it one conf it costs chargeback 2008_04_22
DESCRIPTION
IT costs management and chargeback to internal BU & subsidiariesTRANSCRIPT
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IT costs management and
chargeback to internal BU &
subsidiaries iTOne conference on
Industry sector best practices in IT
Luxembourg – Hamm
April 22nd 2008
L. Remmy, former IT & Telecom Director Rotarex
VP Operations P&T consulting
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Agenda
March 12, 2013 Industry sector best practices in IT 2
Preamble
Identify your IT costs
Chargeback
Practical example
Conclusion
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IT costs do matter !!!
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Source : “IT doesn’t matter”, Nicholas G. Carr, June 2003, Harvard Business Review
Free to download on http://kazman.shidler.hawaii.edu/carrhbr.pdf
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Who knows where IT costs are
going ?
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Source : “Six Chix”, Rina Piccolo
http://bitaites.org/2006/page/28
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“Why do we get so many IT
employees ?”
March 12, 2013 Industry sector best practices in IT 5
Because they are all looking for new and
more productive software development
tools on Internet ….
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The “IT costs” Problematic
“Free lunch” aspect of traditional IT activity
model, poor or no cost-benefit analysis : main
objective launch the project …
Executive Management do not have a clear view
of where the IT budget is spent
BU heads don’t know exactly what they are
paying for …
How can IT staff measure some of their
performance improvements ?
IT is not part of the company’s ERP …
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Objectives
Get transparency over the company IT costs
Be able to charge the business owners in accordance to
the IT resources they are using:
“Once managers understand what they are paying for,
their focus quickly changes” Mc Kinsey Quarterly _ Aug. 23rd 2005
= realistic and figure (or mathematically) justified cost
allocation.
Start some IT performance indicators
In a recession climate, search for cost-justification and
reply to IT cost-cutting pressure
For our IT community : -)
◦ Start identifying what IT activity could be outsourced …
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Agenda
March 12, 2013 Industry sector best practices in IT 8
Preamble
Identify your IT costs
Chargeback
Practical example
Conclusion
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How many companies know their
workstation TCO ? In 2002, a study from 01net, said that only 30 % of
French companies know their workstations Total Cost
of Ownership …
At that time, the mean TCO was 4000 € but ranging
from 1300 € to 8000 € / PC / year.
Figures from Gartner in 2001/2003 gave a “PC budget
per PC device” of US$ 9300 to 9600 (Discrete
Manufacturing sector, 8100 employees & 286 IT
workforce average)
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Who gets the information ?
IT department is, of course, the original
source of information. They know what is
spent for whom. They have the inventory
figures.
But they have to work closely with
Finance / Management Accounting.
Starting point will be the actual figures
and next year budget estimates
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The Cost Centers (CC)
Devide the total IT cost by functional area
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Source : Gartner Conference, IT cost Management, Luxembourg, Aug. 27th 2002
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The Cost Centers (CC)
You can have has much CC has you want,
but don’t under estimate :
◦ data collection work
◦ invoice encoding work
What will be the cycle used to update BU
information ?
Generally accepted : not more than once
a year.
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Agenda
March 12, 2013 Industry sector best practices in IT 13
Preamble
Identify your IT costs
Chargeback
Practical example
Conclusion
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Definition
IT Chargeback (or charge-out)
= Charging user departments for IT costs
they incur
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Methodology
“There is no common chargeback model
to be implemented” - Henri Gilabert –
GLG Conseil
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You will only finalize the job with your
finance dept. if you get the Key …
Of course, there you can wait a bit before
you know what Finance exactly wants …
Find the key … ?
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Functional vs. IT cost allocation key
Functional
◦ Nb of users
◦ Nb of invoices
It related keys
◦ Nb of PCs
◦ Nb of licences
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Best Practice
Keep it simple …
Do not multiply your Cost Centers don’t
go to deeply into details
Keep a good balance between the cost of
chargeback-data collection and the real
utility of data gathered.
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Agenda
March 12, 2013 Industry sector best practices in IT 19
Preamble
Identify your IT costs
Chargeback
Practical example
Conclusion
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Legacy information
2 cost centers
◦ MES (Manufacturing Execution System) or PPS
(Produktionsplanungs- und Steuerungssystem)
◦ EDV or IT
◦ Figures were not up-to-date
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Legacy information
2 cost centers
1. MES (Manufacturing Execution System) or
PPS (Produktionsplanungs- und
Steuerungssystem)
2. EDV or IT
◦ Figures were not up-to-date
March 12, 2013 Industry sector best practices in IT 21
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CC and chargeback key
IT based chargeback keys
◦ 2 tools used to gather data : EZaudit & home
made .Net application
5 Cost Centers with the following keys
Cost Centers CB key
◦ Distributed Computing Luxbg nbr of PCs
◦ MES lic. usage
◦ CAMCAD lic. usage
◦ Developments shortcut pres.
