chargeback+long-term+vision+and+maturity+reference+model+v6

8/11/2019 Chargeback+Long-Term+Vision+and+Maturity+Reference+Model+v6

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Deloitte Consulting LLP

Commonwealth of Massachusetts

Statewide Strategic IT Consolidation (ITC) Initiative

Chargeback Long-term Vision and Maturity Reference Model

September 25, 2009

DRAFT FOR DISCUSSION PURPOSES ONLY


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- 2 -DRAFT FOR DISCUSSION PURPOSES ONLY

Table of Contents

1 Executive Summary

Vision

Summary of Key Findings

4

5

2 Assessment of Chargeback Maturity in Five Dimensions

Dimension 1: Service Maturity

Dimension 2: Service Usage Management

Dimension 3: Service Cost Management

Dimension 4: Chargeback Administration

Dimension 5: Service/Cost Management

7

8

9

10

11

3 Roadmap for Improvement 13-15

Short Term Roadmap for Chargeback Improvement

Long-term Roadmap for Chargeback Improvement

Assumptions

4 Maturity Model Overview

Capability/Maturity Scoring

Chargeback Maturity Model Definitions

17

18

5 Appendices

A: Selected Examples from the Assessment

B: Chargeback Cost Framework

C: Detailed Maturity Definitions

D: Challenges for Chargeback

20-24

25

26-30

31


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Components of ITIL: Service Desk

1.0 Executive Summary


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Chargeback Vision

Servicesthat are standard, formally defined in a Service Catalog that customers can use

for planning and ordering, segmented to accommodate different cost and service level

expectations

Usage measurements and reporting that are fair, accurate and readily available; usage

units that are effective in managing demand and encouraging cost-conscious

consumption

Chargeback Administration that is streamlined, automated, and documented;customers can easily access their usage data and receive error-free invoices

Product Managersthat take responsibility for the management of costs and the quality

and evolution of their Services, able to adjust to changing demand while maintaining or

reducing rates

Coststhat provide the customer the best value for the services provided, comparable to

other states

Customers feel valued, and understand their services and costs, with the assistance of

Service Account Managers


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Summary of Key Findings

Dimension Assessment Findings (Gap) Recommendations

Service Maturity

Services are broadly defined /not segmented by

cost drivers or service levels

Catalog is newly published

Provide standard offerings ,with standard options

and additional costs for those who want more than

the base standard

Service Usage

Management

Usage collection is too manual outside of MF

Inaccuracies are common in usage reports to

Finance

Customers only see their usage on the invoice

Establish Product Managers as responsible for the

accuracy of usage for their services

Push electronic copies of standard usage history

reports to customers

Service Cost

Management

Cost allocations are often not well-documented

Single-customer costs are sometimes included in

cost pools Cost pool information does not identify the costs

controllable by the Product Manager - information

is confusing for a Product Manager

Update the Chargeback Process Manual for

allocation rules and assumptions

Invoice customer-specific costs directly to thatcustomer

Create a log of allocation decisions

Organize costs using Chargeback Cost Framework

Chargeback

Administration

Overly manual back-office operations

Customers perceptions of the quality of information

and service are low

Automate manual activity or standardize to make

repeatable

Identify customer data needs and provide

appropriate information monthly

Service/Cost

Management

Product Managers do not take responsibility for

managing pool costs and developing their services

Rate modeling and assumptions are not well

documented Customers do not feel valued

Provide role-specific training on Chargeback to

Product Managers;

Establish protocols for Product Managers to

manage costs and service evolution Establish protocols for SAMs to proactively discuss

services and costs with their customers


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2.0 Five Dimension Assessments


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Capabilities Description of Gap Recommendation

Service Definition

Services are now formally defined. Changes to

the definition should be under Change Control.

The standardization and specificity of theservices vary, with some, such as those for

hosting, are relatively open-ended.

A customer with simple, low-cost needs, pays

the same rate as a high-cost customer

Increase the standardization of the services, with

defined segmentation and service level tiers to

accommodate the different requirements ofcustomers with individual rates by segmentation

and service level to better reflect the relative cost

of the customers usage. (See page 20)

Service Catalog

The Service Catalog is newly published and is a

significant achievement.

Each Catalog entry is a description of the family

of services, with a listing of the specific servicesand rates where these exist. It is not designed to

facilitate ordering, but rather to explain thebackground to the service.

Improve catalog with feedback from customers

on what would better help them in planning,

budgeting, and ordering the service.

The structure could be changed, with a moretiered structure created for the catalog pages.

(See page 21)

Service Management

and Communications

Posting the Service Catalog on Mass.Gov is a

major accomplishment. It will facilitate customer

understanding of the services and the costs.

More communication is necessary to educate

customers about the services, the Catalog, and

the rates they are charged.

Make specific improvements, such as creating a

hotlink for going directly from the specific service

to the service request system (E2E) and pre-

populating the request, to make ordering easy.

SAMs meet with their leading customers to see

how best to increase awareness and use of thecatalog and ITD services.

