The IT Financial Management Cost Transparency Journey

IT Financial
Management Journey
Ernst & Young Perspectives
ITFMA – Chicago, 2016
Pete Hidalgo & Shashank Aggarwal

Competitor analysis
Agenda
The ITFM Journey2
Client case study3
1 Current challenges
Q & A4

Current Challenges
Business executives want to clearly understand the IT organization’s value
and how it supports the business strategy
► Increase the value received from IT
► Make sure IT is supporting the business strategy
► Measure and manage IT appropriately
► Use IT to improve the business
► Develop a common language for communicating with
IT
► Make IT a part of the team
► Demonstrate the value IT provides to the business
► Secure the resources IT needs to deliver results
► Have a place at the executive table
► Have a common language for communicating with
business leaders
CEO/CFO
Senior Business
Leaders
CIO/
Senior IT Leaders
Stakeholders Stakeholder Priorities for IT

The EY IT Financial Management (ITFM)
Journey
EY’s ITFM journey provides a clear and easy to follow path to enable the delivery of cost
effective services to the business, improve transparency and increase satisfaction.
Step 1
Current state
assessment
Step 2
Service definition
Step 3
Unit service costing
Step 4
Metrics and reporting
Step 5
Chargeback model
Step 6
Bill of IT
 Transparency
 Cost efficiency
 Customer
satisfaction

Step 1
Current State
Assessment

Current State Assessment
You need to understand where you are before determining where you need
to go
Utilizing the EY ITFM framework as a reference
Current
State
Assessment
Data collection
Interviews
Maturity
Assessment
Gaps

EY IT Financial Management Framework
ITIL based, but also incorporates our view of leading practice

Cu
IT Financial Management Maturity Model
Used to determine where you are and where you want to be
Value High
DetailandComplexity
Low
High
1
Cost
Center
DefendingcostAddingvalue
2
Commodity
3
Utility
4
Advisor
5
Business
Partner
Current State
Target State

# Maturity Level Maturity Description
1 Cost Center
• IT organization has a very tactical focus
• Low interaction between Business and IT
• Costs are defined and allocated at a high-level (People, Software, Hardware, etc) based on
Revenues, FTEs
• Lack of cost transparency
2 Commodity
• IT works closely with the business but does not drive strategic initiatives
• IT costs are broken down into sub-categories (example: software & infrastructure costs)
• IT costs are aligned based on resources rather than consumption
• Business has little influence over IT costs
3 Utility
• IT works closely with the business but does not drive strategic initiatives
• IT costs are broken down into sub-categories (example: software & infrastructure costs)
• IT costs are aligned based consumption with SLAs in place
• Business has little influence over IT costs
4 Advisor
• IT advises the business on execution of strategic initiatives
• IT costs are reported at the business application/process level
• Business has a good understanding of its IT costs
• Business can influence IT costs by optimizing and rationalizing applications / processes
• Driver based planning
5 Business Partner
• IT is proactive in initiating strategic initiatives
• IT costs are service-based
• Business can influence its IT costs by managing its consumption of IT resources
• End-to-end view of financial data – from resources to services to applications
• Driver based planning
ITFM Maturity Model Criteria
Used to determine maturity levels

IT Service Catalog
Foundational element for all IT organizations
Benefits
1) Improved transparency
and customer
satisfaction
2) Demonstrates the value
of IT
3) Ease of service ordering
and interfacing with IT
4) Documents service
levels for each service
(SLAs)
5) Leads to more efficient
consumption of services
 Provides a single reference source for all IT services offered

What is a service catalog?
A communication tool to have a
productive dialogue with the business
about what services IT can deliver to
help make them successful
The foundation for any type of
allocation or chargeback process
An easy to use document to help
customers understand how to
request services, what the service
performance levels are, and what
they cost
A Service Catalog is… A Service Catalog is not…
a
X
Constrained by the current structure
of outsourcing service contracts
A detailed technical process list
that shows how to deliver IT services
A self-service portal for the
business
A leading practice framework for
defining services which can be
benchmarked
An IT Operating or Service Delivery
model.

