26 Costs Associated to ITIL Areas

ITIL26 Costs Associated to ITIL Areas

Please, forgive me if I tend to take some short tangents along the road, but hopefully you will see how all of our efforts and constructs will The many companion public and published publications regarding the definition, interfaces combine to a solid Cost analysis for an IT service and can be directly input into our and process links to the complete ITIL Service Delivery agreement.

Discipline library and infrastructure through companies like or organizations of EXIN, OGC, It should be mentioned here that my startCCTA, itSMF and others, will not be described to-finish methodology is not just for ITIL based here, but references will be made and process management organizations.

The highlighted as they relate to our new underlying concepts, approaches can be methodology approach of Cost definition and augmented and modified to any Process Cost transfer to our supporting User Management set of disciplines, with some Information (IS) groups via the SLA (service minor adjustments.

Level Agreement) process.

Therefore, I have assumed the reader has a familiarity and Finally for any questions, comments, working knowledge of the ITIL process suggestions, inspirations, please Email me at: management arena, or at least understands kendeore@att.net the importance of SLAs.

Finally, what I have tried to accomplish is to fill in a major piece to the ITIL Financial Management puzzle by directly correlating any IT Service (as a defined by a set of resources, technology, software and people-staffing) to what we now realistically see in the IT / IS arenas as industry best practice items.

This has always be the primarily problem with ITIL Financial (Cost) Management is the ability to implement a bubble-up approach of taking low level unit cost items and constructing a snapshot source financial cost analysis of: 1) Your Current IT Service costs and then… 2) Compute an equitable yearly User Unit Price value that can be directly used in our negotiations with users to bind the IT Service to the SLA for service delivery.

In order to accomplish this, we will walk through the sequence of building service catalogs, developing the input we need to Copyright © The Art of Service.

Page: 2 Kenneth J DeOre ITIL, CPCP, BP/TCO Thank You! Table of Contents 1 – ITIL® COSTING & FINANCIAL MANAGEMENT INTRODUCTION ………………………………………………………… 5 BACKGROUND ……………………………………………………………. 5 ITIL Financial Management Services ………………………… 5 Comparison: Old to New Thinking……………………………. 6 The Basic Concepts of Costs ……………………………………. 6 The New ITIL Financial Management Position…………… 7 Our Road Map Ahead ……………………………………………… 8 2 – ITIL COSTING BASICS (TOP DOWN) ……………………. 9 BACKGROUND ……………………………………………………………. 9 RELATIONSHIPS …………………………………………………………. 9 THE SERVICE CATALOG ……………………………………………… 9 Service Catalog Sections………………………………………….. 9 Critical Sections and Areas ………………………………………. 9 Service Administration ………………………………………….. 10 Operational Support Areas……………………………………… 10 Who Creates the Service Catalog? …………………………… 10 THE COSTING CATALOG …………………………………………… 10 Background ………………………………………………………….. 10 Cost Catalog Sections ……………………………………………. 11 Critical Sections ……………………………………………………. 12 Service Introduction………………………………………………. 12 Cost Summary and Detail Tables…………………………….. 12 User Unit Pricing Sub-section…………………………………. 12 Costing Allocation Matrix ……………………………………… 12 LOCATION OF THE CATALOGS …………………………………… 13 Usage of the Catalogs ……………………………………………. 13 SERVICE TO COST CATALOG ALIGNMENT ………………….. 13 Cost Catalog Operational CIs………………………………….. 13 ITIL Disciplines to our CI Values……………………………. 14 Important Considerations……………………………………….. 14 Summary ……………………………………………………………… 15 INPUT TO DEVELOPMENT OF ITIL COSTING CATALOG .. 16 3 – ITIL COSTING SEQUENCE …………………………………. 18 BACKGROUND ………………………………………………………….. 18 METHODS OF CAPTURING COSTS ………………………………. 18 Dynamic (or Real-Time) ………………………………………… 18 Sporadic (or Near-Time) ………………………………………… 18 Period Snapshot ……………………………………………………. 18 COST TRACKING & SERVICE MAPPING ………………………. 19 How much –vs- When……………………………………………. 19 Business to IT Service Mapping ……………………………… 19 TCO –vs- Productivity Grid……………………………………. 20 Raise TCO and Raise Productivity – An Example ……… 21 COST TYPES (CATEGORIES) IN USAGE ……………………….. 21 Regular / Fixed……………………………………………………… 21 Flexible or Load Demand Driven ……………………………. 21 Periodic – Technology Refresh……………………………….. 22 Copyright © The Art of Service.

