IT Cost Optimization using a Financial Management for IT Service
Approach
Transforming Information Technology departments into IT Service Management (ITSM) organizations
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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 .
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Some Of Our Customers
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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
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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).
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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
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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
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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
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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,
www.KEDARit.com (972) 317-3577