Archive for the ‘IT Financial Management’ Category

Scissors are an amazing invention. They can cut almost anything, and if you apply planning and some border drawing you can create wonderful shapes, fix broken stuff – overall an amazing tool.

But would you mow your lawn with scissors? Of course it’s possible, but it will take a lot of effort, sore fingers and just think about the next time you need to mow that lawn, after all you do it every weekend.

Same goes for IT Financial Management. Why can’t you use BI for automating IT Financial and Business Management? After all, you could argue, it is just data, reports, dashboards and what is more BI than that?

Well, just like a lawnmower and scissors both have blades, but the lawnmower is the right tool for mowing the lawn, there is additional functionality that is needed above and beyond what BI tools offer in order to do IT Financial Management.

1. Define IT cost models that define the connection and allocation roles between different account types, cost drivers and cost drivers hierarchies to IT Capabilities and IT users/customers and suppliers, all in a dynamic, easy to use manner. BI tools don’t do that.

2. Automatically map the different elements in the cost model to the data coming from GL, CMDB, asset repertories, and monitoring systems. BI tools don’t do that.

3. Have a collaborative process and workflow for automating the business process of IT Costing, IT Budgeting, IT Showback and Chargeback, IT Cost optimization, SLA management and vendor governance. BI tools sort of do that, but it takes a lot of effort to get these reports, and there is no process.

4. Out of the box content to include cost models, recommended process, observation engine, recommended reports, dashboard and analysis path, saving time and money so you don’t need to build everything from scratch. BI doesn’t do that.

5. What-if analysis wizard to enable comparing between different cost value alternatives and cost model options and seeing how they influence all IT and business elements and the IT budget on all levels. BI doesn’t do that either.

So, do YOU want to mow your lawn with scissors?

As you get better at managing you IT Financials, you may run into some temptations. Beware! Keep your focus on what matters for the business and what’s real. Don’t fool yourself.

Let’s assume you know the exact hardware depreciation cost for each one of your servers. Moreover, you know exactly what applications run on each server, and what business units use each application.

Should you use all of this exact information in your cost model? Non necessarily. Why? Because some servers may be fully depreciated and other servers may not. Using exact mapping information combined with depreciation information will cause applications that use non-depreciated servers to cost/pay more, which may be correct accounting-wise, but will drive the wrong behavior.

Therefore, it would make more business sense to aggregate all server management costs (usually separating into UNIX/Linux/Windows) and then allocate server cost to applications by computing units such as Server/Month or Server/Hour as previously recommended.

This will drive better behavior and discipline, rather than using accounting breakthroughs – we all know how those end…

What is the right metric to look at when measuring the cost of Servers? Most companies measure server costs by Server cost per month. However, looking into server utilization patterns of most companies, it becomes clear that while server utilization at peak hours is somehow reasonable, average overall server utilization is very low. This obviously means waste!

Therefore, measuring Server cost as Server cost per hour may be a better approach. This will allow you to compare costs to public cloud solutions such as those offered by Amazon, Rackspace and others, and will allow you to align computing spend with business needs rather than spending as if you are always running at peak need.

You will be amazed at how much you can save.

Had a great dinner last week with eight CIO’s and IT executives in London. Venue was very good, although they didn’t give me a chance to enjoy the food … We presented our company and product positioning and asked for feedback from potential buyers. What do they like? What do they not like? And how can we improve. I won’t share everything, as there is nothing as good as some well-kept secrets. This is what I WILL share:

1. They all loved the value proposition of IT Financial Management and thought it is extremely relevant for their organizations (I am sure my sales director is now losing lots of sleep knowing his CEO is expecting nothing less than 8:8. Take it easy Jonathan.)

2. They all agreed that it’s not about cost reduction, rather it’s about managing the value and cost of IT.

3. TCO and Unit cost are the first key thing they want to achieve and are unable to right now.

4. Comparing to benchmarks came up again and again.

5. The data, how do you overcome the data challenge was a topic of much discussion (see my post IT Financial Management and the Data Challenge).