Page: 3 Our Common Cost Areas (to be used) ………………………22 CCA Detail and for CIs…………………………………………..22 Users and Their Impact …………………………………………..22 USERS OF OUR SERVICES ……………………………………………23 Will They Be More Productive? ……………………………….23 Importance and Usage …………………………………………….23 Example of Defining Users ……………………………………..24 Compounding Affect of Users …………………………………24 Recommendation……………………………………………………25 COST ALLOCATION MATRIX ………………………………………26 Identify the IT Services …………………………………………..26 Understand the Service Relationships ……………………….26 Spotting Sub-Services …………………………………………….26 Costs Associated to ITIL Areas………………………………..27 SETTING UP THE ALLOCATION MATRIX………………………27 Cost Allocation Structure ………………………………………..27 The ITIL Percentage of Costs ………………………………….27 Comments About Training………………………………………28 Hardware and Hardware Refresh ……………………………..28 Technology Costs are Unique ………………………………….28 Monitoring of Old and New IT Services ……………………28 How Often Should it be Reviewed……………………………29 Executive Level Input and Involvement…………………….29 OUTSOURCING PART OF YOUR COSTS …………………………30 Impact on Cost Allocation Matrix…………………………….30 Agreements with Outside Providers………………………….30 Typical Outsourcing Cost Sequence …………………………30 Who Has The Accountability in Outsourcing?…………..31 Summary – Outsourcing Costs …………………………………31 DEVELOPING THE COST CATALOG SECTIONS ………………32 Requirements: A Costing Tool…………………………………32 A Word About Types of TCO Tools…………………………32 Using the Cost Allocation Matrix……………………………..33 Your at Completion (… Almost)………………………………33 Top to Bottom Approach to Costing …………………………33 AMORTIZATION FOR IT COSTS – A REALISTIC APPROACH ………………………………………………………………………………..34 Cost Assumption Tables………………………………………….34 Events That Will Increase Costs ……………………………34 Events That Will Decrease Costs …………………………..36 Application of Cost Matrix versus Cost Increases / Decreases Values……………………………………………………37 Summary of Increasing / Decreasing Costs………………..38 RECOMMENDED FIRST ANALYSIS APPROACH ………………39 Building your Cost Catalog Sections ………………………..39 Some Output Examples of Cost Tables……………………..39 Costing Catalog Documentation ………………………………41 Costing Catalog Documentation ………………………………42 Cost – Sanity Checking …………………………………………..42 Combining Costs in the Cost Catalog ……………………….42 User Unit Pricing……………………………………………………42 Final Thoughts on SLA Pricing Inputs………………………42 ITIL Cost Catalog Example …………………………………….43 4 – USER PRICING METHODS …………………………………..44 SOME CONCEPTS OF USAGE ………………………………………. 44 Necessary Requirements ………………………………………… 44 Methods of Calculation or Using the Yearly User Pricing Value…………………………………………………………………… 44 1 –Yearly User Pricing Method: ……………………………… 44 2 -High Resource Utilization Method: ……………………… 44 3 – Chargeback Specific Method:…………………………….. 45 4 – Level of Maturity Method: ………………………………… 45 5 – Server Based Method:……………………………………….. 45 6 – WEB and/or e-Commerce Hosting: …………………….. 45 Summary ……………………………………………………………… 45 CALCULATING A YEARLY UNIT USER PRICE ………………. 47 ITIL Major Areas are Encompassed ………………………… 47 Calculating the Yearly Unit Cost Value……………………. 47 Annual Charge-Back Value ……………………………………. 48 Balanced Charge-back to User Charge …………………….. 48 NEW USERS AND THEIR IMPACT ………………………………… 49 Differences of Real time Technology ………………………. 49 Downtime and Availability …………………………………….. 49 Who Provides the Number(s)………………………………….. 50 How New Users Will Affect Costs ………………………….. 50 New User Populations – Implementation………………….. 51 Reasonable & Realistic Population………………………….. 51 Other Implementation Population Types ………………….. 51 Note on Extending the Enterprise ……………………………. 52 Cost Catalog Time Estimates ………………………………….. 52 5 – HANDLING NON-ORDINARY COSTS…………………… 53 COST CATALOG SUB-SERVICES ………………………………….. 53 Structure of Sub-Services in Costing Catalog……………. 53 Straight-Line Percentage Approach …………………………. 53 Weighted Percentage Approach………………………………. 53 Justifying your Approach……………………………………….. 54 Per-User Service Pricing………………………………………… 54 Calculating Sub-Service Pricing ……………………………… 55 6 – SUMMARY……………………………………………………………. 56 IDENTIFICATION ………………………………………………………. 56 ALLOCATION OF COSTS…………………………………………….. 56 AGREEMENT AND JUSTIFICATION ………………………………. 56 SANITY CHECKING …………………………………………………… 56 UNIT PER USER PRICING …………………………………………… 56 COSTS –VS- ROI TYPE METRICS ……………………………….. 56 Usage of ROI ……………………………………………………….. 57 Usage of NPV ………………………………………………………. 57 Usage of IRR………………………………………………………… 57 REVIEW AND ADJUST………………………………………………… 58 APPENDIX – A…………………………………………………………… 59 SERVICE CATALOG AREAS ALIGNED TO COST CATALOG AREAS & ITIL DISCIPLINES………………………………………. 59 APPENDIX-B: ……………………………………………………………. 61 Copyright © The Art of Service.

