IT FINANCIAL SERVICES MANAGEMENT

PRESENTED TO: SIR OMMAR HAYAAT.

BY

MUHAMMAD SUHAIL ASLAM

AND SABIR AHMED.

MS-IT

BIZTEK KARACHI.

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FINANCIAL MANAGEMENTFOR AN IT SERVICE ORGANIZATION

AGENDARunning Internal Services Organizations like a businessRoles of Financial Management for Internal Services OrganizationsOverview of some leading financial management practices for Internal Service OrganizationsRecommended Next Steps

MANY INTERNAL SERVICE ORGANIZATIONS FACE SIMILAR CHALLENGES

External CompetitionExternal Competition – Customers perceptually benchmark them – Customers perceptually benchmark them against External Service Providers, creating external competition against External Service Providers, creating external competition and outsourcing pressures.and outsourcing pressures.

.

Operational EffectivenessOperational Effectiveness – They have historically been run as a – They have historically been run as a cost center with management emphasis on sticking to budget, cost center with management emphasis on sticking to budget, rather than service quality, reliability and cost effectiveness. Now rather than service quality, reliability and cost effectiveness. Now these things matter, and traditional competencies are insufficient.these things matter, and traditional competencies are insufficient.

Demand ManagementDemand Management – They are funded as a utility to provide – They are funded as a utility to provide lowest-common-denominator, “one size fits all” service. No ability lowest-common-denominator, “one size fits all” service. No ability to scale resources to demand. Demand perpetually exceeds to scale resources to demand. Demand perpetually exceeds supply.supply.

PP

QQ

SS

DD

Unclear Value Proposition Unclear Value Proposition – The value they deliver – The value they deliver to the business in relation to your costs cannot be demonstrated. to the business in relation to your costs cannot be demonstrated. Their customers assume the worst.Their customers assume the worst.

CFO ISSUES WITH ITWe often hear recurring and disturbing themes from our

clients that many CFOs think:

IT is a cost to be controlled and reduced.

IT investments are high risk, relative to other potential investments.

IT projects continually go wrong.

Too many business problems seem to have an IT-based solution.

IT organizations do not understand their costs, and their ability to conduct financial planning is poor.

There are large pockets of “hidden” IT spending

Other IT service providers can deliver value and control their costs better than an internal IT organization.

IT organizations have no clear idea about their efficiency relative to others and the market.

A partial list of issues / challenges facing Chief Financial Officers.

FUNDAMENTAL CYCLE OF TASKS WHEN RUNNING ANY BUSINESS: THESE ALSO APPLY TO SERVICES SUCH AS IT

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Deliver products, services

Update products, services based on changing customer needs and iterative understanding of customer satisfaction

Specify target market, understand customerconstituencies

Define and developproducts, services

Understand costs

Forecast demand

Price products/services (value-based, cost-plus,

competitive pricing)

Market, sell products, services

Deliver products, services

Update products, services based on changing customer needs and iterative understanding of customer satisfaction

Specify target market, understand customerconstituencies

Define and developproducts, services

Understand costs

Forecast demand

Price products/services (value-based, cost-plus,

competitive pricing)

Market, sell products, services

THE SERVICE-BASED IT ORGANIZATIONAL FRAMEWORK

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Process "Blue"

Process "Green"

Cust. 2

Cust. 3

Service B Outcome

Service C Outcome

Process "Red"

Cust. 1

Service A Outcome

Relation-ship Mgt Product

Management Delivery ManagementQuality

Assurance

Operations Management Capabilities

MeasurementProcess EngineeringProduct

DevelopmentSales, etc.

Operations Execution Capabilities

Service B

Service C

Service A

Process "Blue"

Process "Green"

Cust. 2

Cust. 3

Service B Outcome

Service C Outcome

Process "Red"

Cust. 1

Service A Outcome

Relation-ship Mgt Product

Management Delivery ManagementQuality

Assurance

Operations Management Capabilities

MeasurementProcess EngineeringProduct

DevelopmentSales, etc.