Category Capabilities Gap

# # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Service Definition 1.0CG G G G G G G G GT

Service Catalog 2.0CG G G G G G G G G G G G G G G G G G GT

Service Management and

Communications 1.0

CG G G G G G G G GT

SCORE

Service Maturity

1 2 3 4





Usage Measurement

Usage for some services is derived, the units cannot

be measured directly.

The units of measure are frequently technology-based,

Allocations are sometimes used to apportion use of a

resource, rather than direct usage, or costs are

bundled together and the rate is based on only one

cost

Address the allocated usage to find a means for

directly measuring by customer, or institute a process

to revisit the allocation methodology regularly toensure continued reasonableness.

Consider whether services whose usage is derived

should really be independent services, or rather

,bundled together.

Review whether bundled costs should be charged

separately (See page 22)

Usage Reporting

Usage reporting to Finance is often inaccurate or

incomplete, requiring checking or corrections

Usage data is available in the ICANN system forcustomers to review, to answer their questions about

their billed usage, but it isnt taken advantage of.

Perform a Pareto-type analysis of the cost and

accuracy of the reporting which requires manual

handling, to prioritize resolution Push electronic copies of standard reports that

answer common questions, rather than expecting

users to log in and create the reports themselves

Usage Management

and Communications

Usage is not reviewed regularly by the Product

Managers to ensure accuracy

Customers report not having enough information

about their services and service usage, aside from the

invoice.

Provide the Product Managers with training on

Chargeback: costs, cost pools, usage, rate

calculations

Formalize policy that the Product Manager is

responsible for the accuracy of the reported usage.

SAMs review the usage reports with their customersquarterly


# # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Usage Measurement 2.0CG G G G G G G G G G G G G G G G G G GT

Usage Reporting 1.0CG G G G G G G G GT

Usage Management and

Communications 2.0

CG G G G G G G G G G G G G G G G G G GT

SCORE

Service Usage

Measurements

1 2 3 4



Dimension 3: Service Cost Management


Cost Granularity

Costs specific to a single customer are

sometimes included in the pool and so shared by

all

Remove customer-specific costs from the cost

pools, bill those costs directly to the customers

involved. (See Page 23)

Cost Identification

Some costs are not granular or specific enough

to be identified to the cost pool or pools where

they belong, and so have to be allocated

independent of utilizationbased on

assumptions about where the cost should be

applied. It is difficult to identify costs to their purpose, or

to explain how much is spent on an area likeSecurity

Identify costs that are allocated and, unless

applicable to a broad range of services,

determine how they can be specifically identified

to a serviceincluding how they are identified

when procured.

Worse case - document the allocation

Align costs to the Cost Framework, identifying

which are controllable by Product Managers, and

the purposes of the costs. (See Page 25)

Costs that are more appropriate to another

Service should be moved to that Services Cost

Pool

Cost Documentationand Communications

Cost allocation rules are not documented

Product Managers are not provided with their

pool costs regularly

Document the rules and assumptions governing

all the allocations. Build on the foundation

provided by the existing Chargeback Process

Manual. Product Managers should be provided with

monthly financial statements showing Actual to


# # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Cost Granulari ty 2.0CG G G G G G G G G G G G G G G G G G GT

Cost Identi fiabli ty 1.0CG G G G G G G G GT

Cost Documentation and

Communications 1.0

CG G G G G G G G GT

SCORE

Service Cost

1 2 3 4





Cost Collection /Reporting

While MMARS provides reports of costs, there

remains much manual work required to collect

and assign costs each month to the servicepools.

Review the entries requiring manual action,

determine the rules or actions required to

eliminate the manual work Standardize and make routinely repeatable what

cannot be automated

Usage Collection /

Reporting

Much of usage collection requires manual

adjustment by Finance, there are inaccuracies

and incomplete reports.

Automate usage collection, where possible.

Establish Product Managers as responsible for

the accuracy of the usage reported for their

services.

Invoice Management

Invoices are difficult to prepare and issue, due to

the problems with reported usage

Customers do not believe that they have all the

information they need to understand their

invoice, including backup detail material.

The relationship between charging information

and services is complicated, potential exists forincorrect accounting information and rates to be

applied to a service request.

Increase the accuracy of the customer and

service usage reported to Finance

Determine the key additional information

customers believe they need for backup

explanation, then create a standard report or

reports to provide that information each month,

along with the invoice.

Review mapping of accounting information

across BARs, E2E Service Requests, and

Chargeback Accounts to Services/SLOs.


# # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Cost Collection / Reporting 1.0CG G G G G G G G GT

Usage Collection / Reporting 1.0CG G G G G G G G GT

Invoice Management 1.0CG G G G G G G G GT

SCORE

Chargeback

Administration

1 2 3 4





Cost Management

The Product Managers from operations are not fully

taking responsibility for managing the service pool

costs, but instead rely on Finance.

Costs are sometimes assigned to the wrong pool by

mistake and this is not caught

Little evidence that Product Managers plan or take

corrective action when actuals diverge from what was

planned.

Provide role-specific training on Chargeback to Product

Managers, to empower them with an understanding of their

financial responsibilities and the tools and capabilities they

need to control and manage costs.

