The REAL Value of IT Cost Transparency: Overcoming False Transparency. It Financial Management Transparency White Paper

Transcription

1 The REAL Value of IT Cost Transparency: Overcoming False Transparency It Financial Management Transparency White Paper

2 False Transparency Leads to Flawed Decisions Best Practices in IT Financial Management As businesses clamor for improved technology transparency, technology organizations have scrambled to develop tools and processes to help them communicate technology performance and value. A common oversight in the rush to implement such tools is the failure to assess and account for flawed reporting mechanisms, resource recognition, and budgeting processes. Without a holistic approach to recognizing technology assets, technology consumption and performance management, transparency efforts will be flawed and unable to provide clear accountability at both the business and technology levels. The Components of Transparency Technology transparency should be addressed at four basic levels: consumption transparency, total technology transparency, technology performance transparency and business oriented technology performance transparency. Copyright 2011 Rubin Systems, Inc. and ComSci, LLC. Reproduction prohibited without permission. All rights reserved COMSCI White Paper false transparency PAGE 18

3 False Transparency True Consumption Transparency Organizations with true tech consumption transparency: Track volume-based technology resource consumption. Track resource utilization at the application level (e.g. full time equivalents, server utilization, etc). Have clearly defined product and service catalogs that reflect related service levels and true costs. Many firms often focus on providing measurement programs and business communications despite having adequate consumption tracking mechanisms or a full view into the scope of technology of the business. This is often the result of a limited strategic role of IT or decentralized business practices. As a result, IT organizations may be monitoring only a part of the full technology portfolio, or misrepresenting how the business and technology assets are aligned. This is false transparency. Technology Consumption Transparency Technology consumption transparency is at the heart of the cost transparency movement. By providing comprehensive insight into the actual technology resources and the associated costs consumed by each part of the business, clear accountability can be established and IT can help the business make better decisions about its use of technology. There are several issues that can cloud this insight: Failure to Attribute Consumption to Specific LOBs Often times organizations will have a centralized infrastructure and LOB specific applications functions are the only costs directly attributed to the business. Inadequate Allocation Methods Many organizations lack the necessary tools and processes to track their technology resources back to the point of consumption being attributed to parts of the business that in fact have much lower tech utilization. Inadequate Product and Service Definition Technology organizations often think in terms of MIPs, servers, lines of code, GB of bandwidth, but to the business partners these concepts often do not help them understand how technology will help grow or improve the business. Associated Risks (Perception of) Mischarging When chargeback mechanisms do not adequately reflect true consumption, overcharging is common for some parts of the firm while other areas might not be paying for tech resources that they are in fact consuming. Copyright 2011 Rubin Systems, Inc. and ComSci, LLC. Reproduction prohibited without permission. All rights reserved COMSCI White Paper false transparency PAGE 28

4 Inability to Change Consumption Behavior Without true consumption behavior and clearly defined products and services linked to accurate unit costs, the technology organization is unable to have a valuable dialogue with the business regarding how costs could be modified or service improved. Product and Service Level Transparency SERVICES KEY DRIVER IDEAL BILLING ENTITY ACTUAL BILLING ENTITY DATA AVAILABLE ACTUAL REFRESH FRE- QUENCY DRIVERS Data Center CPU DASD Tape VM Mainframe App. Service Project/ Seconds (millions) Gbyte Hours (millions) Tape Drive Hours (thousands) Seconds (millions) Project under management APPLICATION Print & Distribution Print Mail Direct Charge Distributed Build Print Server Support Application Servers Distributed App. Services Database Servers Middle ware Servers Ad Support Data Base Support Server Dev/Test/QA Web Hosting BY APPLICATION Project/ FTE by Proj./ K Lines (millions) Pieces (millions) Direct Pages Printed No. Application Servers Applications under Mgmnt. No. of Data Servers Alloc./No. Middleware Servs. No. of Developers Web Servers Network Voice Remote Electronic Mail Personal CC Personal CC Personal CC/ Personal CC/ Headcount No of Laptops & At Home PCs Headcount PERSONAL Internet Internet Personal CC Desktop Lifecycle Management Desktop Support Network-Core Backbone Network-Admin Sites Infrastructure Servers Software Distribution Asset Charge Sales- Desktop Support Sales-Asset Charge BY PERSONAL Personal CC Cost Center Personal CC/ Personal CC/ Headcount No. of Non-Sales In-Service PCs No. of In-Service PCs No. of Non-Sales In-Service PCs No. of In-Service PCs No. of Non-Sales In-Service PCs Total Non-Sales PCs No. of Sales In-Service PCs No. of Sales Desk-top PCs OTHER IT Procurement IT Procurement Business Continuity Database Services OTHER Project/ Profit Segment CC Profit Segment CC FTE By Proj./ Ent. Arch.-Op. Excellence AD Load Ent. Arch.-Direct Support Project/ FTE By Proj./ AD Training AD Load F & S Allocation Profit Segment Allocation Copyright 2011 Rubin Systems, Inc. and ComSci, LLC. Reproduction prohibited without permission. All rights reserved COMSCI White Paper false transparency PAGE 38