The most enlightening part was when the audience addressed the question of how to get to relevant parties to us within IT. I won’t give you the answers, but I can tell you what they all said definitely doesn’t work – Google! A shocker!

My assumption has always been that a sales cycle starts with a Google search, and if you are not there you are losing business. And here you have 8 CIO’s telling you they never search on Google for strategic solutions such as ITFM! Turns out that as much as we all want web-based, fast and easy transactions, some strategic solutions are still sold the old fashioned way. Forever? Good question. I think not.

Should I continue writing a blog to improve SEO? Probably not, but I like you folks so I will continue writing because I care about you and the content you consume.

Then came a long boring flight on BA. These guys really screwed up their seats and cabin design. If you ever want to get an example of bad product management, go look at the design of the cabin and seats on BA, Swiss Air, Delta, and Continental (international flights). On the other hand, Air Canada, Lufthansa, and the new US Air – they know what they are doing. Oh, and one more thing, if one more flight attendant recognizes me by name, I’ll quit my job!

In the past few months, I’ve discussed IT efficiency ratios. It’s important to note that to manage IT the right way, one needs to find the balance between cost and value. Simply reducing unit cost while harming business value, or growing total cost, is not enough. Only the combined control of cost, use and value produces the desired results.

Take a look at the following data about changes in IT costs between 2003-2008:

As you can see, IT in 2008 is delivering a higher volume of services with better efficiency than in 2003! Which means CIO’s are doing their job.

But the TOTAL cost of IT services is going up, so are CIOs doing a GOOD job? Depends. If IT as a percentage of revenues or operational expenses went down during those years despite growth in total cost of IT, the answer is yes. Alternatively, if total IT cost went up as well as its percentage out of revenues, but total profit grew as well, and this was a result of automation enabled by IT that drove higher revenues per dollar spent, then yes, the CIO is definitely doing his/her job.

IT must be part of the big business picture, not an island of its own. Make sure that what you measure reflects that.

On that note, here are some efficiency metrics for telecommunication services:

Cost per extension

% of VoIP(VoIP extensions/ total active extensions)
# of Active Extensions/Voice Support FTE

# of Active Extensions / # of Supported Corporate FTE

Cost per Audio Conference Minute

# of Video Conferencing Units/Video Conferencing Support FTE

Cost of Video Conferencing/ # of Conferencing Units

Good to be back.

I apologize for slowing down in the last few weeks. I was extensively immersed in an amazing flow of new customer engagements, a new version moving to QA and lots of company foundation work that really bumped us several levels ahead, enabling response to the growing demand in the market. Stay tuned!

On a separate subject and more on a professional aspect, I am being asked by customers again and again, “Where to start with IT Financial Management?” Well, here is a quick maturity road map we have developed for organizations to follow when starting down the path of IT Business Management.

Phase 1 – Understand & Communicate TCO of IT Services

• Create a cost model for highest cost applications. Mostly use percentage allocations in the cost model.
• Provide cost visibility to selected business units.
• Compare to industry or internal benchmarks.
• Data: general ledger, timesheets, blended rate for labor, invoice breakdown from external service providers, industry benchmarks.

Phase 2 – Plan and Track IT Budget, Optimize IT Cost

• Expand cost model to additional applications and new business and technical services.
• Introduce more and more usage-based cost allocations.
• Establish a formal budget and demand planning process based on service-based costing.
• Provide cost visibility to all business units and involve all business units in budget planning.
• Define and compare various what-if and forecasting scenarios.
• Consider selected cost optimization approaches as possible scenarios, e.g. server consolidation.
• Compare actual to plan on a monthly basis and re-forecast.
• Data: service usage, CMDB, utilization.