Product Managers review costs and usage each month

Expect Product Managers to manage costs and take

responsibility for maintaining or lowering rates.

Service Management

Modeling of service rates, and the assumptions

utilized, are not well documented.

Accuracy of cost and usage for each month is not

reviewed

Few indications of multi-year planning for serviceimprovements

Explore use of TUAM tool as the foundation for modeling

chargeback ratesFinance & Operations share use. (See

page 24)

Product Managers maintain plans for the evolution of their

services, including technology upgrades, investments,

actions to increase efficiencies, etc.

Product Managers manage capacity with f lexibility

Customer

Relationship

Customers are not satisfied with the information, costs,

or treatment they receive.

Information provided is from the perspective of ITD,

rather than designed for the questions customers want

to answer

Customers complain that it is difficult to get answers to

questions

Determine the information that customers need, and the

format that works best for them, and provide it in that

format

Provide customers with planning tools to help them

understand the services and control their costs.

SAMs proactively discuss services and costs with their

customers, as well as treat complaints as incidents.


# # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # #

Cost Management 2.0CG G G G G G G G G G G G G G G G G G GT

Service Management 2.0CG G G G G G G G G G G G G G G G G G GT

Customer Relationship 2.0CG G G G G G G G G G G G G G G G G G GT

Service CostManagement

SCORE

1 2 3 4




3.0 Roadmap for Improvement



Service

Maturity

Service Usage

Management

Service Cost

Management

Chargeback

Administration

Service/Cost

Management

2.7

2 3 4 5

Short Term Roadmap for Chargeback Improvement

Apr 2010 Dec 2010Legend: Oct 2009

3.5 4.0

Develop standard products for

different cost & service

expectationsCustomer-friendly

catalogue pages

2.0 2.5 3.7

Automate/strea

mline usage

collection Product Managers are responsible for reported usage

Usage history online for easy customer access

2.3 3.0 3.7

Align costs to standard

cost framework

Remove single-customer

costs are from pools

Document all cost allocation

assumptions

2.0 2.5 3.0

Provide for information

needs of customers

2.0 2.7 4.0

Train Product Managers for Role

Monthly cost pool reviews Models created for all service rates

Product Managers have plans for the evolution of their services

Identify information needs of customersAutomate/streamline manual activity

Dimension



Dimension

Service

Maturity

Service Usage

Management

Service Cost

Management

Chargeback

Administration

Service/CostManagement

2010 2012

Long Term Roadmap for Chargeback Improvement - Directional

2011

Align costs to standard cost framework

Remove customer-specific costs from pools

Document rules and assumptions governing

allocations

Monthly reports of pool cost budget/actual

provided to Product Managers

Standardize and segment services

Usage information is available in real-time

Customers access their real-time usage via the

web

Usage units are business-based

Automate or streamline manual activity

Identify and provide for information needs ofcustomers

Eliminate errors on invoices

Modeling of Services and rates in tool

Product Managers research customer needs

with SAMs

Product Managers have documented plans for

the evolution of their services,

Product Managers take proactive action to

manage costs to protect rates

Improve Catalog with customer feedback

Improve usage measurement for

allocated/derived usage

Continue to automate/standardize usage

reporting, tie into modeling tool and invoices

Review allocated, non general overhead costs,

to determine how to link to specific services

Ensure procurement procedures and coding of

supply requisitions identify the specific service

or services

Train Product Managers to take responsibility

for managing costs

Monthly cost pool reviews and variance

analyses

SAMs proactively discuss services and costs with

customers

SAMs meet with Clients on Services

Continue to Standardize and segment services

Direct link from Service Catalog to Service

Request System

Customer-specific view of Catalog

Continuous Improvement of Services and

Catalog

Automate/standardize usage reporting

Product Managers review and are responsible

for reported usage

Provide usage history online for easy customer

access

SAMs review usage with customers at least

quarterly

Product Managers can see real-time summaries

of costs-to-date, as they are incurred

Specific purposes or subsets of services can be

identified separately in cost data

Continue to automate and streamline

Ad hoc modeling of new services and rates Customers can track usage more frequently

than monthly

Real-time cost and usage data is available to

Product Managers and customers

Product managers flexibly manage the

capacity of their services

Continuous improvement analysis is

performed to enhance service quality



Assumptions For Short Term Roadmap

Tivioli UAM (Usage and Accounting Manager)

Implementation is completed, loaded with current cost, usage

data, and business rules for services invoiced and reported

Tivoli has the capability to be used for modeling rates (if not,

some other tool must be acquired or created).

Tivoli UAM, or software native to Service toolsets

Support the automated collection of usage for more services

Asset Management System

There is a repository of the asset data required for Chargeback

accounting, maintained effectively to ensure accuracy.

MMARS

Queries can be saved for reuse

Full-time Lead

Work with Finance on specifications for cost and usage collection

automation, standardizing and documenting the manual

processes and allocation rules, error-proofing processes and

updating Chargeback documentation.