The EY reference framework for structuring the
service catalog – focused on “The What”
The What
(Service Offering & Service Performance)
The How
(Service Delivery)
Service Portfolio
(Employee Enablement)
PC
Email
Telephony Technology
Service Tiers
SLA’s
Availability
Response Time
Tools
Infrastructure
Service Tier 2
(Silver)
Service Tier 3
(Bronze)
Service Tier 1
(Gold)
Delivery Model
(Logical grouping of services
offerings)
(Discrete services provided to a
customer )
(Specific capabilities or features that
constitutes a service)
(Service performance
expectations)
(Delivery of one service)
(Core technologies and tools to deliver service)
Services Service Performance
People
Processes

Service catalog evolution
“Don’t let perfect be the enemy of good”
1. Catalog includes improved
SLAs and unit service costs
2. Catalog includes tiered
services, resolution time SLAs,
and partial costs
3. Initial catalog includes basic
services, only response time
SLAs, not resolution times
Services are not defined or ad-
hoc definitions are in place with
few synergies
Maturity
Time
High
Low
1
2
3
4
No catalog
Basic services
and response
time SLAs
Tiered services
and resolution
time SLAs
Improved
SLAs and
unit service
costs
1
2
3
4

IT Service Costing Definition
► IT Service Costing (ITSC) is the process of calculating the
actual unit costs of providing IT services
Key Points
► Once actual unit service costs are determined they can be
compared to market rates to identify potential savings
opportunities
► One key goal for the IT organization is to have the cost of their
services be at or below external service providers
Dependencies
1) Services must be defined first
2) Must have good consumption data
3) Need cost data that is aligned with services
4) Effective chargeback implementation requires unit service costs

► Benchmarking
► Build vs. buy
► Internal & External
► Drives efficient
consumption
► Align demand to
capacity
► Customer focused
► Service oriented
► Visibility
► Consistency
► Accuracy
► Cost drivers
► Cost of service
ITSC – Benefits
Service based costing empowers executive decision making ability through
improved IT cost visibility
Aligns IT to
Business
Strategy
Performance
Management
Cost
Transparency
Allocations /
Chargeback
Cost
Management
Resource
Management

Others
►Cost per server
►Cost per
application
►Cost per GB of
disk storage
►Cost per help
desk call
►Cost per PC
►Cost per
telephone
►Etc.
Remote
Services
HR FIN
Others
Sales BI
Others
Hosting
Services
Application
Mgmt.
Telecom
Services
Others
►Helpdesk
►Server mgmt.
►Voice
►WAN/LAN
►Storage
►Etc.
Cost Drivers:
►Servers
►Storage
►Applications
►FTEs
►Etc.
Labor
Maintenance
Depreciation
IT Departments Services
Cost
Pools
Service
Costs
Consumption
Drivers
EY Service Costing Framework
Service Costing Framework
Translates IT department costs into service costs that are meaningful to
users/customers and enables benchmarking / savings identification
Linkage to
Chargeback
Service
Catalog
Usage Data