◦ Distributed Computing Out. Luxbg nbr of PCs
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IT costs distribution per BU
March 12, 2013 Industry sector best practices in IT 23
IT department
INFOR
CATIA - PDM
Distributed computing
Lintgen
Development
Distributed computing
other sites
Man
pow
er
cost
Hard
ware
So
ftwa
re
Co
nsu
ltancy
Tra
inin
g
163 : 1 PC – 146 € / month
166 : 1 INFOR client – 76 € / month
168 : Devpt based on time spent yearly
169 : 1 CATIA licence – 365 € / month
170 : 1 PC other site – 38 € / month
Tele
ph
ony –
Natio
na
l + In
tern
atio
na
l calls +
Mo
bile
ph
on
e c
alls
Co
pie
rs + F
axe
s
Expanditures managed by IT = IT Dept. BudgetExpanditures managed by IT
but not included IT Dept. Budget
Total IT Dept. expenditures w ith depreciation
2005
31%
17%16%
22%
14%
Distr. Computing Lintgen
Computing VPPS Team
Computing Development
Computing CAM/CAD
Distr. Comp. Other Sites
Total IT Dept. expenditures w ith depreciation
2005
37%
13%
46%
4%
Adm., Fees, Off ice
Equipment Total
Depreciation Total
Manpow er Costs Total
Other
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IT costs distribution per BU
March 12, 2013 Industry sector best practices in IT 24
- €
20,000.00 €
40,000.00 €
60,000.00 €
80,000.00 €
100,000.00 €
120,000.00 €
140,000.00 €
160,000.00 €
180,000.00 €
SELFA
SM
T
PURETE
C
FIRETEC
TOOLT
EC
INDUTEC
MEDIT
EC
RO
TAREX
Fin
ance
RO
TAREX
Aut
omot
ive
LUMEC
PRAHA
SRG
Rota
rex Sta
r
Sag
ana
SAS
SELFA B
oiss
y
Cry
otec
LUDEC
RO
TAREX
Fra
nce
LPGTE
C
USA_C
eodeu
x_IN
C
Axite
c
Rota
rex Spa
in
RO
TAREX
DIS
TRIB
ITIO
N
RO
TAREX
Mexi
co
USA_R
otare
x_NA
SER
VITEC a
uto
Eife
lspr
itzgus
s
PCs - Distr. Comp. Other Sites
CAM CAD
DEVPT
INFOR
PCs - Distr. Compt. Lintgen
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IT costs distribution Evolution
March 12, 2013 Industry sector best practices in IT 25
Actual C.C. distributuion 2002
85%
15%
EDV
VPPS
Actual C.C. distribution 2004
33%
21%10%
21%
15%
Distr. Computing Lintgen
Computing VPPS Team
Computing Development
Computing CAM/CAD
Distr. Comp. Other Sites
Total IT Dept. expenditures with depreciation
2005
31%
17%16%
22%
14%
Distr. Computing Lintgen
Computing VPPS Team
Computing Development
Computing CAM/CAD
Distr. Comp. Other Sites
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Results
March 12, 2013 Industry sector best practices in IT 26
37 %
Drop
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Agenda
March 12, 2013 Industry sector best practices in IT 27
Preamble
Identify your IT costs
Chargeback
Practical example
Conclusion
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Conclusion
Keep it simple !!! Fairness and simplicity
are key to chargeback (IT Business Edge
Nov 18, 2003)
Start measuring …
Don’t overkill your IT costs :
IT is about innovation … certainly not
only costs !!!
Innovation brought by IT does Matter !!!
Take care of your IT staff
March 12, 2013 Industry sector best practices in IT 28
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Bibliography
Books
◦ “The effective measurement and Management of IT costs and benefits”,
Dan Remenyi - Arthur Money - Michael Sherwood-Smith, 2nd ed. 2000
◦ “The IT Payoff”, Sarv Devaraj - Rajiv Kohli, 2002
◦ “IT success!”, Michael Gentle Towards a new Model for IT, Dec. 2007
Publications : CIGREF (Organization which promotes Information
systems for business value, Managed by a Board of CIOs elected by other
CIOs ) http://cigref.typepad.fr/cigref_publications/
Magazine’s articles
◦ “Chargeback for Good or Evil” CIO Magazine, March 2003, Malcolm Wheatley
◦ “Refacturer en Interne”, Corinne Zerbib, 01 DSI June 2005,
◦ “IT Budgeting for Uncertain Times”, Brian P. Watson, CIOinsight 2007-09-18,
◦ “The Cost of bad IT economics” Brian P. Watson - Feb. 2008
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Thanking you for your attention
March 12, 2013 Industry sector best practices in IT 30
Q & A