0.5 FTE TFG staff

Time to support analysts research on usage and cost collection,

make adjustments and corrections to cost accounting, produce

reports

Half-time trainer

3 months to prepare curriculum for Product Managers, then

deliver training

Product Managers

20% of their time devoted to learning to be cost and business

managers

0.25 FTE from IPG

Work with Product Managers and SAMs to develop service

segmentation for selected services

SAMs Time to research customer information needs, one SAM acts as

the lead to collect and refine the requirements, over see

implementation of requirements into the Service Catalog, or

provided to TFG or another responsible party.

Developers

Spend portion of time making revisions to Service Catalog

Personnel Tools and Systems




4.0 Maturity Model Overview



Capability Maturity Scoring

Inc

reasingLevelofMaturity

Score Description

5Chargeback processes and activities are value-driven, with well-defined

institutionalized processes, operating in real time, responsive to change and

continuously improved.

4Chargeback processes and activities support segmentation and flexibility whileexpanding capability and automation, with primary responsibility exercised by

operational and customer relationship managers, and with a focus overall on

efficiency and customer satisfaction.

3Chargeback processes and activities are stable and repeatable, with formal

definitions of activities and roles, performed to a schedule, supported by models

and documentation, well-supported by automation.

2Chargeback processes and activities are formalizing, provide basic capability

and are beginning to be repeatable, though still with limited documentation and

excessive manual attention

1Chargeback processes and activities are in their initial stages, rudimentary and

largely ad hoc, with work largely manual and not produced on a regular

schedule.

The general guidelines for scoring the maturity of Chargeback follow the standard CMMI

structure, aligned with the nature of the Chargeback activities



Chargeback Capability/Maturity Model

Chargeback Capability

Maturity Model

Ad Hoc

- Initial, not formalized,

- Largely manual

- Not yet monthly

Basic Capability

- Formalizing, beginning to be

repeatable

- Limited documentation

- Excessive manual attention

Stable

- Formal, stable definition

- Supported by Automation

- Meets Schedules

- Modeled and documented

Optimizing

- Segmentation of services

- Flexibility

- Repeatable process supports

customer-requested changes

Value-Driven

- Well-defined, institutionalized

processes, driven by business value

and practicing continuous improvement

Maturity Dimension 1 2 3 4 5

Service Maturity

The service is well-defined and

standardized; not subject to

changes in definition

- Service definition is rudimentary

- Lack of Service Catalog

- Limited customer awareness on

services offered

- Services exist more to organize

Chargeback billing, they have limited

independent reality

- Services are broadly defined and

published, with year-to-year changes

common

- Basic Service Catalog exists

- Service definitions are adjusted

reactively to map to customer

requirements

- Services are formally defined, and

subject to change control

- Service Catalog is used by

customers in spend planning and

budgeting discussions

- Service Catalog and detailed

service description available on Web

- Services are standard, stable, and

repeatable

- Services levels are tiered (e.g., Gold,

Silver, Bronze)

- Proactive communications between

customer and Service Account

Manager

- Services are business-based, and

not technology-based

- Continuous improvement activities

to improve service quality and lower

cost

- Service Account Manager actively

guides the relationship between

customers and IT

Service Usage

Measurements

Ability to identify incremental

usage and relate it tocustomers and service

- Usage is rarely measured, more

frequently it is derived

- Data is scattered across various

sources (e.g., spreadsheets, Access

databases, etc.)

- Usage is often estimated based on

assumptions or allocations

- Usage units are technology-based

(e.g., # of servers)

- Usage reports are not widely

available. Reports need to be

produced manually every time.

- Usage units are based on metered

usage; not on estimated or calculated

usage

- Usage reports are available to

customers on an as-needed basisusing minimal automation

- Usage units are used to influence

consumption behavior, help manage

demand, and encourage lowest cost

consumption

- Usage reports are automatically

available

- Usage reports are proactivelyreviewed by Service Account

Managers with customers on a

monthly or quarterly basis

- Usage units are business-based

rather than technology-based (e.g.,

number of application users vs.

number of licenses)

- Usage information is available inreal-time through customer portals

Service Cost

Granularity/Identification

Ability to identify costs to

specific services and/or

customers

- Assignment of costs to

Services/Cost Pools in accounting

system is rudimentary or absent

- Costs used for rate-setting are often

approximations or estimates

- Multiple views of service costs exist

(e.g., two sets of books for

allocations)

- Costs can be assigned to specific

Cost Pool

- Costs specific to a single customer

are shared by the pool rather than

invoiced to that customer

- Standard and documented cost

allocation methodology is used

- Costs are allocated to specific

services or customers, with the use of

assumptions

- Fixed vs. variable costs are

identified and understood

- Costs formerly allocated are now

separately identified to each Service

when incurred

- Few costs are allocated unless they

are broad-based overhead expenses

- - Costs can not only be identified to

a specific Service, but also to the

purpose or function in the Service

- The accounting system fully

supports and automates cost

granularity

Chargeback Administration

The collection of cost & usage,

and invoicing to customers

- Customer invoicing is rudimentary

- Inaccurate information is often

reported for customer usage and

invoicing- Significant discrepancies can exist

between costs invoiced/recovered vs.

