caring culture | open communication | unmatched service

Caring Culture | Open Communication | Unmatched Service | Personalized Solutions

Effective Financial Management of Communications and Technology

Paul Lapan – Manager of Solutions EngineeringPaul Lapan – Manager of Solutions Engineering

PINNACLE Software SolutionsPINNACLE Software Solutions

ITPX 2010ITPX 2010

Caring Culture | Open Communication | Unmatched Service | Personalized Solutions

Paul LapanPINNACLE Software CorporationManager, Solutions EngineeringDenver, Colorado303 [email protected]

Career History Enterprise Software Consultant – PAETEC Software Voice Systems Integration Provider – Switchview / Brooktrout Voice Network Manager – ATT Wireless, GGU IT/Telecom Support Manager – CompUSA

Help | About Paul

About Today’s DiscussionAbout Today’s Discussion

Objectives of Financial Objectives of Financial ManagementManagement

Why is this relevant today?Why is this relevant today?

Value of Best Practice Value of Best Practice FrameworksFrameworks

Cost ModelingCost Modeling

Business DriversBusiness Drivers

Improvement of Process Improvement of Process ThroughputThroughput

Eliminating BottlenecksEliminating Bottlenecks

Financial Management - Business Objectives:Financial Management - Business Objectives: Monetary Stewardship

Universal service support and service delivery processes

Planning & execution of budgeting, accounting and charging as it relates to the entire management lifecycle

Procurement Provisioning Payment Cost Allocation

9


Budgeting, Accounting, ChargebackBudgeting, Accounting, Chargeback

Accounting(Fin)

Budgeting(Mgt)

ChargeBack

(IT/Ops)

Yearly (Planning)

Monthly(Managing)

Agree onExpenditures

Review andManage

exceptions

EstablishStandard Costs

MonitorCost Centers

Publish price list (Service

Catalogs)

Monitor ITRevenue



Changes…1. Exponential increase in Data

Center located applications

2. Focus on service – business value relationships

3. Changing cost models from physical to virtual resources (big increase in absorbed indirect costs)

Why is this so much more important today?

Integration to the General LedgerIntegration to the General Ledger

• True chargeback to the responsible

account/party

Integration to Accounts PayableIntegration to Accounts Payable

• Lifecycle view of what is ‘going out the

door vs. what is coming in

Self-Service details for customersSelf-Service details for customers

• Employee Accountability

• 3-5% Savings across the board (per

Aberdeen)

The end result – Visibility and AccountabilityThe end result – Visibility and Accountability


Transparency is Accountability without the need for a formal Transparency is Accountability without the need for a formal punishment system to manage misbehavior.punishment system to manage misbehavior.


Focus on the legacy business ‘best practices’ from Telecom that many IT shops didn’t immediately adopt.

1. The business is the customer of Telecom.

2. Managerial Measurements - i.e. ITIL Service Level Agreements, Operational Level Agreements (Underpinning Contracts) - Benchmarking Metrics!

How do we start and/or continue to improve what we have?


Measuring associated costs around…

Service Hours

Service Availability

Reliability

Customer Support

Targets for Incident Resolution (Fix) times

Service Performance

Functionality (if appropriate)

Change Management Procedures

Security


What other ‘best practices’ are key to focus on to establish a model for IT/Telecom?

Predetermined Acceptable Fixed and Variable Costs

Automated Process for Approvals, Payment and Dispute

Contract Negotiation and Increased Competition

Popular Best-Practice Frameworks

TitleTitle DefinitionDefinition ObjectiveObjective Owning AgencyOwning Agency

TEMTEM Telecom Expense Telecom Expense Management Management

State of industry and assessment of TEM solution providers

GartnerGartner

TEIMTEIM Telecom Expense Telecom Expense Inventory ManagementInventory Management

A comprehensive assessment framework for selecting a TEM solutions provider

Forrester ResearchForrester Research

TLMTLM Telecom Lifecycle Telecom Lifecycle ManagementManagement

Defines key lifecycle processes to help reduce telecom operational costs

Aberdeen GroupAberdeen Group

TEATEA Telecom Environment Telecom Environment AssessmentAssessment

Defines seven disciplines to effectively manage telecom operations

AOTMPAOTMP

eTOMeTOM enhanced Telecom enhanced Telecom Operations MapOperations Map

Defines the interaction between key operational elements

TeleManagement TeleManagement Forum Forum

ITILITIL Information Technology Information Technology Infrastructure LibraryInfrastructure Library

Comprehensive framework for all service support and service delivery

OGSOGS

7

The Reality of Best Practices What they provide:What they provide:

• Common sense of proven concepts and techniques

• A method to measure performance

• The potential to avoid common pitfalls

• The potential to focus on continual improvement

• Assessment criteria

• Standard language

What they are not:What they are not:

• An “absolute correct” solution

• Procedural

• Recommendations to buy a system or technology



What value is there in these frameworks to assist us with improving our financial models?