5 Complete Transparency True Total Technology Transparency Organizations with true total technology transparency: Identify the technology costs found within all lines of business and business processes Clearly and consistently capture costs across the organization. Have established the appropriate levels of data granularity to support business and technology decisions. Have automated processes that allow for insight into the technology estate. By establishing true insight into the costs and consumption of the resources under their responsibility, technology managers can establish credibility and assume a stronger role in managing technology resources strategically. To provide full insight into technology and business alignment, the following components must be in place. Total Technology Transparency Total technology refers to all technology assets and costs, regardless of budgeting practices and ownership. For example, technology costs can be embedded in lines of business or business functions. All of these costs and assets should be captured in order to get a complete picture of the technology estate. Technology Performance Transparency Issues We have made a distinction between technology performance management and business oriented technology performance management to highlight that the technology and business audiences require different measures to manage their respective activities. Technology performance management addresses domain specific measures that technology organizations use to optimize technology assets. While there are commonly used measures of performance (e.g. costs per MIPS, cost per server, availability measures), many firms struggle to use these measures to actively manage and communicate technology performance. Leading firms have developed performance dashboards that allow them to monitor internal performance alongside market trends to demonstrate value and identify opportunities. Copyright 2011 Rubin Systems, Inc. and ComSci, LLC. Reproduction prohibited without permission. All rights reserved COMSCI White Paper false transparency PAGE 48

6 True Technology Performance Transparency Organizations with true technology performance transparency: Manage via balanced metrics sets that capture the relationships between cost, quality and productivity, within and between technology domains. Manage these metrics sets according to the audience. Monitor performance. Pro actively benchmark their performance with industry peers and best practice. Business Oriented Technology Performance Transparency Business oriented technology performance transparency communicates the role that technology has on creating value, optimizing costs, and responding to changing market conditions. Technology organizations continue to struggle to communicate the value of technology in clear business terms. For many firms this has relegated technology professionals to defending technology as a cost, rather than a strategic asset. Companies that are looking to reduce costs often fail to recognize technology s potential to improve automation and streamline processes. By failing to identify appropriate measures (e.g. technology cost per transaction as a percent of total cost) to communicate performance to the business, some of the most significant opportunities and strengths are often overlooked or ignored. Copyright 2011 Rubin Systems, Inc. and ComSci, LLC. Reproduction prohibited without permission. All rights reserved COMSCI White Paper false transparency PAGE 58

7 True Business Oriented Technology Performance Transparency Organizations with true business oriented technology performance transparency: Communicate technology performance and investments. Understand and communicate the true technology costs. Continuously benchmark with industry peers and best in class organizations. Understand fix vs. variable costs and resources. Benchmark against peers based on an LOB by LOB basis. Understand the role of technology. Can effectively explain the relationship between technology investment levels and business performance. Getting Started True technology transparency is not often achieved quickly, as many components of transparency require business buy-in. Technology organizations cannot expect to have strategic discussions until they have established credibility and are able to effectively communicate their operational activities. In many cases, it is best for transparency initiatives to start small and work iteratively in order to learn in the process and to develop credibility. The key for cultivating true tech transparency, as with any important organizational transformation, is simply to get started. Transparency Assessment Technology Consumption Transparency Can we accurately track which parts of business are consuming technology resources? Are the full costs linked to each of technology products and services accurately captured and clearly understood? Can we track resource utilization within and between technology domains? Are our products and services clearly understood by the business? If you have answered no to any of these questions, you are more likely to have credibility issues when communicating the value of IT to the firm. Copyright 2011 Rubin Systems, Inc. and ComSci, LLC. Reproduction prohibited without permission. All rights reserved COMSCI White Paper false transparency PAGE 68