what is spent

- Customer invoices are issued based

primarily on estimated usage

- Invoices rely on manual calculations

and cleansing of data

- Only reporting of Service usage isthe invoice

- Cost reporting by service is not

done every month

- Customer invoices are issued every

month based on actual usage

- Service Pool Costs can be

generated from the accounting

system

- Minimal discrepancies existbetween costs invoices/recovered vs.

spent

- Customers can review invoice with

little assistance

- Customers can track usage more

frequently than monthly, and change

consumption behavior to manage

budgets

- Custom, ad hoc modeling of newservices and rates is supported

- Automation of usage collection and

invoice preparation makes invoices

100% accurate

- Real time usage costs available to

customers

- Cost Pool Managers can obtainnear-real time reports of Service cost

- Continuous improvement analysis is

applied to administration practices

Service/Cost Management

Process to review costs,

perform variance analysis, take

corrective action, so the rate is

protected

- Finance sets rates with little input

from Operations

- Cost Pool is not actively managed,

- Finance is relied on to manage the

cost pools, receiving limited

information and support from

Operations

- Very rough modeling of forecasted

service costs and usage to set rates

- Analyses of pool cost and usage are

quarterly.

- Little review of accuracy of cost

allocation and usage

- Cost Pool Managers are from

Operations and review costs and

usage for accuracy

- Cost Pool Managers perform

monthly variance analysis

- Assumptions for pool costs and

usage are modeled and documented

- Work processes to produce services

are standardized and documented

- Cost Pool Managers are Product

Managers, planning investments to

maximize capability, efficiency, and

lower unit costs

- Product Managers research

customer needs with SAMs.

- Trends in costs and usage are

analyzed and quick corrective actions

taken when necessary

- Product Managers maintain plans for

quickly modifying capacity (up or

down)

- Product Managers can support

service segmentation with detailed

forecasts and segment-specific costs

- Continuous improvement programs

enhance service quality and lower

unit costs




5.0 Appendix



Dimension 1: Service Maturity / Service Definition Example


Service Definition

Services are now formally defined. Changes to thedefinition should be under Change Control.

The standardization and specificity of the services

vary, with some, such as those for hosting, are

relatively open-ended.

A customer with simple, low-cost needs, pays the

same rate as a high-cost customer

Increase the standardization of the services, withdefined segmentation and service level tiers to

accommodate the different requirements of customers

with individual rates by segmentation and service

level to better reflect the relative cost of the

customers usage.

Example

Massmail service today is segmented into two rates,

based on whether the mailbox is under or over 500

MB in size. But Massmail as a service includes Active Directory

services for the Massmail forest, plus mailbox and

Public Folder restore services

Customer agencies are expected to manage their

user accounts, distribution groups, and group policies.

A service was added, integrated electronic faxes,

without a rate or fee specified.

A more a la carte segmentation model could enablecustomers with more costly requirements to be able to

get the service they want without forcing a base-

bones customer to incur additional cost.

Segmentation Possibilities:

Base service with 500 MB mailbox

Option for additional 500MB mailbox storage

(closely tied to real cost of the additional

storage)

Option for email archiving

Option for email encryption outside of the

MassMail environment

Option for providing full administration

(managing user accounts, etc)

Charging for standard service requests like

mailbox restores, per request Charging by the hour for labor-intensive

services, such as collecting email for an

investigation

Can Active Directory support be charged by

itself, on a per individual basis?



Dimension 1: Service Maturity / Service Catalog Tiering


Service Catalog

The Service Catalog is newly published and is asignificant achievement.

Each Catalog entry is a description of the family of

services, with a listing of the specific services and

rates where these exist. It is not designed to facilitate

ordering, but rather to explain the background to the

service.

Improve catalog with feedback from customers onwhat would better help them in planning, budgeting,

and ordering the service.

The structure could be changed, with a more tiered

structure created for the catalog pages.

Example

The Service Catalog pages are long documents that

provide a lot of information about each family of

Services: Description of the overall Service

Service Targets and Availability

Service Reporting

Specific Service Requestswhat customers can

ask for in E2E

Customer Responsibilities

Chargeback Rate information: the cost pool for

this family of services

The specific Services and their Rates

A customer needs to page through a lot of information

to get to what they can order

What do customers want/need to see when they use

the catalog? Organize the pages to start with that

information, then include links to more detailedinformation

For Example:

Short Description of the Service family

List of the specific Services and their rates

Each specific Service is a hotlink to a

description of that Service

There can be a hot link from the Service family

description to a long description

Then hot links to the rest of the information,\:

Service Reporting, Service Targets, etc. always

returning to the main page for the Service family.

If the information is specific to a single Service,

then it should only appear on the hotlink from

that Service.



Dimension 2: Usage Measurement / Allocation Example


Usage Measurement

Usage for some services is derived, the units cannotbe measured directly.