Common language to describe the relationships between functional areas (in terms of associated costs)

Common repository (CMDB) - Configuration Management Database (service, subscriber, location)

Common provisioning model - Configuration Items & Related Vendor Charge Codes

Common Container for Costs – Service Catalog

Service Catalogs – ObjectivesA service catalog is a list of services that an organization provides, often to its employees or customers.

Each service within the catalog typically includes:

•A description of the service

•Timeframes or service level agreement for fulfilling the service

•Who is entitled to request/view the service

•Costs

•How to fulfill the service


Publish Accept Request Review Deploy Review

Example Workflow – Network Service Delivery

Many parallels to Voice Many parallels to Voice & Video services& Video services

Managed as separate Managed as separate business processbusiness processto provide based on to provide based on customer needscustomer needs

Many opportunities Many opportunities exist for streamlining exist for streamlining operationsoperations

Manual BillingManual Billing

Workflow - Network LAN Services

Materials

NSGReview

CustomerSupport

Order Originator

Customer

Cable Assignments

NSGInstall

Customer

data and workflow

data

workflow

direct interaction routinely required

notification

NSGSchedule

OO, OSM, Requests, &

Customer MaterialsAdjust

Customer Support

Close

OO, OSM, Customer

Vendor

CableAdjust

LANReviewClose

Custom App

Other Design group(s)

Other Ops group(s)

Custom Ntwk DB

App

WO folder

email

Other Database

email withattached file(s)

Customer

Measuring IT Cost By CustomerMeasuring IT Cost By Customer

Vendor Charges

Software Personnel Hardware Real Estate

AbsorbedCustomer B Customer CCustomer A Unabsorbed

Cust A B C Cust A B C

Total cost of IT Services

for Customer A

Indirect CostsIndirect CostsDirect CostsDirect Costs

Cost ElementsCost Elements


Measuring Cost by Service Type Measuring Cost by Service Type

Vendor Charges

Software Personnel Hardware Real Estate

AbsorbedIndirect Costs

UnabsorbedIndirect Costs

Direct Costs

•Hardware•Software

•Personnel•Vendor Charges

•Hardware•Software

•Real Estate

•Software•Real Estate•Personnel

•VendorCharges

Monthly Recurring Charges

Usage Charges

One TimeCharges

Cost of theService

Cost ElementsCost Elements


DefinitionsDefinitions

Cost Model:Cost Model: Based on calculating the costs for each Customer by service, Based on calculating the costs for each Customer by service, location, or other allocation method. location, or other allocation method.

Cost TypesCost Types include: include:

• Hardware

• Software

• People

• Vendor Services

• Space/Accommodations

Cost ElementsCost Elements provide detail on cost type provide detail on cost type

• Specific asset assignment (Hardware, Software, Office Space)

• Resource Utilization (Bandwidth, CDR, Kilowatt Hour, Number of Copies


Definitions - Cost CategoriesDefinitions - Cost Categories

Capital or Operational CostsCapital or Operational Costs are typically associated with the physical are typically associated with the physical assets that are required to run day-to day operations such as maintenance assets that are required to run day-to day operations such as maintenance and support staff costs.and support staff costs.

Direct CostsDirect Costs are costs that are attributable to a single customer or such as are costs that are attributable to a single customer or such as software used for a research project or PDA’s for sales personnel. software used for a research project or PDA’s for sales personnel.

Indirect CostsIndirect Costs are costs shared on behalf of many such as shared are costs shared on behalf of many such as shared bandwidth or technical resources.bandwidth or technical resources.

• Absorbed Indirect Costs can be metered. Examples include: power,

network utilization, and phone calls

• Unabsorbed Indirect Costs can not be metered. These are shared

services such as a network pipe, IT Salaries, or share facilities.



What are the drivers for today’s business requirements?

1. Cost Justification (technology refresh)

2. Cost Allocation (alignment w/business value)

3. Capacity Planning (SLA, QoS)

4. Cost Containment and Transparency


What is the ‘real’ situation for many today?

• Managing to stay in good graces of vendor accounts.

• Quarterly audits and spot checking after the fact

• In-house and homegrown chargeback systems

• Flexible and equitable financial chargeback processes that use;

1. Clear standard charging increments

2. Easily measured sources – metered, buffered, event-based, time-based

3. Well defined and easily explained cost models – not subject to interpretation

4. Costs unlinked to direct business processes – not transitory

5. Simple and inflexible pricing mechanisms


How can we all improve?• Increase throughput of our organizations*

All organizations can be measured by 3 financial things;1. Inventory

2. Operating Expense

3. Throughput

*Theory of constraints model - Dr. Eliyahu M. Goldratt -The Goal


How can we all improve?• Increase throughput of our organizations*

All organizations can be measured by 3 financial things;1. Inventory

Money invested in communications technology

2. Operating Expense

Money spent in converting Inventory into business enablers

3. Throughput

The SPEED of converting Inventory into business enablers

*Theory of constraints model - Dr. Eliyahu M. Goldratt -The Goal


Inventory• Communications inventories

are not ASSETS to your organization

Operating Expenses• All costs associated with

procuring, provisioning and enabling the use of inventory by the business.