Data Quality
Cost and consumption data are BOTH required in order to calculate unit
service costs
► The EY data quality framework enables the assessment of both
cost and consumption data in order to:
► Identify gaps for improvement
► Determine readiness for chargeback
Inventory Weight
Data
Received
Score Inventory Weight
Data
Received
Score
Identity and End User Computing Number of PCs per BU 0.5 90% 0.45 Service Cost 0.5 100% 0.5 0.95 95%
Service Desk and support Number of incidents per BU 0.5 80% 0.4 Service Cost 0.5 85% 0.425 0.825 83%
Conferencing (video, webex)
Telepresence location per
building with usage by BUs
0.5 80% 0.4
Telepresence cost data by
locations or BU
0.5 85% 0.425 0.825 83%
Email & collaboration tools
Number of email accounts
per BU
0.5 100% 0.5
FTE/Agency workers information
supporting collaboration tools
0.5 85% 0.425 0.925 93%
Telephones
Number of
handsets/extensions per
business unit and their
consumption
0.5 95% 0.475
Cost incurred for the usage of the
extensions per BU
0.5 85% 0.425 0.9 90%
Network connectivity LAN/WAN site information 0.5 85% 0.425 Cost of circuits and networks 0.5 85% 0.425 0.85 85%
Mobility Number of Mobile Apps 0.5 25% 0.125 Service Cost 0.5 85% 0.425 0.55 55%
0 0% 0
FTE/Agency workers information
per BU
0.5 75% 0.375
- 0 0% 0
Cost of software provisioned for
PCs
0.5 75% 0.375
Infrastructure (DC & Connectivity)
Servers associated
applications and quantities
0.5 75% 0.375
Servers costs associates with
their usage and services
0.5 75% 0.375 0.75 75%
Infrastructure (Compute / Servers)
Storage associated servers
and quantities
0.5 75% 0.375
Storage costs associates with
their usage and services
0.5 75% 0.375 0.75 75%
Infrastructure (Storage & Back-Up)
Data Center associated
servers with applications
0.5 75% 0.375
Data Center costs associated
with hosting servers and
applications
0.5 75% 0.375 0.75 75%
Databases, JAVA, .NET, tools
Number of databases,
associated applications and
usage per BU
0.5 75% 0.375
FTE/Agency workers supporting
databases per BU
0.5 100% 0.5 0.875 88%
Integration
Applications supported for
integrations purposes and
the corresponding BUs
using those applications
0.5 100% 0.5
FTE/Agency numbers per BU for
developing/supporting/maintaining
the service
0.5 100% 0.5 1 100%
Number of sites and
locations
0 95% 0
FTE/Agency workers per BU for
service provided
0.5 40% 0.2
- 0 0% 0
Non-Labor costs (Software /
Infrastructure)
0.5 40% 0.2
NA 0 0% 0
service provided
0.5 100% 0.5
NA 0 0% 0
Non-Labor costs (Software /
Infrastructure)
0.5 85% 0.425
NA 0 0% 0
service provided
0.5 100% 0.5
0 0% 0 Non-Labor costs 0.5 100% 0.5
NA 0 0% 0
service provided
0.5 100% 0.5
0 0% 0 Non-Labor costs 0.5 100% 0.5
NA 0 0% 0
service provided
0.5 100% 0.5
0 0% 0 Non-Labor costs 0.5 100% 0.5
NA 0 0% 0
service provided
0.5 100% 0.5
0 0% 0 Non-Labor costs 0.5 100% 0.5
NA 0 0% 0
service provided
0.5 100% 0.5
0 0% 0 Non-Labor costs 0.5 100% 0.5
Organizational Data
Employee headcount by
BU/Country/Region across
the organization
0.5 100% 0.5 IT Organization/Services budgets 0.5 100% 0.5 1 100%
Site Information
Building data and BUs
associated with it
1 100% 1 0 100% 0 1 100%
1
100% 5%1
1
1
100%
100%
100%
100%
Category
Quality
Category
Weight
Overall Data
Quality
ADM 0.75 75%
81% 29%
Cost Data
83% 11%
82%
Total Weighted
Score
Data Item
Quality
100% 0%
13%
Projects
New projects requested from GIS by
the business
93% 42%
Local Support
On-site support for infrastructure and
applications
40%
93%
Service Name Service Cost Quantity
Consumption Data
Budgets
$ 275
$ 125
$ 400
$ 50
Service Category
$ -
Staffing
Enablement
0.4 40%
0.925
Application
Delivery &
Support
Foundational
Cost /
Consumption
Data
Security Risk Management 1 100%
Strategy, Architecture, & Governance
Industry and innovation
BI, Data warehouse
HR, Business Resources
Corporate
Services
$ 100
Data quality heat map
Data quality assessment tool

Metrics & Reporting
► Purpose
► Necessary for effective management and customer satisfaction
► “What gets measured gets done”
► Emphasis on quality over quantity
► Metrics
► KPIs
► Key Performance Indicators that are measured and reported internally to
manage services or processes
► SLAs
► Service Level Agreements, which are a formal commitment to a
predetermined and agreed to level of service between IT and the
business/customer
► Reporting
► Metrics - three levels: Business, executive, operational
► Usage - shows consumption of IT services by the business