The units of measure are frequently technology-

based,

Allocations are sometimes used to apportion use of a

resource, rather than direct usage, or costs are

bundled together and the rate is based on only one

cost

Address the allocated usage to find a means fordirectly measuring by customer, or institute a process

to revisit the allocation methodology regularly to

ensure continued reasonableness.

Consider whether services whose usage is derived

should really be independent services, or rather

bundled together.

Or whether bundled costs should be charged

separately

Example

Sometimes several types of costs are added togetherand then charged for using a rate that only measures

one of the cost drivers

For example, Mass.Gov costs are primarily recovered

through two rates, one for storage and one for

bandwidth.

But there are significant costs for calls from the public

to the CommonHelp Service Desk with questions

about website navigation ,and server hosting costs,

that arent directly related to these two usage

measurements. The danger is that a customer will seek to avoid a

high cost rated service

E.g., they could minimize the storage needs of

their website to reduce their charges,

This would reduce Mass.Govsstorage needs

But storage is only a portion of the cost recovered

in this rate, and those other costs are not reduced,

putting the rate at riskit was calculated on a

bundle of costs of which storage was only one.

Ideally, the costs for a Service all move in the samedirection at roughly the same rate:

If the cost of one component increases, the costs

of the others should also increase, in roughly the

same proportion.

Then if only usage of one cost component is the

foundation for the charging, as when only the

usage of storage is used to charge for the hosting

costs of Mass.Gov, it is still a fair apportionment of

the cost by customer.

However, where costs can move independently, andcustomers can affect their consumption of one

component, such as storage, without affecting others,

such as the server hosting expense, then the pool is

at risk.

With bundled costs, look for components that can

easily be identified and billed separately, such as

CommonHelp calls, and charge for them separately

Or add more components to the rate, creating a

complicated formula (e.g., add server utilization)



Dimension 3: Service Cost Management / Cost Granularity


Cost Granularity

Costs specific to a single customer aresometimes included in the pool and so shared by

all

Remove customer-specific costs from the costpools, bill those costs directly to the customers

involved.

Example

Of the 16 storage arrays, 3 are primarily utilized

by HHS,

There may be other examples found through a

close examination of each cost pool.

The cost for these three, plus a portion of the

storage labor cost, could be billed directly toHHS,

If a customers requested service is not standard,

it should seriously be considered for separate

billing



Dimension 5: Service/Cost Management / Service Management


Service Management

Modeling of service rates, and the assumptions

utilized, are not well documented.

Accuracy of cost and usage for each month is not

reviewed

Few indications of multi-year planning for service

improvements

TUAM tool can be the foundation for modeling

chargeback ratesFinance & Operations share use.

Product Managers maintain plans for the evolution of

their services, including technology upgrades,

investments, actions to increase efficiencies, etc.

Product Managers can manage capacity with

flexibility

Example

Services should be modeled in setting rates, and

those models used to manage the rate during the

year, as changes in utilization and requirements takeplace:

Capture assumptions about costs for the year

Start with Prior year actuals

Modify based on plans or trends, documenting

the rationale

Capture assumptions about usage, using history

(at the customer level if possible) from the prior

year as the starting point and documenting

modifications Utilize standard building blocks of capacity to

increase or decrease the costs in line with

projections of usage

These increments of capacity should include all

costs required to change capacity: hardware,

software, labor, services.

The smaller the feasible building block, the

better

These units of capacity would also be thefoundation for managing the cost pool


25/31


Revised Chargeback Cost Framework

No. IT Chargeback Component Cost

1

Will depend on the Customer - could be specialized software purchased and maintained by ITD for

the Customer $TBD

2a Salaries and Fringe - Travel, consultant, AA Sub $TBD

Hardware and Software: Direct infrastructure only

One-time

Maintenance

Depreciation

2c Service costs, such as network or storage $TBD

3

Expenses shared across 2 or more Services (but only a limited number). For example, Windows

Server license costs would be shared across the Wintel and VM services $TBD

4 Security $TBD

5 CommonHelp - Cost of CommonHelp plus a percentage of IT operations $TBD

Additional Overhead - Any costs distributed on top of the direct expenses (does not include

overhead related to Shared Infrastructure Services)Management

MITC rent

Project management

Infrastructure planning

7

Technology Services - Database, network, storage, backup and recovery, midrange hosting,

mainframe hosting $TBD

8

Adjustments State appropriations, subsidies, and expenses that are not typically included in a

chargeback $TBD

Customer-Specific Costs for the Service, not part of the Service Cost Pool

Expenses Shared Across All Service Offerings

Expenses Specific to Service Offering

2b $TBD

Expenses Shared Across Service Offerings

6 $TBD


26/31



Category Capability

1 - Ad Hoc 2 - Basic Capability 3 - Stable 4 - Optimizing 5 - Value-Driven


- Largely manual

- Not yet monthly

- Formalizing, beginning

to be repeatable


- Excessive manual

attention

- Formal, stable

definition

- Supported by

Automation

- Meets Schedules

- Modeled and

documented

- Segmentation of

services

- Flexibility- Repeatable process

supports customer-

requested changes

- Well-defined,

institutionalized

processes, driven bybusiness value and

practicing continuous

improvement

ServiceMaturity

Service

Definition

- Service definition is

rudimentary

- Services exist more to

organize Chargeback

billing, they have limited

independent reality

- Service definitions

are adjusted reactively

to map to customer

requirements

- Services are formally

defined, and subject to

change control

- Services levels are

tiered (e.g., Gold,

Silver, Bronze)

