Leveraging IT Financial Transparency to

Drive Transformation

Mary Lou Alter, EMC

Brett Arnott, VMware

OPT4732

#OPT4732

2 2

Agenda

1. Cloud and IT as a Service

2. Service Costing Fundamentals

3. Automating the process

3 3

Agenda

1. Cloud and IT as a Service

2. Service Costing Fundamentals

3. Automating the process

4 4

Transformational Drivers

Market

Speed New Global Markets

Opening, Expanding

Lowered Barriers Erase

Traditional Advantages

IT Consumers

Have Choices

Service Providers (SPs)

as Enterprise IT

Alternative

Mobile Platforms for

Consuming Digital

Products & Services

Disruptive

Technology

Virtualization, Converged

Infrastructure, Cloud,

Modern Application

Architectures

Cloud Empowers New

Business Models

Private Public

Hybrid

5 5

The Attraction of the Cloud

Accelerate Service Deployment 1

Increased Financial Transparency 3

Pay As You Go 2

Better Staff Utilization 4

6 6

IT-As-A-Service

Business Focus

Service Consumption Mindset

Service-Based Pricing

Service Level Expectations

Integrated Cloud Architecture

Integrated GRC

Transforming ourselves into a competitive service provider

7 7

“…As A Service” The New Standard

Internally & Externally Provided Services: Digital + Human

8 8

ITaaS - A New Way to Deliver Value

Consume

“Everything as a Service”

with robust catalog and

financial transparency

Operate

Highly automated with

transformed people &

process models

Architect

Transformed End User

Computing, Application and

Infrastructure platforms

with interoperability

Private Public

Hybrid

9 9

Transforming IT through ITaaS

DNA, Skills, Roles &

Organizational Alignment

“Front Office” Capabilities

Service Accountabilities

Technology Breadth

Enabling Technology

Private, Hybrid, Public Clouds

End-to-End Automation

Financial Transparency

Self-Service Capabilities

A New IT Business Model

Service Oriented

Market Driven

“P & L” Focused

Broker and Builder

10 10

Cost & Agility Benefits

Virtualization and cloud services have allowed

organizations to become more agile and devote a greater

% of the IT budget to strategic initiatives

11 11

Agenda

1. Cloud and IT as a Service

2. Service Costing Fundamentals

3. Automating the process

12 12

Service Based Costing

Business-Value centric & Service-oriented view vs.

Component/Project view (traditional)

Clearer relationship of IT service cost to business services and

enables more effective demand management

Effective service cost management helps an IT organization keep

costs under control and make wise decisions of future investments

Traditional IT Cost Categories are aggregated into the services that

consume them

Service costing changes the conversation between

business and IT to one of value and demand

13 13

Achieving Cost Transparency

1. Inventory Services & Their Component Costs

a. Service Catalog

2. Build Cost Model That Illustrate Cost of Each Service

3. Identify Business Value of Each Service

a. Service Portfolio Management

4. Produce Chargeback or Showback invoice for Customers

5. Benchmark Service Costs versus Industry

Service models require that IT costs must be aggregated

by service not by thing

14 14

Service Costing Target State

Cost Transparency by:

• Service

• Service component & technology

• Organization

Chargeback of Costs to Users

Competitive/Market Rates for Internal Services

Service Lifecycle Cost Management

Consolidated Request Channels

Automation of Service Provisioning, Costing & Charging

Simple, Clear Reporting & Invoicing

Characteristics of the ideal future state IT Financial

Management

15 15

Cost Model Structure

Seven layer model for the most mature of organizations

Typical organizations will deploy 4-5 of the layers and evolve this over time and maturity

Each layer will support various degrees of maturity and consideration. Few to many objects will be used to support specific customer needs

Service Groupings support alignment to ITIL or other customer methodology

EMC IT Approach

Focus on 5 layers (cost sources, cost pools, IT projects, IT Products & IT Services) with ability to extend model to include additional activity based data in future.

Service Costing

16 16

IT Centric Costing to Business Relevant Pricing

... and prices services based

on business controllable

drivers

New model maps costs to

business-relevant services…

End user services

Driven by headcount

Business application services

Most existing chargeback will b e

reflected here. Billing based on

SDG hours, supporting

infrastructure costs, and

depreciation

Hosting services (PaaS and

IaaS)

Weight number of servers used by

app classification of those servers

Professional services

Actual hours and hourly rates

pulled from IT hours logging

system (PlanIT)

Premium services

Will be item-specific. On-going

effort as new services are defined

and brought online

• 18315 - ENTERPRISE DATA

WAREHOUSE

• 18320 - ECM/COLLABORATION

• 18325 - ENTERPRISE

ARCHITECTURE

• 18330 - E-Business Programs

• 18335 - ENTERPRISE

TECHNOLOGY SERVICES

• 18336 - ENTERPRISE

INTEGRATION SOLUTIONS

• 18410 - DOCUMENTUM

INTEGRATION - IT

• 18415 - IMG IT OPERATIONS

• 18420 - IT EVENT COORDINATION

• 18425 - GLOBAL INFRA & SVCS

OPS

• 18430 - IT CERT

• 18440 - IMG FIELD ENGINEERING

SYSTEMS

• 18445 - IT INTERNATIONAL

CLIENT SERVICES

• 18450 - IMG DOMESTIC DG

• 18610 - KNOWLEDGE

MANAGEMENT BTG

• …

Costs currently tracked

by IT categories

(examples)

