ITFMA Conference. How to do I.T. Chargeback. Savannah, GA July 10, Pete Hidalgo

Transcription

1 ITFMA Conference Savannah, GA July 10, 2013 How to do I.T. Chargeback Pete Hidalgo

2 Table of contents The big picture Chargeback definition Benefits Key concepts Guiding principles Model types and maturity Development methodology Page 2

3 The big picture EY IT financial management framework Includes core internal Financial Management processes: 1. Financial planning/budgeting, analysis, and reporting 2. Asset management HW and SW 3. Invoice management 4. Supplier/vendor and contract management 5. Purchase request and invoice management 6. Telecom expense management 7. IT service costing and benchmarking 8. IT allocation / showback/chargeback 9. Bill of IT and associated usage reporting Business strategy/ goals EY IT financial management framework Output/ benefits 1. Cost transparency 2. Consumption efficiency 3. Cost reduction 4. Customer satisfaction And accounts for key external interdependent processes 1. Service definition and catalog management 2. Service request fulfillment and demand management 3. Service level management 4. Capacity management 5. Availability management 6. Service asset and configuration management 7. Release and deployment management 8. Service owners / Business Relationship Management 9. Project portfolio management Page 3

4 What is chargeback? A process by which an I.T. organization can recover its costs of providing services to its customers Page 4

5 Why implement chargeback? To understand the true costs of providing IT services To educate IT customers on the value of the IT services that are being provided As a tool to improve operating efficiencies and lower costs To enable customers to manage their own consumption of services and associated costs Page 5

6 Benefits of implementing chargeback 1. Reduce spend/costs 2. More effective IT spending 3. Compliance with Sarbanes-Oxley IT Governance requirements 4. Key component of ITIL Financial Management 5. Improve demand & expense forecasting for the IT organization and its customers Page 6

7 Time The chargeback journey Implementing chargeback is an evolutionary process vs. big bang Showback (Usage + $) Chargeback Usage reporting Chargeback process Page 7

8 Automation Chargeback automation & frequency To perform more frequent chargebacks increasing levels of automation are needed Frequency Page 8

9 Data granularity Chargeback data requirements To chargeback on a unit cost basis, unit consumption and cost data is needed Type of model Page 9

10 Guiding principles Chargeback guiding principles Fairness To what degree should chargeback be based on actual consumption versus an estimated allocation? What costs should be included/excluded? Influence What behaviors, if any, should chargeback drive (e.g. reduced consumption, investment in new products, incentives to move users from old technologies, etc.)? Transparency What insight should customers have into how IT manages IT including which costs are fixed and which are variable? Effort How much effort (e.g., data collection, transformation, calculation, reconciliation, and billing) is appropriate and is it in keeping with the value provided? Consistency Are IT chargeback methods aligned with cost allocation and profitability measurement used throughout the organization? Page 10

11 Business benefits and transparency Chargeback models Not one size fits all High 7. Value based pricing Service pricing 6. External pricing 5. Service based Resourcebased allocations 3. Resource consumption based 4. Incentive based Differentiated service levels and pricing 2. Flat fee 1. Overhead allocation Low Implementation complexity High High Resourced-Based Allocations distributes costs through allocations or simple consumption estimates Service Pricing measures specific consumption and drives behavior through tiered services and prices (e.g. incentives for off-peak usage) Differentiated Service Levels and Pricing reflects a more market-based approach to cost recovery Page 11

12 Cost Awareness Cost Measurement Effort Cost Management Effort Costs and Complexity Chargeback model details IT chargeback methodology Methodology description 0. No chargeback IT costs are not charged back 1. Overhead allocation IT costs are allocated to LOBs as a corporate overhead cost based on a simple driver not directly related to resource consumption (e.g. revenue, asset balance, etc.) 2. Flat fee Fixed annual cost negotiated with BUs; normally based on a crude estimate of resource consumption 3. Resource consumption based IT costs are allocated based on specific unit of resource consumed (e.g., number of dedicated servers, network ports, etc.) 4. Incentive based IT charges are manipulated to drive specific behavior (e.g., lower charges to influence use of network or servers during off-peak times) 5. Service based IT service charges to BUs are based on consumption of specific activities; quality and availability of services are explicitly defined, service choice provided for key products 6. External pricing IT service fees are based on market (external) prices; products offered are comparable to those available in the marketplace 7. Value based pricing IT service fees are based on perceived value delivered to LOBs (e.g., business value created, customer satisfaction, timely delivery of new financial products) KEY: = Low = Medium = High Page 12

13 Maturity Chargeback model maturity High 4. Incentive based 5. Service based 6. External pricing 7. Value based pricing 3. Resource consumption based 2. Flat fee 1. Overhead allocation Short Implementation Time Long Page 13

14 Simplified chargeback implementation view Each step represents significant effort. Define services Calculate unit service costs & benchmark Create a service catalog Establish usage reporting Develop & implement the chargeback process Automate Page 14

15 Peter Hidalgo, Jr Senior Manager with over 20 years of experience in I.T. Financial Management, Telecom and I.T. infrastructure, Cost Optimization, Program Management, and I.T. Shared Services Transformation. Deep industry experience in managing and optimizing I.T. costs. Previous responsibilities included serving as the Global I.T. Financial Manager for a Fortune 100 company, where he managed an annual operating budget of over $100 million. In that role he also developed and implemented an ITIL based service costing and chargeback process, resulting in improved client satisfaction and major, recurring cost savings. Currently serves as the Service Lead within Ernst & Young s IT Advisory practice for I.T. Cost Optimization and I.T. Service Costing, which also includes chargeback and service catalog development. Senior Manager IT Transformation Advisory Services Ernst & Young LLP 5 Times Square New York, NY , United States of America Pete.Hidalgo@ey.com Mobile: Education USMA West Point BS Engineering MBA Columbia, 2014 Certification(s) PMP ITIL Financial Management Relevant experience Advised and assisted a leading media and entertainment company to transform their IT operations into a shared services model encompassing 11 major service domains. Also assisted in the development of a data center strategy, a WAN architecture review, and a detailed IT service cost analysis, to include the development of a service catalog, and a chargeback model. Assisted in an IT infrastructure (voice, data, and data center) strategic assessment and financial analysis for a Fortune 500 corporation, which resulted in identifying the strategies to improve network and data center performance and availability, in addition to saving $32M - $53M over three years in IT operating expenses. Supported an IT Cost Optimization study for the premium spirits and wine supplier in the U.S., which addressed their telecom and infrastructure spend. Identified annual savings of 10% to 19%. Advised in the strategic assessment of the voice and data networks for a Fortune 500 high tech manufacturing firm, which resulted in a new technology direction (VOIP) and Identified over $9M in annual savings. Assisted in performing an IT Operations strategic assessment for a Fortune 100 manufacturing corporation, focusing on data center consolidation. Developed data center consolidation and disaster recovery strategies, in addition to Identifying over $5M in annual savings. Advised a leading medical device manufacturing company in the evaluation of their outsourced infrastructure service contracts, resulting in overall savings of $5M - $6M, or 35% - 45%. Assisted a Fortune 100 consumer staples company with the assessment of their wireless telecom services contracts, resulting in overall savings of $6M - $9M, or 45% - 55%. Page 15

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