- Services are

standard, stable, and

repeatable

- Services are

business-based, and

not technology-based

Service

Catalog- Lack of Service Catalog

- Basic Service

Catalog exists

- Service Catalog is

used by customers in

spend planning and

budgeting discussions

- Service Catalog has

information that helps

customers expand

their usage, directly

links to ordering

- Service Catalog can

be customized for

specific customers

(e.g., reflect which

specific services or

options that customer

management wants

offered)

Service

Management

and

Communications

- Limited customer

awareness on servicesoffered

- Services are broadly

defined and published,

with year-to-year

changes common

- Service Catalog and

detailed service

description available

on Web

- Proactive

communications

between customer andService Account

Manager

- Continuous

improvement activities

to improve service

quality and lower cost

- Service AccountManager actively

guides the relationship

between customers

and IT


27/31



Category Capability



- Largely manual

- Not yet monthly


to be repeatable


- Excessive manual

attention

- Formal, stable

definition

- Supported by

Automation

- Meets Schedules

- Modeled and

documented

- Segmentation of

services


supports customer-

requested changes

- Well-defined,

institutionalized



improvement

Serv

iceUsageMeasurements

Usage

Measurement

- Usage is rarely measured,

more frequently it is derived

- Usage is often

estimated based on

assumptions or

allocations

- Usage units are

technology-based

(e.g., # of servers)

- Usage units are

based on metered

usage; not on

estimated or calculated

usage

- Usage units are used

to influence

consumption behavior,

help manage demand,

and encourage lowest

cost consumption

- Usage units are

business-based rather

than technology-based

(e.g., number of

application users vs.

number of licenses)

Usage

Reporting- Usage reporting is ad hoc

- Usage reports are not

widely available.

Reports need to be

produced manually

every time.

- Usage reports are

available to customers

on an as-needed basis

using minimal

automation

- Usage reports are

automatically

generated and easily

available

- Usage information is

available in real-time

Usage

Managementand

Communications

- Data is scattered across

various sources (e.g.,spreadsheets, Access

databases, etc.)

-Usage is not reviewed

regularly by the servicemanager or by the

customers

- The responsible

manager is reviewing

usage each month

- Usage is can bereported to customers

- Usage reporting is

accurate

- Usage reports are

proactively reviewed

by SAM's withcustomers on a

monthly or quarterly

basis

- Usage information is

available in real-timethrough customer

portals


28/31



Category Capability



- Largely manual

- Not yet monthly


to be repeatable


- Excessive manual

attention


- Supported by

Automation- Meets Schedules

- Modeled and

documented

- Segmentation of

services


supports customer-

requested changes

- Well-defined,

institutionalized



improvement

ServiceCost

Cost

Granularity

- Costs used for rate-setting

are often approximations or

estimates

- Costs specific to a

single customer are

shared by the pool

rather than invoiced to

that customer

- Costs are allocated to

specific services or

customers, with the

use of assumptions

- Few costs are

allocated unless they

are broad-based

overhead expenses

- The accounting

system fully supports

and automates cost

granularity

Cost

Identifiablity

- Assignment of costs to

Services/Cost Pools in

accounting system is

rudimentary or absent

- Costs can be

assigned to specific

Cost Pool

- Fixed vs. variable

costs are identified and

understood

- Costs formerly

allocated are now

separately identified to

each Service when

incurred

- Costs can not only be

identified to a specific

Service, but also to the

purpose or function in

the Service

Cost

Documentationand

Communications

- Assumptions about costsare not documented

- Multiple views of

service costs exist(e.g., two sets of books

for allocations)

- A standard and

documented costallocation methodology

is used

- Managers can easily

get ad hoc andbetween-period reports

of costs.