Usage Reporting Example
Customers need to understand their consumption and costs in order to manage them
► Highest benefit and maturity level is to produce monthly for each service via
self-service on an automated platform
► Can be produced manually as an initial solution using Excel
Automated Example – ITFM Tool Manual Example - Excel

Why implement chargeback?
► To understand the true costs of providing IT services
► To educate IT customers on the value of the IT services
that are being provided
► As a tool to improve operating efficiencies and lower
costs
► To enable customers to manage their own consumption
of services and associated costs
-

Benefits of Implementing Chargeback
1) Reduce spend/costs
2) More effective IT spending
3) Improve demand & expense forecasting for the IT organization
and its customers
4) Key component of ITIL Financial Management

Chargeback Model Maturity Curve
Used to determine where you are and where you want to be
Implementation Time Long
Maturity
Short
High
1
Overhead
allocation
2
Flat fee
3
Consumption
based
4
Incentive
based
5
Service
based
6
External
pricing
7
Value based
pricing
Current State
Target State

Chargeback Model Definitions and Features
IT chargeback
methodology
Methodology description
1. Overhead allocation
2. Flat fee
4. Incentive based
5. Service based
6. External pricing
7. Value based pricing
3. Resource consumption
based
► IT costs are allocated to LOBs as a corporate overhead cost based on a simple driver not
directly related to resource consumption (e.g. revenue, asset balance, etc.)
► Fixed annual cost negotiated with BUs; normally based on a “crude” estimate of resource
consumption
► IT charges are manipulated to drive specific behavior (e.g., lower charges to influence use of
network or servers during off-peak times)
► IT service charges to BUs are based on consumption of specific activities; quality and
availability of services are explicitly defined, service “choice” provided for key products
► IT service fees are based on market (external) prices; products offered are comparable to
those available in the marketplace
► IT service fees are based on perceived value delivered to LOBs (e.g., business value
created, customer satisfaction, timely delivery of new financial products)
► IT costs are allocated based on specific unit of resource consumed (e.g., number of
dedicated servers, network ports, etc.)
CostAwareness
Cost
Measurement
Effort
Costsand
Complexity
CostManagement
Effort
0. No chargeback ► IT costs are not charged back
= Low = Medium = HighKEY:

The Chargeback Journey
Implementing chargeback is an evolutionary process vs. “big bang”
Usage
reporting
Showback
(Usage + $)
Chargeback
Time
Maturity

Automation
Frequency
Chargeback Automation and Frequency
To perform more frequent chargebacks increasing levels of automation are needed

Chargeback Data Requirements
To chargeback on a unit cost basis, unit consumption and cost data is needed
Datagranularity
Type of model

Guiding Principles
Consistency
Effort
Fairness
Transparency
► Are IT chargeback methods aligned with cost allocation and
profitability measurement used throughout the organization?
► How much effort (e.g., data collection, transformation,
calculation, reconciliation, and billing) is appropriate and is it in
keeping with the value provided?
► To what degree should chargeback be based on actual
consumption versus an estimated allocation?
► What costs should be included/excluded?
► What insight should customers have into how IT manages IT—
including which costs are fixed and which are variable?
► What behaviors, if any, should chargeback drive (e.g. reduced
consumption, investment in new products, incentives to move
users from old technologies, etc.)?
Influence
Chargeback guiding principles

Chargeback Models
Not one size fits all, and that’s okay
HighImplementation complexity
Low
High
Businessbenefitsandtransparency
Resource-
based
allocations
Differentiated
service levels
and pricing
1. Overhead
allocation
2. Flat fee
6. External
pricing
7. Value based
pricing
4. Incentive
based
3. Resource
consumption
based
5. Service based
Service
pricing
Resourced-Based Allocations distributes
costs through allocations or simple
consumption estimates
Service Pricing measures specific
consumption and drives behavior through
tiered services and prices (e.g. incentives for
off-peak usage)
Differentiated Service Levels and Pricing
reflects a more market-based approach to
cost recovery
High

