The majority of medium and large organizations understand the benefits of employing IT service delivery and support best practices – to improve across the IT management trifecta of “quality, speed, and cost.” Many of these organizations will employ IT service management (ITSM) best practice approaches such as ITIL to improve the quality of delivered IT/business services and increase operational efficiency (speed) and effectiveness. But what about their level of focus on optimizing costs? What about ITBM?
IT management and financial stewardship
There are probably very few IT organizations that don’t need to budget, and then account, for IT spend. It’s a part of business life no matter the business function – from human resources (HR) through to facilities. And thankfully there’s help at hand – in ITIL and other best practice approaches, plus often via your organization’s finance team.
But is this really enough?
Your IT organization might budget, and account, for what it spends on IT – or, to be more precise, “what it invests in IT each and every year” – well, perhaps really well. But does it really understand its investments? And enough to make informed decisions on where cost optimizations can, and should, be made?
Going beyond budgeting and accounting with TBM
our IT organization, like most, is probably consistently under scrutiny as to why IT costs what it does. And it’s usually a hard conversation to have – because of the lack of insight into: the drivers of the IT costs and the correlation between these costs and business-value generation. Hence, IT might continue to be viewed as an operational overhead; a back-office cost center that incurs significant costs without regard to business revenue generation and the bottom line.
Ultimately there’s a disconnect between IT costs and business value.
There’s help at hand here though. Both through ITIL and the more fleshed-out technology business management (TBM) framework and Cost-2-Value model.
Understanding the need for TBM
If your organization is already an ITIL adopter, then it makes sense to start with some of the ITBM best practices that this proposes. There’s the obvious – and aforementioned – budgeting and accounting, but there’s also something called: service portfolio management.
Ideally, service portfolio management should link IT services to the business value they deliver. Then allow the cost of service provision to be compared with the delivered value – even if perceived rather than proven value – in order to identify IT service winners and losers. Think of it as project portfolio management but for live IT services – reconciling the resources consumed (in service provision) to the benefits they provide, in the context of business strategies and goals.
However, and unfortunately, many people have viewed service portfolio management merely as an extension of service catalog management, with it deemed to be the “management of the service portfolio,” comprising:
- The services pipeline, i.e. potential new services
- Available services, i.e. what ITIL calls the service catalog, and
- Retired services.
Thus, many IT organizations haven’t gone beyond traditional budgeting and accounting to gain greater insight into the financial make-up of their IT services and how they positively impact business performance.
This should be built on a backbone of service costing – the understanding, at a granular level, of why IT services cost what they do. From the direct and indirect costs, the cost allocation or absorption methods, to the “cost drivers,” i.e. the things, such as increases in consumption volume, that influence the level of those costs. Consider this your IT organization’s cost model.
TBM and Cost-2-Value model
“Chargeback” and demand/consumption influencing
But it’s still not enough to just know what IT services cost, and how these costs are incurred, there’s also a need to “move the dial.” Starting with the “C” of the “ABC” of ITIL’s “Financial management for IT services” (which is also called “IT business/financial management”) – chargeback. You’ll hopefully remember the term, along with “showback,” if you’ve ever taken ITIL exams.
It allows business customers, i.e. those that pay for the delivered IT services, and those who consume them to understand what their IT usage is costing the business. It’s also a platform on which to drive the right behaviors and to influence IT consumption (and thus costs).
Along with the insight obtained from understanding the value equation, it allows IT organizations and service owners/business customers to have informed conversations about changing:
- IT service consumption patterns to reduce costs (with no or limited business impact)
- IT services to better balance costs and value (in line with business needs).
The result being the ability to optimize what IT costs in terms of “keeping the lights on” and the freeing up of scarce IT resources (both money and people) to work on more strategic opportunities that are aimed at business goals such as: reducing costs, increasing revenues and profitability, delivering new products and revenue streams, attracting and retaining more customers, and increasing competitive advantage.
Changing mindsets and providing greater transparency
While the above might seem somewhat mechanistic, i.e. changing the ways things are done, there’s also a larger change to be driven through TBM – the move from an IT cost mindset to one of business value.
You might have already heard of this – the transformation of IT from a cost center to a value center (or sometimes the less-applicable term “profit center” is used). It’s an approach that brings IT operations and spend (or investment) more in line with business strategies, goals, and operations.
And it’s not just a change within the IT organization, importantly it’s a change throughout the organization as a whole. With the key to this being transparency – from what IT costs (and why), through decision making, to how IT does, and sometimes doesn’t, add value.
It also requires higher levels of cross-functional communication and collaboration – because TBM is something that needs to be operated at a business, rather than an IT, level to be truly successful. Ultimately, if ITBM is done correctly, the conversations will move from being about why IT costs too much to what can be done to optimize IT investments. For instance, that a small drop in service availability might result in a disproportionately large reduction in service-delivery costs – increasing business margins and perhaps delivering a tangible competitive advantage. These conversations might also result in costly low-value services being decommissioned.
Benefitting from “what ifs” and scenario planning
This greater understanding of what IT costs and why, and the business value delivered, allows for better financial (and business) forecasts and planning, and offers the potential for service reinvention. In particular, using the comparison and benchmarking of services to drive optimization.
This might, for example, be the migration of certain services to a cloud delivery model – to reduce costs, increase availability, and improve the release cadence. Or it might be the knowledge that, once a certain level of corporate email usage is hit, the required additional investments and ongoing operational costs make a third-party-provided solution – such as Gmail – an obvious and better solution.
Ultimately, ITBM allows IT organizations, and their parent businesses, to both provide better financial stewardship and play a far more integrated role in providing the IT/business services that make for better business-level success.
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