*

A

B

C

D

E

Service

Messaging

Collaboration

Conference room a/v

End-user support services

Equipment acquisition*

Remote field office backup & restore

Desktop image provisioning / home dir. svcs

Shared security services

Connectivity services

Fax & print services*Facilities move, add, change, close

Software acquisition

* portion of these services not currently charged back

Business application services

- Traditional development

- SaaS integration

Hosting services (IaaS & PaaS)

Architecture services

Business intelligence

Event it support

M&A integration

Solution development

Premium services

17 17

Service Costing Illustrated

IT Components Srvc 1 Srvc 2 Srvc 3 Srvc 4 Srvc 5 Srvc 6 Srvc 7 Srvc 8 Srvc 9 Srvc 10 Component Total

Component 1 $300 $200 $400 $300 $100 $200 $100 $1,600

Component 2 $200 $200 $200 $200 $200 $200 $200 $200 $200 $200 $2,000

Component 3 $100 $150 $150 $100 $200 $300 $400 $200 $1,600

Component 4 $400 $350 $340 $230 $230 $420 $230 $320 $230 $500 $3,250

Component 5 $200 $200 $200 $200 $200 $200 $1,200

Component 6 $100 $100 $200 $300 $100 $800

Component 7 $400 $350 $230 $420 $230 $320 $1,950

Component 8 $100 $100 $100 $100 $100 $100 $100 $100 $100 $100 $1,000

Component 9 $200 $200 $200 $200 $200 $1,000

Component 10 $100 $150 $150 $300 $100 $800

Component 11 $340 $230 $230 $420 $230 $230 $230 $420 $200 $2,530

Component 12 $200 $200 $200 $200 $200 $200 $200 $200 $200 $100 $1,900

Component 13 $100 $100 $200 $100 $300 $800

Component 14 $400 $350 $230 $420 $230 $350 $230 $420 $300 $2,930

Component 15 $100 $100 $100 $100 $100 $100 $600

People $300 $310 $120 $150 $200 $230 $400 $320 $320 $1,000 $3,350

Overhead $200 $200 $200 $200 $200 $200 $200 $200 $200 $200 $2,000

Others and T&E $150 $150 $300 $230 $230 $420 $230 $230 $230 $420 $2,590

Services Total $2,890 $2,190 $3,370 $3,650 $2,900 $3,820 $3,450 $3,730 $2,280 $3,620 $31,900

Traditional IT

Accounting

Service-based Accounting Ideally – should match

But error margin

+5% to 10%

What we initially pull from the General Ledger

With Automated dedicated ITFM solution …

You can reduce the error margin to 0

18 18

Pricing and External Benchmarking

Monthly expense

reports provided

with usage and

cost details

Benchmarking is critical to establishing competitive rates for

internal services

19 19

Service Costing Planning Considerations

Account for the full cost of every

IT service

Track actual service costs

incurred

Allocate all IT costs to services

being delivered

Correctly tag service costs

with CAPEX and/or OPEX

Failing to allocate any IT cost

will impact overall service cost

accuracy/ transparency

• Maybe perceived too cheap

• Maybe unfair or unrealistic

In terms of

Amount $$

Cost Category

Cost Drivers

Business Units

Services related

20 20

Step by Step

8-Step Process For Simple, Fair, Accurate Charge/Showback

Define Services

Categories

Allocate All Costs

Determine Unit Drivers

Derive Unit Costs

Determine Unit Prices

Measure Service Usage

Invoice Business

Units

Funds Transfer From

BU to IT

1 2 3 4 5 6 7 8

Both Fixed

And Variable

To Specific

Services

For Costs And

Prices In Each

Service

Category

By Dividing

Service

Costs By The

Service Unit

Driver

Prices Should

Reflect

Corporate

Goals

For Each

Service And

Map To The

Appropriate

Service Unit

Drivers

Create

Monthly

Invoices For

Business

Units For

Each

Service

Choose

Services That

Align

To Industry

Offerings

Set Up A

Mechanism

For Easy

Fund

Transfers

PRICING ANALYSIS METERING / INVOICING SERVICE COSTING

21 21

Agenda

Cloud and IT as a Service

Service Costing Fundamentals

Automating the process

22 22

Automating Service Costing – 3 Keys

Data Aggregation and Analysis 3

Cost Modeling 2

Data Discovery 1

23 23

Data Discovery – Common Concerns

I don’t have the

right data

My data is all over

the place

My data is not

usable

24 24

THE TRUTH IS OUT THERE

25 25

Rocket Science?

