a variety of Portfolio’s within a ‘Bundled’ Offering

8. Understand how the Financial Responsibility Matrix relates to your solution and cost models.

34

• Very often (but not always) volumes will be dictated by the client / market evaluation in a Pricing / Market Strategy

• Volumes in models must tie to our forecast Offeringv olumes, and if our solution volumes differ from the ‘market expectations’, we must be:

• Clear with the Portfolio Management about what we’ve changed, and why

• Consistent internally• Please summarize the key volumes in your model in Row 65 of the CCS Local

worksheet.

• For example, sum of all PCs, sum of all Server instances

• Break down volume to align with CSC price points if at all possible - don’t necessarily sum all volumes in the model (ie, a volume that includes both PCs and IMACs is meaningless)

• Providing these volume links exposes the possible price points for the Offering and enables appropriate pricing / valuable analytic analyses , system set up and contract management details for the Offering to be transparent

9. Volumes must be consistent throughout the Offering Cost model, and easy to update and validate.

35

• NBF peer-review our Pricing Tables for all deals. Offerings are no different.. We all need some level of self-review or peer-review before we submit material to CSC executives.

• A good start:• Understanding what drives the core costs for your Tower, and seeing how those costs look

in total and on a unitized basis

– Note: Linking volumes to Row 65 of “CCS Local” will simplify this for you.

10. Always quality-check your work before submitting to pricing, and always submit your supporting work as well

36

• Core Services “P x Q” approach will provide early “Target Guidance” for each Component / Tower and for the Offering in total

• Be clear on what the right level of value-additive services within each Offering is based on the Business Value to the client don’t make it bullet proof if not required

• Knowing the “Target Core” solution elements and costs and properly following the “10 Commandments” will better enable you to validate the alignment of your costs to the Portfolio Offering (and help CSC craft better solutions).

• You will spend:• Less time on the mechanics of modeling and in churning data, and • More time helping CSC build compelling Offerings that clients will value.

……… And finally…..what does success look like……

Sales &Mgmt

PricingTechnicalsolution& costs


OLM NBF Model

Support Contacts

38

• For further Information or support for the use of this model please contact in the first instance:

• Steve Coxon• [email protected]• +44 (0)7760 494977

• For further information or support for the use of the New Business Finance (NBF) standard templates please contact:

• Victor Smiroldo• [email protected]• +1 703 641 3176 (Office)• +1 571 213 1057 (Mobile)

OLM NBF Model Support

mailto:[email protected]

mailto:[email protected]


OLM NBF Model

Thank You

Documents

CSC Proprietary and Confidential 1 OLM NBF Model Guidance: Costing Steve Coxon July 2013