8 While performance management may be possible, you will have limited ability to effectively change business behaviors that impact technology costs and performance. Your next step should gain at least CIO level sponsorship to implement consumption tracking tools and procedures. Total Technology Transparency Have we captured all technology costs across all business activities, even if they are not under our direct management or budget? If we are tracking all technology resources across the firm, are we doing so consistently? Do they all flow back into a central report? Is the reporting granular enough to support technology and business decisions? Are these processes streamlined enough to provide quarterly reporting? If you have answered no to any of these questions, you are not likely to gain full value from further technology performance management initiatives. Senior level executive sponsorship should be established to promote the need for processes and tools to accurately capture and analyze the full technology estate. Technology Performance Transparency Do we manage our technology performance using balanced metrics sets that capture the relationships between cost, quality and productivity, within and between technology domains? Can we report and communicate technology performance? Do we regularly (at least once a year) compare our technology performance with that of our peers? Do we know who will benefit from technology performance reporting? Are we currently interacting with them? Are they able to make effective decisions with this information? If you have answered no to any of these questions, your organization is at higher risk of demonstrating unhealthy technology behavior (e.g. focusing on cost at the expense of quality) and your ability to effectively communicate resource requirements or performance impact will be limited. Sponsorship from technology domain managers will be required. Copyright 2011 Rubin Systems, Inc. and ComSci, LLC. Reproduction prohibited without permission. All rights reserved COMSCI White Paper false transparency PAGE 78

9 Business Oriented Technology Performance Transparency Can you communicate technology performance and investments in actionable business terms, e.g. spending as it supports new business growth, lights on functions, risk management activities and cost optimization activities for each line of business and the enterprise as a whole? Can you communicate technology costs as they relate to business processes, business products and services? Do you benchmark with industry peers and best in class organizations? Do you understand which of your costs and resources are fixed and or variable and can you manage these to changes in business demand? Do we know which business areas would benefit from this information? Are we currently communicating with them? If you have answered no to these questions, you are not alone, but you should be aware that improving in this area will most likely assist in highlighting the strategic value of IT and stimulate more constructive discussions around the role of IT in the business. How ComSci Enables True Transparency ComSci has a comprehensive solution that can help you proactively manage the Business of IT. Our Technology Financial Management (TFM) Solution will provide you with evidence of: The cost drivers associated with the IT Services you deliver to the Business Unit Managers. The demand from business unit managers and the impact such demand has on your overall IT budget. ComSci s TFM Solution provides the increased IT Transparency needed to understand and shape demand, ensuring a positive ROI for all IT investments. ComSci s Technology Financial Management Solution focuses on promoting a better understanding of the costs of provisioning services to business units, as follows: IT Service and Product Costing - provides visibility into cost drivers and enables you to model functional IT organizational costs into effective IT cost pools. ComSci s modeling capability provides clients with insights into Copyright 2011 Rubin Systems, Inc. and ComSci, LLC. Reproduction prohibited without permission. All rights reserved COMSCI White Paper false transparency PAGE 8

10 activity-based costs, IT product costs and the cost of the products and solutions that IT sells to the business, providing the ability to develop and manage unit costs for all services supported and delivered by IT. CIO Invoice - IT Chargeback and Demand Management Why sell it if you can t invoice it? ComSci s scalable production process and BillBrowser web-based reporting module give business-unit management information that provides a clear picture of their cost and consumption of IT Products and Services. Budgeting, Forecasting and What If Analysis provides an efficient and effective means to budget and forecast IT products and services integrated with business unit consumption budgets and forecasts. Benchmarking provides IT executives with the information to benchmark the unit cost of IT Products and Services to both industry peers as well as emerging technologies (e.g., Cloud Computing, Virtualization, etc.) ComSci s Technology Financial Management Solution builds and strengthens the partnership between the CIO and the business-unit managers. It provides effective costing disciplines and cost visibility, which are critical requirements for aligning business and technology and maintaining effective IT financial governance. IT executives and business unit managers can forecast their needs more accurately; track and manage consumption more effectively; and make better ROI-driven decisions. Consequently, they often change their focus from the tactical: Why is IT so expensive? to the strategic: What technology do we need over the next 12 to 24 months to maintain our competitive edge? Copyright 2011 Rubin Systems, Inc. and ComSci, LLC. Reproduction prohibited without permission. All rights reserved COMSCI White Paper false transparency PAGE 98

11 About Rubin Worldwide Founded by Dr. Howard Rubin and Mr. Jed Rubin, Rubin Worldwide provides a depth of technology economics research that is unmatched in the industry. Leveraging the world s largest IT and business database, they have served as senior advisors to corporate and political leaders around the globe at Rubin Systems, META Group, Gartner, and Rubin Worldwide. Their work has helped leading companies and nations use technology to drive measurable change and continuously enhance performance. For more information on Rubin Worldwide please visit: Copyright 2011 Rubin Systems, Inc. and ComSci, LLC. Reproduction prohibited without permission. All rights reserved COMSCI White Paper false transparency PAGE 10 8

12 About ComSci ComSci delivers Technology Financial Management solutions that empower organizations to implement more effective IT financial governance. Through decades of experience and a suite of web-based tools, ComSci helps IT organizations enhance technology transparency and visibility, which in turn enables business units to understand and optimize demand and utilization of technology resources. Copyright 2011 Rubin Systems, Inc. and ComSci, LLC. Reproduction prohibited without permission. All rights reserved