IT Cost Optimization using a Financial Management for IT Service Approach Transforming Information Technology departments into IT Service Management (ITSM)

IT Cost Optimization using a Financial Management for IT Service

Approach

Transforming Information Technology departments into IT Service Management (ITSM) organizations

Proprietary & Confidential — Copyright ©2010 KEDAR Information Technologies

About Us

Founded 2001

Headquarters in Lewisville, TX• Offices in Fort Worth and Washington,

DC• Operations in San Diego and

Singapore

Certifications• Minority Business Enterprise (MBE)• Service Disabled Veteran Owned

Business• Texas Historically Underutilized

Business (HUB)

Keeping Enterprise Data and Applications Resilient using information

technologies

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An innovative IT Service Management consulting company creating IT Governance solutions from strategy to implementation .


Some Of Our Customers

3


Evolution Of IT And Financial ManagementManual Processes

CRM

SCM

ERPERP

SCM

CRM

Single-function Applications

AR

AP

GL

CIM

CIM = Customer Inventory Management, AR = Accounts Receivable, AP = Accounts Payable, GL = General LedgerCRM = Customer Relationship Management, SCM = Supply Chain Management, ERP = Enterprise Resource Planning

<1970 1970s to early 90s

Early 90s to present Present to 2015+

Clo

ud C

om

putin

g

V

irtualiza

tion

SaaS

Distributed Systems

Composite Services

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What is IT Financial Management?

Financial Management within an IT function performs activities that develop and maintain business intelligence systems which:

• Follow general accounting practices,• Apply managerial accounting

concepts and disciplines, and• Map to approved business

objectives.

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IT Financial Management Activities

Strategy

Policy

Planning

Pricing

Investment

Budgeting

Annual

Forecast

Optimization

Accounting

Closure

Delta Manageme

nt

Allocation

Charging

Value Statement

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IT Financial Management Maturity Levels

Market Provider

Enterprise Provider

Internal IT DepartmentMat

urity

and

Com

plex

ity

OBJECTIVE: Determine the cost of business functions and value of assets to achieve business goals.

OBJECTIVE: Apply budgeting and accounting practices for IT Services to establish allocation or charging systems.

OBJECTIVE: Ensure total evaluation of IT Services provisioning and sustainable value for users and/or customers.

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Untangling The IT Hairball

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IT Is Complex

Portal

Application

Database

CommunicationsCommunications

ProviderService Desk

Organizational A

reas

Incident &

Problem M

anagement

Change Management

Configuratio

n Management

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The IT Hairball

• We keep feeding it• We can’t describe it• It’s difficult to unwind • It keeps growing in complexity• Justifying improvements is difficult• Changes often causes more

problems• We can’t benchmark because

value or cost of services are not defined

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Worksta

tion

Netw

ork

Dom

ain

s

Sto

rage

Ap

plica

tion

Technology Centers of Excellence

IT Service

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What The Business Wants


Unanswered Questions

• What is the cost of each service?• What are the service cost drivers?

• How many services do we support?

• What is the demand and usage of services?

• What is the cost to complete a service work unit?

• How viable are ‘managed services’ solutions for us?

• Who are involved, and what are their roles?

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IT Financial Management Strategies

Total Cost of Ownership (TCO) is the total of direct capital investment in hardware and software plus indirect costs of installation, training, repairs, downtime, technical support, and upgrading.

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Activity-based costing (ABC) is a costing model that identifies activities in an organization and assigns the cost of each activity resource to all products and services according to the actual consumption by each: it assigns more indirect costs (overhead) into direct costs.

Financial Management for IT Services (FMITS) is cost effective stewardship of IT assets and resources used in providing IT Services. It is used to plan, control and recover costs expended in providing the IT Service negotiated and agreed to – typically in the Service Level Agreement (SLA).