Why automate?
► Improve unit service costing and benchmarking
accuracy, leading to lower costs
► Increase transparency into consumption and costs
► Needed to provide monthly reporting and chargeback –
manual models require large amounts of labor
► Provide self-service capabilities to customers, so that
they can understand and regulate their consumption
► More efficient than manual processes

Tool selection
► You should first consider if you are ready for a tool.
Some key points to keep in mind:
► Are services well defined?
► Are ITFM roles and processes defined and mature?
► Service consumption data ownership, availability, and quality
are key requirements
► There are multiple tools
available in the market, so you
should evaluate them based on
your specific requirements
using well defined criteria and
use cases
► You can use resources such as
Gartner as a guide

Client ITFM case study overview
This is one of many examples of the benefits of implementing ITFM processes
► Client objectives
► Create financial transparency for all products and services provided
by IT infrastructure services
► Continue to reduce infrastructure support costs, optimize
operations
► Achieve or exceed cost benchmarks in all elements of IT
Infrastructure Services
► Derive benefits from the previously purchased ITFM tool
► Results
► Developed a comprehensive end state architecture and two year
roadmap to success
► Identified $6M - $10M in initial savings
► Designed the chargeback model, roles, metrics, and processes to
provide additional transparency to the business
► Developed an implementation plan to operationalize their ITFM tool

Peter Hidalgo, Jr
ITFM Services Lead
Senior Manager
IT Transformation
Advisory Services
Ernst & Young LLP
5 Times Square
New York, NY 10036-6530,
United States of America
Pete.Hidalgo@ey.com
Mobile: 973-223-5616
Education
West Point - USMA
BS – Engineering
Columbia University
MBA
Certification(s)
PMP
ITIL Financial Management
► Senior Manager with over 20 years of experience in I.T. Financial Management, Telecom and I.T. infrastructure,
Cost Optimization, Program Management, and I.T. Shared Services Transformation.
► Deep industry experience in managing and optimizing I.T. costs. Previous responsibilities included serving as the
Global I.T. Financial Manager for a Fortune 100 company, where he managed an annual operating budget of over
$100 million. In that role he also developed and implemented an ITIL based service costing and chargeback
process, resulting in improved client satisfaction and major, recurring cost savings.
► Currently serves as the I.T. Financial Management Service Leader within Ernst & Young’s IT Advisory practice
Relevant experience
► Assisted a Fortune 50 global manufacturing client with redesigning their current IT allocation model and
processes for over $1 billion in annual spend
► Advised a Fortune 50 pharmaceutical client with improving their IT financial management processes, cost
transparency, data management, chargeback model redesign, service owner framework, and automation
► Advised and assisted a leading media and entertainment company to transform their IT operations into a shared
services model encompassing 11 major service domains. Also assisted in the development of a data center
strategy, a WAN architecture review, and a detailed IT service cost analysis, to include the development of a
service catalog, and a chargeback model.
► Assisted in an IT infrastructure (voice, data, and data center) strategic assessment and financial analysis for a
Fortune 500 corporation, which resulted in identifying the strategies to improve network and data center
performance and availability, in addition to saving $32M - $53M over three years in IT operating expenses.
► Supported an IT Cost Optimization study for the premium spirits and wine supplier in the U.S., which addressed
their telecom and infrastructure spend. Identified annual savings of 10% to 19%.
► Advised in the strategic assessment of the voice and data networks for a Fortune 500 high tech manufacturing
firm, which resulted in a new technology direction (VOIP) and Identified over $9M in annual savings.
► Assisted in performing an IT Operations strategic assessment for a Fortune 100 manufacturing corporation,
focusing on data center consolidation. Developed data center consolidation and disaster recovery strategies, in
addition to Identifying over $5M in annual savings.
► Advised a leading medical device manufacturing company in the evaluation of their outsourced infrastructure
service contracts, resulting in overall savings of $5M - $6M, or 35% - 45%.
► Assisted a Fortune 100 consumer staples company with the assessment of their wireless telecom services
contracts, resulting in overall savings of $6M - $9M, or 45% - 55%.

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The IT Financial Management Cost Transparency Journey

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