Operations Execution Capabilities

Service B

Service C

Service A

SERVICE FULFILLMENT: PROCESS, PEOPLE, STRUCTURE AND TOOLS

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Service Definition

Structure ToolsPeople Process

The Service Management Universe

Integrated Process TeamsServer Admin.

Network Mgmt.

Security Admin.

Help Desk

Desktop Support

Process Automation

Sample Processes: user ID/account maintenance; PC configuration, installation, maintenance; trouble shooting, first-level/just-in-time help

Service: Workplace Support

Service: Application HostingSample Processes: Change management, problem management, availability management

Integrated Process TeamsIntegrated Process TeamsServer Admin.

Network Mgmt.

Security Admin.

Help Desk

Desktop Support

Process AutomationProcess Automation

Sample Processes: user ID/account maintenance; PC config., install, maintenance; trouble shooting, first-level/just-in-time help

Service: Workplace Support

Service: Application Hosting

Sample Processes: firewall mgmt., database mgmt., production control, data center mgmt.

Integrated Process TeamsIntegrated Process TeamsServer Admin.Server Admin.

Network Mgmt.

Network Mgmt.

Security Admin.Security Admin.

Help DeskHelp Desk

Desktop SupportDesktop Support

Process AutomationProcess Automation

Sample Processes: user ID/account maintenance; PC config., install, maintenance; trouble shooting, first-level/just-in-time help

Service: Workplace Support

Service: Application Hosting

Sample Processes: firewall mgmt., database mgmt., production control, data center mgmt.

CONTRASTING TRADITIONAL IT VS. SERVICE-BASED IT ORGANIZATIONS

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The differences between a Tradition IT organization and a Service IT organization require vastly different behaviours, not only from IT, but also from its business customers as both groups learn new interaction styles.

IMPLICATIONS OF FINANCIAL MANAGEMENT FOR A SERVICE-BASED ORGANIZATION

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Cost Center “Guaranteed” funding Service is free Real costs of Service is

elusive Estimated budgeting

and forecasting Internal focus Compete with self and

peer organizations

“Value Center” “Self-funded” Service is not free Service Delivery

Organization has a financial statement

Accurate budgeting and forecasting required – costs are known

“Client” focus Compete with external

service providers

From To

CAPABILITIES NEEDED TO MANAGE A SERVICE ORGANIZATION

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CurrentCurrent

Needed

Skills Gap

Financial and Business Management

Demand Management

Process Management

Resource Management

Capabilities

Competitive Analysis * Financial Management * Product Development * Product/Service Bundling *

Pricing Strategies

Business Development * Relationship Management * Sales * Marketing * Communications * Market Research

Strategic Sourcing * Capability Management * Skills Management * Recruitment/Retention * Continuous

Development * Compensation/Rewards

Process Engineering * Measurement * Quality Assurance

THE STRATEGIC IT FINANCIAL MANAGEMENT MATURITY MODELEVOLUTION THROUGH FIVE STAGES

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Black Box

Glass Box

SimplePortfolio

ComprehensivePortfolio

EnterprisePortfolio

Increasing need for flexibility

1 2 3 4 5

Increasing need for sophistication

Increasing need for transparency

Stage 1: IM/IT spending is a “black box.” The budget is a single number. Business does not know how the budget is spent.

Stage 2: IM/IT spending is a “glass box.” The budget is still a lump sum allocated as the CIO sees fit, but business has some input.

Stage 3: IM/IT spending is a simple portfolio. The budget has two goals: Keep the lights on and invest in the business.

Stage 4: IM/IT spending is a comprehensive portfolio; IT is viewed as an investment portfolio. Stage 5: IM/IT spending is an enterprise portfolio; IT expenditures are business expenditures.