What the Cost Optimization Service (COp-S™) Delivers

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Client Benefits

COp-S™ Features

Client Data

Budgets, Inventory & Resources

Services Cost

Accurate Services Costing & Charging

Detail Supply-Chain BI

Value AlignmentService & Customer

Catalog

Optimized Service Costs

Staff & Process Utilization

Value Aligned Work Activity

What-If Analysis Accurate Forecast Planning

Advanced IT Financial Management

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Improved Capabilities

Cost Transparency

Line of Business

IT Organ- ization

Value Alignment

Business Objectives

IT Resources

Business Intelligence

Cost Drivers Unit Cost

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Comprehensive Evaluation Cycle

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Source: Corporate Executive Board Study 18

Opportunity Description Saving

Platform Standardization & Consolidation

•Consolidation of Data Centers, Tools, and Organizational Roles•Standardization of Technology Platforms

8% - 20%

Process Standardization

•Operations, Development, Engineering, and Service Management

6% - 14%

Vendor Management

•Contract Negotiations, Vendor Process and Interactions Management Optimization

8% - 16%

Strategic Sourcing •Right Place, Right Cost 2% - 8%

Usage Transparency

•Cost visibility of the IT supply chain

3% - 8%

Procurement Controls

•Using approved vendors within parameters of negotiated contracts

2% - 10%

Needs-based Segmentation

•Meet needs with cheaper and/or more efficient alternatives

2% - 5%

Optimization and Reduction Opportunities


Cost Optimization Service(COp-S™ )

Solution Overview

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SaaS Architecture

Cost Modeler

Financial

ImpactResour

ce Usage

Organizational

Structure

Consumer

Demand

Service Cost

Drivers

Service Managers

ReferenceLibrary

Cost Optimization Service

Catalog of Services

Customers and Other Managers

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Cost Modeling Framework

Expense

Revenue

Demand

Service

Customer

Service

Resources

Service Cost =n

i i i

i=1

Instance Cost

( ( ( )+ ( ))* ( ))

CR SR Utilization

Expenses

Where:

Component Component Comp

CR = Compon

ent R

ate (

$/

one

Ti

+

nt

me)

SR = Support Rate ($/Time)

Utilization = Time Used

Units

Alignmen

t

Alloca

tion

Utilization

Direct/Indirect

Outcome

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Email(per mailbox)

Shared Infrastructure

Network (bandwidth %)

Servers(by the Server)

Applications

Applications(% usage)

Labor(Work

Activities)

Storage(by the Tb)

Business Service

Resources

Technical Service

Consumers Cust. 1 Cust. 5Cust. 4Cust. 3Cust. 2

Projects(Resource &

Effort)

Security

Methodology

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Engagement Deliverables

• Service-based Cost Model– Services Alignment and Usage

– Services Cost Allocation

– Demand Management

• IT Service Business Intelligence

– Service Cost Drivers and Unit Cost

– Comprehensive Service Cost Metrics

– Organizational FTE Utilization

– ITIL Adoption Assessment

• Cost Optimization/Reduction

– Recommendations

– Implementation Roadmap

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Business Intelligence (BI) Dashboards and

Reports

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Customer Dashboard

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1

32

7654 8

No. Description

1 # of Business Services

2 Name of Business Service

3Total annual IT Business Services budget

4IT Department name responsible for Business Service Cost

5Annual number of budgeted Business Service units

6 Description of Business Service units

Business Services Summary

No. Description

7Total number of Business Service

customers

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Annual cost per Business Service of:• Activity – all people cost • Technology – all technology and facility

cost • Indirect – all indirect cost• Total – the total of all cost• % - the per of the Total Annual Cost

Proprietary & Confidential — Copyright ©2010 KEDAR Information Technologies, Inc.

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Business Service Dashboard

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Technical Service Cost Detail

2 3

1 4 5 6

No. Description

1IT Department name responsible for Technical Service Cost

2 Technical Group name for Technical Services

3 Name of the Technical Service

4 Annual Technical Service labor cost

5 Annual Technical Service technology component cost

6 Annual Technical Service total cost

Proprietary & Confidential — Copyright ©2010 KEDAR Information Technologies, Inc.

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Technical Services Dashboard

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3

2

1

4

No. Description

1 Indicator of the number of FTE above/below 100% of staff

2 Number of an IT Departments above/below needed FTEs

3 Name of the Technical Service

4 Note that FTEs are calculated minus overhead hours

bBBFTE Utilization Dashboard

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Charles Williams

KEDAR Information Technologies,

[email protected]

www.KEDARit.com (972) 317-3577

mailto:[email protected]

Documents

IT Cost Optimization using a Financial Management for IT Service Approach Transforming Information Technology departments into IT Service Management (ITSM)