N = R* • fp • ne • fl • fi • fc • L

THE DRAKE EQUATION

26 26

Time Tracking Organisation

Support Tickets

Assets

What to Look for

General Ledger

Metering

Data Sources

CMDB PPM

27 27

More Than 100 Different Systems Integrated To Date • Pivotal

• Amdocs

• Portal

Billing

• Siebel

• PeopleSoft

• Clarify

CRM

• Genesys

• Avaya

• Nortel

CIM

• Oracle

• IBM DB2

• SQL Server

DB

•SMS Gateways

• Glenayre

•SS8 VM

System

Voice

• SAP

• JD Edwards

• Peoplesoft

ERP

• Asset Management

Apollo

Inventory

• Edify

• Brite

Intervoice

IVR

• MS Excel

• Log Files

• Web Forms

Manual

• Nortel

• Lucent

• Alcatel

PBX

• ServiceNow

•Remedy

• HP

Helpdesk

• Mercury

•LoadRunner

• QA Run

QA

•vCenter Ops

•HP OpenView

• IBM Tivoli

Monitoring

• Novel LDAP

• SiteMinder

Security

• Narus

• Metrica

• TEMS

Telco

• Mercury

SiteSeer

• Keynote

Web

• Nice

• Comverse

• Witness

Logging

Usage / Metering

Tools

Automating Access

28 28

Mind the GAP

CURRENT

DATA

REQUIRED

DATA

GAP

29 29

Automating Data Transformation

GL EXPENSE

ALLOCATION

AUTOMATED

BUSINESS

RULES

GAP ITBM SOLUTION

CONFIGURABLE

MAPPING

CONSUMPTION

DATA

AUTOMATED

BUSINESS

RULES

CONFIGURABLE

ASSUMPTIONS

30 30

Proof Points

12 NUMBER OF YEARS

HELPING WITH DATA

DISCOVERY

Hundreds

ITBM CUSTOMERS

HELPED DISCOVER

DATA

>200 DATA SOURCES

LEADING US INSURER

31 31

Recapping

Data Aggregation and Analysis

Cost Modeling

Data Discovery

32 32

Cost Modeling – Common Concerns

Wrong level and

context

Not flexible

Difficult to explain

and defend

33 33

The Basic Idea

IT Organization

Expenses

(General

Ledger)

Technology

Services Business

Services

IT Cost Flow

Business Units

(Consumers)

IT Cost Center 1

IT Cost Center 2

IT Cost Center 3

Organizational

Cost Mgmt

Technology

Cost Mgmt

Service

Cost Mgmt

Customer

Management

Compute

Storage

Network

End User

Computing

Applications

…

34 34

Cost Modeling in Action

Expenses IT Organization Technical Services Business

Services

Business

Units

Organizational Cost

Mgmt Technology Costs Mgmt

Service

Cost Mgmt

Customer

Management

35 35

Cost Modeling in Action

36 36

Maintaining Flexibility

37 37

38 38

Recapping

Data Aggregation and Analysis

Cost Modeling

Data Discovery

39 39

Data Aggregation and Analysis – Common Concerns

Analysis is limited

Difficult to share

Not sustainable

40 40

Time Tracking Organisation

Support Tickets

Assets

Data Aggregation and Analysis

General Ledger

Metering CMDB PPM

41 41

Dashboards for Any Persona

42 42

Facilitating Discussion with Line-Of-Business

43 43

Addressing IT Quality Management

44 44

Leveraging Benchmarking

45 45

Planning for the Future

46 46

Assuring Data Integrity and Security

47 47

Communicating Across the Organization

48 48

Recapping

Data Aggregation and Analysis

Cost Modeling

Data Discovery

49 49

Cost Transparency with Automated Chargeback

Delivers Full Value of IT Transformation For Major US

State Agency

Automates chargeback for over 30 state agencies for speed & accuracy

Provides cost transparency through Web-based invoices for 150 users

Full cost transparency restores trust between the business and IT Major US State Agency

Real World Results

Leading US Insurer Validates IT Consolidation &

Uncovers Cost Reduction Opportunities With IT

Benchmarking

Comprehensive benchmark across 10 domains revealed $400M in cost reduction opportunities

Automated, repeatable approach provided “apples to apples” industry and peer comparisons Leading US Insurer

$10 Billion Prestige Cosmetics Company Transforms

to Broker of IT Services

Improved reporting accuracy to reduce tens of millions in trans-border tax liabilities annually

VMware ITBM supported client’s enterprise transformation to global shared services model

Cosmetics Company

Z

50 50

Final Thoughts

DATA

DISCOVERY

COST

MODELING

DATA

AGGREGATION

& ANALYSIS

51 51

Final Thoughts

INFORMATION &

INSIGHT FOR

EFFECTIVE DECISION

MAKING =

52 52

Learn More

53 53

Q&A

54 54

Other VMware Activities Related to This Session

HOL:

HOL-SDC-1311

VMware IT Business Management

Group Discussions:

OPT1004-GD

IT Financial Management for the Cloud with Khalid Hakim

OPT4732

THANK YOU

Leveraging IT Financial Transparency to

Drive Transformation

Mary Lou Alter, EMC

Brett Arnott, VMware

OPT4732

#OPT4732