Today’s CIOs must go beyond using spreadsheets and ad-hoc reports to manage finances of their organization. They must successfully transform IT into a well managed, world class service provider. Why? — to meet head-on the demands of the changing business environment, IT budget accountability, and technology advancements.
Fundamental changes are taking place in today’s new technology environments. IT organizations are experiencing dramatic shifts in workforce demographics and technology solutions. Examples of a larger future that is rapidly unfolding include virtualization and cloud computing, and explosive growth of mobile devices and data storage.
How will these rapidly developing technologies and trends impact your IT strategy? How will they affect your capability to deliver more growth and innovation to the business with the same or even fewer resources? The answers to these questions are in how the IT organization addresses the below hot topics. The answers surrounding these topics are driving CIOs and business and IT executives to seek new strategies, tools and answers for:
- Obtaining real value from a ITSM (IT service management) approach,
- Building “private cloud” services,
- Using cloud storage services,
- Plotting the future of mobile devices,
- Leveraging the value of CMDB/CMS,
- Implementing virtualization services,
- Increasing data center capacity and efficiency in a smaller space,
- Collaborating and unifying communications.
Before effectively considering any of these opportunities, CIOs must know their current costs and how IT capabilities are being utilized before improving them. Given that today’s hot topics and solutions all center around IT services, CIOs must first transform existing IT capabilities into IT services. They must aggregate the infrastructure, people and process into IT services, and have a detailed understanding of their cost drivers.
Completing the COp-S™ Solution implementation phases described in our “How Do We Define Success” website page, quickly delivers to the IT organization the capability to:
- Identify cost optimization areas,
- Be better armed during contract negotiations,
- Find tool-consolidation opportunities,
- Stop buying or continue paying for software not in use,
- Prepare for software audits,
- Perform showbacks and chargebacks, and,
- Reduce IT services consumption.
Where Should You Start?
The ‘obvious’ starting point is to target the most expensive IT services, because this will give you the greatest cost savings. However, high-cost IT services are clear targets, and in many cases are efficiently running mission-critical applications. However, the low cost and often least utilized IT services are key areas to research. Often they are candidates for consolidation or retirement from the portfolio.
Here are a number of factors that will be uncovered as you go through the process to optimize cost and prioritize IT services:
- Low rating of cost to value,
- Low technical utilization or wasted capacity,
- Low to no anticipated business usage of a service,
- Dynamic provisioning with lots of changes/additions to a service, and
- Continually reprioritize and identify new candidates for optimization.
COp-S™ brings together all of this disparate information into a single financial cost model repository. Why?– to set priorities faster to prove anticipated savings. Base your decisions on facts rather than conjecture or guesswork. Use both budget and actual costs data from spending and expense records to deliver a true, dynamic view of costs and actionable savings.
The core principles of IT cost optimization are very similar to core principles of any operational business unit. The IT organization is responsible for delivering a core set of IT services to the various lines of business units.
IT leadership must drive transparency into the total cost of delivering each IT service.
This includes defining and identifying the core cost drivers and unit cost for each IT service. The TCO of each service is highly analogous to a cost of goods sold (COGS) in a manufacturing environment. This deep understanding of unit cost and cost drivers enables IT managers to surgically reduce cost while improving service quality.
IT must provide detailed cost transparency with their lines of business units by delivering a Bill of IT or “pro forma invoice” (commonly called “Showback”) on a regular basis. This Bill of IT should make clear to business units what IT services they consume and the cost of those services.
IT leadership must marry the TCO of IT services with deep business intelligence about business unit value, utilization, and current analysis of available external services. This is a best practice of Performance Management from supply chains. This helps IT to understand and explain solutions’ return on existing assets and resources, and drive down unit rates to line of business units. It also lays the foundation for a robust collaboration about trade-offs based on business priorities between IT and business units on IT service cost, value and utilization.
IT must benchmark the TCO of their IT services rigorously. First, internally between and across business units, and secondly, against other mature IT financial management industry peers of similar size organizations. This process establishes both an objective measure of IT efficiency and effectiveness, and identifies opportunities for focus.
Continuous Service Improvement and Planning
IT must continuously identify opportunities to optimize costs across business units and IT operations. This includes leveraging third party services and their technologies such as cloud computing and virtualization services, and achieving ongoing labor management and service innovation through identifying consolidation and retirement opportunities.
Accomplishing this also requires that IT become more agile by applying automated tools to manage the budgeting and forecasting process, and overall financial management of the IT services process. This allows for rapid response to changes in company strategy or economic climate. It also cements the alignment of IT with the business on an ongoing basis.