- Costs can be seen as

they are incurred, withrunning totals, by the

Cost Pool Managers


29/31



Category Capability


- Initial, not formalized,- Largely manual

- Not yet monthly


to be repeatable- Limited documentation

- Excessive manual

attention


- Supported by


- Modeled and

documented

- Segmentation of

services


supports customer-

requested changes

- Well-defined,

institutionalized



improvement

Charg

ebackAdministration

Cost Collection /

Reporting

- Manual, back of envelop

assignment of costs to

services

- Cost collection &

reporting by service is

not done every month

- Manual assignment

of costs to Services

- Service Pool Costs

generated

automatically from the

accounting system,

aligned to Services

- Custom, ad hoc

modeling of new

services and rates is

supported

- Cost Pool Managers

can obtain near-real

time reports of Service

cost

Usage

Collection /

Reporting

- Usage collection is ad hoc

- Inaccurate information is

often reported for customer

usage

- Usage collection is

regular, but manual,

much is estimated or

derived

- Only reporting of

Service usage is the

invoice

- Usage collection is

automated, limited

manual intervention

- Customers have

access to their usage

and can review it

- Customers can track

usage more frequently

than monthly, and

change consumption

behavior to manage

budgets

- Real time usage

available to customers

Invoice

Management

- Significant discrepancies

can exist between costs

invoiced/recovered vs. what

is spent

- Frequent inaccuracies in

invoicing or budget transferadjustments

- Customer invoices

are issued based

primarily on estimated

usage

- Invoices rely on

manual calculations

and cleansing of data

- Invoicing is manual- Invoice accuracy is a

subject of concern

- Customer invoices

are issued every

month based on actual

usage

- Customers can

review backup

information for their

invoice- Errors on invoice are

rare

- Automation of usage

collection and invoice

preparation makes

invoices 100%

accurate

- Continuous

improvement analysis

is applied to

administration

practices


30/31



Category Capability



- Largely manual- Not yet monthly


to be repeatable

- Limited documentation- Excessive manual

attention


- Supported by


- Modeled and

documented

- Segmentation of

services


supports customer-

requested changes

- Well-defined,

institutionalized



improvement

ServiceCostManagement

Cost

Management

- Cost Pool is not actively

managed

- Finance sets rates with

little input from Operations

- Finance is relied on

to manage the cost

pools, receiving limited

information and

support from

Operations


perform monthly

variance analysis

- Minimal

discrepancies exist

between costs

invoices/recovered vs.

spent

- Trends in costs and

usage are analyzed

and quick corrective

actions taken when

necessary

- Continuous

improvement programs

enhance service

quality and lower unit

costs

Service

Management- Services aren't managed

- Little review of

accuracy of cost

allocation and usage

- Very rough modeling

of forecasted service

costs and usage to set

rates

- Analyses of pool cost

and usage arequarterly.


are from Operations

and review costs and

usage for accuracy

- Assumptions for pool

costs and usage are

modeled and

documented

- Work processes to

produce services arestandardized and

documented

- Product Managers

maintain plans for

quickly modifying

capacity (up or down)- Cost Pool Managers

are Product Managers,

planning investments

to maximize capability,

efficiency, and lower

unit costs

- Continuousimprovement programs

enhance service

quality and lower unit

costs.

Customer

Relationship

- No active relationship with

customers on Services

- Customer

relationship is in the

form of restating the

published services and

expediting specific

needs


and SAMs meet with

customers on quality of

Service

-Customers feel valued

- Product Managers

research customer

needs with SAMs.

- Product Managers

can support service

segmentation with

detailed forecasts and

segment-specific costs


31/31

Challenges for Chargeback from ISB Chargeback Subcommittee

1Customers may compare ITD's rates for some services with commercially available rates and decide against consolidation. ITD rates

include more than just the base costs for providing the discrete service.

2Communicating to the Customers Why Service Costs May Be Higher With ITD - How to demonstrate/communicate the Additional Value

provided?

3Chargeback has changed, with the publication of the Service Catalog and the detail on the costs behind the rates. The challenge is howto communicate the improvements.

5 We are transitioning to a comprehensive definition of services, but most people probably aren't aware of the improvements

6How do we communicate what is in the Cost Pools, why it is there, and provide the reasoning (ie, additional security, strategic planning)

7 Bundling Services vs. a-la-carte Services

8 Auditing Usage Based Charges

9Some services today include, as part of their costs, services or features that only a single customer is using. The other customers are

subsidizing the first customer, since they are picking up part of the cost but not using the feature.

10

The challenge of Federal funding: making adjustments to the pools, or the usage basis for cost allocation, without causing the Federal

Government to question the fairness of the allocation and demanding repayments.

11

The challenge of dealing with cross-service subsidies, where one service provides revenue in excess of cost, covering another where

costs exceed revenue. We would like the rates charged for services to be directly related to the cost, and this cross-subsidization is

contrary to that.

12 How to we transition to a rate structure that removes cross subsidization?

13 How do we close the gap between ITD rates and those of competing commercial services?

14With IT consolidation there will be existing Secretariat and Agency assets. If they are are taken on by ITD, to continue provide the

consolidated services to the customers, how do we do that?

15Consolidation will require expenditures on infrastructure prior to being able to bill for services. So there will likely be costs added without

corresponding revenue, at least initially. How will that be accomodated?

16The challenge of the seed money required to support consolidation preparations, costs in excess of those required to provide current

services.

18 Costs that are spread across services - we have the challenge of identifying and managing those. Security is an example.

19The challenge of the current culture, where cost management is not a strength of the technical managers responsible for providing the

services

20We need better asset and configuration tracking, providing a method or approach for tighter control on asset management with a stronger

focus on decommissioning (if they get a new toy they should be throwing out an old one)

21There needs to be a focus on de-commissioning devices and technologies, eliminating costs, as part of managing the services and the

cost pools.

22 The challenge of having the operational managers become strong managers of costs and budgets for the services

chargeback+long-term+vision+and+maturity+reference+model+v6

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