Phase 3 – Optimize IT Demand Through Chargeback

• Define cost model for majority of IT services.
• Move most of cost allocations to usage-based.
• Set service unit rates and publish a price list.
• Establish a formal chargeback process. Produce monthly IT bill for business units.
• Track cost recovery margins.
• Increase the number of evaluated cost optimization approaches.
• Data: currency conversion table

Best served cold and built one at a time!

ITIL- Information Technology Infrastructure Library, probably the most popular methodology for running IT. Many organizations adopted this methodology over the course of the last 5 years. This adoption started with what is categorized by ITIL as Service Transition and Service Operation, including: Change Management, Asset and Configuration Management, Knowledge Management, Release Management, Deployment and Decommission management, Request Management, Event Management, Incident Management, Problem Management, Access Management and Coffee Making Management , just joking!

All, as you can see, are part of running IT operations, hence companies appointed ITIL process owners from the delivery side of the house - the folks who make things happen, the doers. In the last few years, companies have started getting to the maturity level where they want to adopt the services design and services strategies components of ITIL as well in order to not only operate IT but also manage the business of IT by following ITIL process for Service Portfolio Design, Catalog Management, Service Level Management, Supplier Management, Capacity Management, Service Economics, IT Financial Management, and IT Demand Management.

It’s funny, but it seems like this part is handled by folks in the organization that are less into ITIL. Often you will find IT Financial Management and Vendor Governance folks performing these tasks, but not from an ITIL perspective and not connected to the ITIL folks in the organization. It seems like ITIL is still for IT ops folks, and IT Finance, Vendor Management, Demand, and Economics are different folks in the organization.

Will a merger happen or will this line between IT ops and IT Business Management always exist? Will ITIL be the bridge? Time will tell…

At the heart of automation of IT business management tasks such as IT Cost Management, IT billing and chargeback, IT cost allocation, IT budgeting, and IT SLA & Performance management lies, in addition to the challenge of business process automation, the challenge of data handling.

This challenge includes:
♦An easy connection to multiple data sources.
♦Ongoing cleansing of data.
♦Association and correlation of expenses and performance data with usage data, asset data and services definitions and hierarchy, as well as organization hierarchies.
♦Easy processing of data via cost models as well as easy creation of and maintaining of these cost models.
♦Easy processing of data via business rules as well as easy creation of and maintaining of these business rules.
♦Easy reporting and analysis atop the data.
♦Easy access to data by third party solutions.

My team, despite me pushing them to release fast and only focus on value to business users, have insisted on building a software foundation that addresses all these challenges in an easy-to-use, visual, template-based and best practices approach, so you can significantly benefit from improved productivity and time to value.

As it turns out, what good engineers insist on proves to be right in the long run, even if the CEO thinks he knows it all.

Every New Year’s eve my father meets his friends and neighbors in our village on the way to the holiday prayers, and always greets them with warm wishes for good health and business prosperity, except for the village doctor – he always gets “I wish you good health and hope you go out of business,” well that’s life when your profession is addressing other people’s challenges and needs.

I got an excited call from Yakov Kogan, one of Digital Fuel’s founders, this evening. He was calling to tell me about great meetings he had with one of our customers, a large North American cosmetics company. After all these years he is still so passionate when he sees how our solutions help companies. I had to run into a meeting so he texted me how they described the IT Financial Management challenge which drove them to buy our solution. It was better than any marketing copy we could have come up with:

“IT service Total Cost of Ownership (TCO) is unknown
Can’t show a business case for an IT service
IT service Unit Cost is unknown
Can’t measure efficiency of an IT service
BU’s are not accountable for IT consumption
BU’s consume much more IT than they need
Actual vs. Budget done quarterly
Money loss continues for at least three months
BU’s see IT costs as too expensive and not predictable
BU’s struggle to forecast profit. Leads to tension between IT and BU’s
Not enough data supporting Tax Regulation
Hard to pass an audit
Manual MS Excel Based
Time consuming, error prone, no audit log, no trending, no data security, no collaboration.”

God bless fathers, doctors and passionate founders!