Throughput• The speed at which Inventory

items are converted to use by the business

Inputs & Outputs: Email with

attachments Hardcopy & Faxes

Challenges: No complete view Manual intervention Tracking status Multiple copies of

same Data record Synchronization Data Integrity Manual Billing

TSScheduling

OO (Order Originator)

Customer

TSField Work

CUST Support

Close

App

WO folder

email

email withattached file(s)

data and workflow

data

workflow

direct interaction routinely required

notification

CUST Support

Materials

MaterialsAdjust

Cable Adjust

Vendor

Vendor

Database

OO/Customer

CUST Support

Cable Assign.

Custom App

Custom App

Custom App

Other Design Groups

Workflow - Voice Services

Example Workflow – Voice Service Delivery


How can we all improve throughput?• Eliminate bottlenecks

What creates bottlenecks?Leadership Skill Tools

Resources Behavioral Change Deployment

issues

People Process Technology

Financial tools that enable visibility of costs will increase your

business throughput if you take care not to create a model that

fails.


Why do efforts to improve financial chargeback models often fail?

1. System development and maintenance issues

2. Pushback on management metrics

3. Usage Misunderstood

4. Changes over time - lack of flexibility

Financial Management – Our Observations

ActivityActivity Common Assessment ObservationsCommon Assessment Observations

Production Production OperationsOperations

Incomplete insight into network and mobile assets prevents optimizationIncomplete insight into network and mobile assets prevents optimization Massive quantities of invoices prevent accurate validation Massive quantities of invoices prevent accurate validation Inability to automatically exchange information with other enterprise systems such as:Inability to automatically exchange information with other enterprise systems such as:

ReportingReporting

Insufficient tools prevent adequate financial analysis Insufficient tools prevent adequate financial analysis No correlation of procurement cost to operational use by service type or owner No correlation of procurement cost to operational use by service type or owner Incomplete information to help properly forecast budget requirementsIncomplete information to help properly forecast budget requirements

Financial SystemsFinancial Systems Support OperationsSupport Operations Human resources (HR)Human resources (HR) General ledger (GL)General ledger (GL) Accounts payable (AP)Accounts payable (AP) Billing receivables (BR)Billing receivables (BR) Accounts receivables (AR)Accounts receivables (AR) ProcurementProcurement

InventoryInventory FacilitiesFacilities Service deskService desk Telephony provisioning devicesTelephony provisioning devices Network provisioning devicesNetwork provisioning devices Carrier systemsCarrier systems Utilization of network servicesUtilization of network services

Telephony Data networks Printers Storage Power consumption

Cost vs. Profit Centers – Cost vs. Profit Centers – Our ObservationsOur Observations IT as a Cost Center

• Silos and stovepipes within IT

• Subject to cost cutting initiatives

• Lack of common processes, language, job titles,

skills, and tools

• Lack of transparency into IT costs

• Reactive to government regulation

• New technology – because it’s new

IT as a Profit CenterIT as a Profit Center

• IT management sees IT as a key to winning

• Deploys IT strategically to empower the business

• Seeks innovative IT solutions to stay ahead of the

competition

Transparency in IT – Our Observations

Business Requirements:

• Implement sound stewardship of the monetary

resources for the organization.

• Planning & execution of budgeting, accounting and

chargeback to the organization responsible for the

cost.

Common Observations:Common Observations:

• Lack of visibility

• Challenges with Audit Compliance (Sarbanes Oxley, OMB)

• Budgeting is based on last year +/- 3%

• C-Level Management can not determine why/where there

are cost fluctuations

• No way to correlate cost to revenue

• No SLA’s in place to account for high-maintenance

customers

Integration to the General LedgerIntegration to the General Ledger

• True chargeback to the responsible

account/party

Integration to Accounts PayableIntegration to Accounts Payable

• Lifecycle view of what is ‘going out the

door vs. what is coming in

Self-Service details for customersSelf-Service details for customers

• Employee Accountability

• 3-5% Savings across the board (per

Aberdeen)

The end result – Visibility and AccountabilityThe end result – Visibility and Accountability

About Today’s DiscussionAbout Today’s Discussion

Objectives of Financial ManagementObjectives of Financial Management

Why is this relevant today?Why is this relevant today?

Value of Best Practice FrameworksValue of Best Practice Frameworks

Cost ModelingCost Modeling

Business DriversBusiness Drivers

Improvement of Process ThroughputImprovement of Process Throughput

Eliminating BottlenecksEliminating Bottlenecks

Questions?Questions?

Service Management Service Management

Manage access, distribution, configuration and financial ownershipManage access, distribution, configuration and financial ownership

Operations Operations ManagementManagement

Streamline workflow, Streamline workflow, service delivery and service delivery and service support service support operationsoperations

Integration ManagementIntegration Management

Automate the exchange of data with other systemsAutomate the exchange of data with other systems

Financial Financial ManagementManagement

Track usage, automate Track usage, automate invoice processing, invoice processing,

charge back and charge back and optimization activitiesoptimization activities