RUN, GROW AND TRANSFORM - GARTNER’S STANDARD DEFINITION

Transform

Run

Grow

Business Transformation

Grow the Business

Run the Business

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There are 3 basic categories in which IT assets and investments can provide value to the business.

IT spending to run the business includes the IT support of day-to-day operations – IT on IT improvements are also classified as run. Run the business activities are necessary to keep the core business functions operating. Emphasis: Protect business & efficiency

IT spending that is dedicated to “grow” the business activity supports organic business growth – this is typically fuelled by increased customer demand.Emphasis: ROI

This is IT spending that supports major business transformation. This can be IT replacing traditional business processes, supporting new lines of business, new products and services and new business models. Emphasis: ROI

IT on IT Optimization

Protecting Revenue

and Margin

SupportRevenue Growth

New Revenue

Regulation

IncomeGrowth

Spending Categories & Business Value

IT FINANCIAL MANAGEMENT MISSION AND ROLESTHE “PROCESS” OF IT FINANCIAL MANAGEMENT

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Source: OCG (http://www.itil.co.uk)

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There are many job tasks and competencies associated with IT financial management that vary from organization to organization. Not all IT financial managers are involved in all the activities discussed in this research. However, many IT financial managers perform the majority of these tasks. The main job functions of IT financial managers can be grouped into the following categories.

Financial Analysis

The financial analysis aspects of IT financial management may include:

• Post-implementation auditing of projects

• Financial modeling and what-if analysis

• Activity-based costing

• IT cost trend analysis

Source: How to Define IT Financial Management Competencies and Roles

IT Financial Management Mission and RolesThe “Roles” of IT Financial Management

Measurement

The measurement aspects of IT financial management may include:

• IT cost benchmarking and unit cost analysis

• IT value measurement (for example, the development of key performance indicators and balanced scorecards)

Financial Planning

The financial planning aspects of IT financial management may include:

• IT budget development

• Capital planning

• Break-even and ROI analysis for projects and initiatives

• Project prioritization

Financial Management

The financial management aspects of IT financial management may include:

• Development and implementation of service pricing and chargeback models

• Contract management

• Procurement

• Asset management

• IT cost reduction

FRAMEWORKS FOR TRACKING IT COSTS: YOU’LL NEED MORE THAN ONE

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Internal Staff 33%Hardware 21%Software 18%External Services 15%Telecom 12%Other 1%

The general ledger view

Costs associatedwith major

IT categories

Activity-based view

Disaster recovery Workplace services Data-center operations Sales Marketing

Costs of key activities or

services

Process-based view

Product launchCompliancetesting

Documentation development

IT costs of business processes

TCO IS MORE THAN JUST COSTS

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Definition

TCO is the holistic view of IT costs and issues across

enterprise boundaries over time.

Bill Kirwin, Gartner

Influencing factors Company specifications (industry, size $, region, end-user type) Asset Base (type, size, age, etc.) IT Environment Complexity (end user, hardware & software) IT Best Practices Deployment

Downtime

Hardware and Software

Operations

AdministrationEnd-User Operations

Five Key Elements to Gartner TCO

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Establish a basis for understanding the economic aspects of IT assets and their use.

Better understanding of how IT investments support — or don't support — enterprise business goals and processes.

Gain objective information on costs and savings opportunities in "right-sizing," internal resource allocation and alternate service delivery options.

Identify and implement strategies for improving operations and performance.

Gain comparative, competitive data against other world-class organizations.

Understand key metrics and measurements needed to better run IS operations and provide value back to the enterprise.

What Is the Point of Doing TCO?

ACTION PLAN

Work with the Service Delivery Organization to define services in business value terms, specifying:

What the services are, How they're bundled or packaged, and What benefits they deliver

Establish a Baseline of Current Spending – Distinguishing between:

Costs to run the operations (“Keeping the Lights On”) Projects (Discretionary Investment)

Establish Total Costs for Services Keeping this separate from funding

Help to manage Demand - Communicate results and resources consumed

Breaking the culture of ‘free services’

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