Page: 4 SAMPLE COST CATALOG ……………………………………………61 1 – ITIL® Costing & Financial Management Introduction business unit which is not only customer-led but also accountable and forward looking. 1” All businesses must perform some form of costing – i.e.

Determining the true cost of providing the IT services. ITIL Financial Management Services Charging, the recovery of costs from users on an equitable basis is a business decision.

Charging for IT services can prove to be an emotive issue and difficult to implement in a fashion acceptable to all parties.

However you can eliminate the emotion of determining the important costs by doing an objective and fair assessment of chargeback costs.

With this in mind, I always remember the quote: Background Welcome to the restructured approach of defining the new ITIL Financial Management discipline, its methodology and its usage in actual IT / IS organizations. (Remember the term IS – its stands for Information Systems, or the actual users of services that are deployed over time by your IT department.) Yes, we’ve heard a lot about the general “IT to Business Alignment (IS)” paradigm shift and its affect on the entire IT canvas.

But this paper is not specifically about this global area. “Most business people are so busy coping with immediate and piecemeal matters that there is a lamentable tendency to let the long run or future take care of itself.

We often are so busy putting out fires, so to speak, that we find it difficult to do the planning that would prevent those fires from occurring.

Most of us spend so much time on things that are urgent that we have none left to spend on those that are important.” (Gustav Metzman) But in simple terms, it’s about how the ITIL disciplines and methods can be used to capture, collect, analyze costs and how to associate those costs to specific ITIL areas for any IT service deployment.

Its’ charter is stated below: “The use of financial management lays the foundation for running IT services as a The urgency is always about fighting, maintaining or decreasing costs while providing consistent service delivery and support, but what is important is the ability to determine those costs related to one or more IT services costs and associate them into the ITIL infrastructure of common disciplines.

Doing this in the first place saves time to tackle the important issues we will be discussing further on in this paper.

Therefore what I am going to introduce and propose is a new methodology for collecting, validating, documenting and tracking costs for 1 – CCTA: Central Computer and Telecommunications Agency (part of the UK Treasury Ministry) Site: www.ccta.gov.uk/ Copyright © The Art of Service.

Page: 5 any given IT service that will be deployed and support its service capability.

Building on that foundation, we will discuss and show how we can easily develop a User Unit Price value for each of your services, using the ITIL methods and configuration items (CIs).

This will be used for charge-back requirements or internal credits to your IT department. above the Service Delivery line and therefore has very little influence in the Service Support side of the ITIL infrastructure.

This is highly incorrect With the new re-structuring of the ITIL disciplines we now see the Cost Management discipline not only renamed to Financial Management, but truly expanded to include both service delivery and service support.

And rightly so, because it touches almost every area in the ITIL process methodology we need interlinked.

One of the important pieces that was always missing was a clear understanding of the cost metrics (or per unit price) for some of the important ITIL configuration items.

Once these were established, and linked to their common cost areas, then we could reasonably start to associate true tangible costs to an IT service.

And this is exactly where many organizations, company’s and consulting groups have concentrated their efforts either by using TCO methods and expanding those to both TCO & ROI capabilities. Comparison: Old to New Thinking First, a helpful review is helpful and necessary.

Historically in the following diagram, this is where the ITIL Financial Management (the old Cost Management area) was positioned within the ITIL discipline areas.

The following diagram is a common ITIL icon graphic, which shows the interrelationship of the ITIL IT –to- IS areas.

I’ve seen it so many times, I can almost drawn it from memory. The Basic Concepts of Costs Over the past three years we’ve have been caught in the trap between true IT Costs of an IT service, TCO and finally ROI.

Let me try and put these into some perspective.

First, the true Costs of an IT service spread over a period of time is really what we are seeking.

A TCO (Total Cost of Ownership) is basically the same result but is a snapshot in time but oftentimes lacks any interrelationship with our ITIL areas of concern.

Both the Cost of an IT Service and a TCO of that same service imply that we have already established the requirement for the service.

Someone has My point here is that the Cost Management area within the old ITIL structure is positioned Copyright © The Art of Service.

Page: 6 already made the decision that it is necessary and should be deployed.

Lastly, let’s bring in ROI.

ROI (or Return on Investment) is a measure (in percentage of costs spent) of how much payback we will receive in deploying our IT service at any point in time.

It is used primarily to justify that the IT service is viable financially.

I will say this now and again, that this ITIL Costing Methodology is not about ROI – but about developing a costing method that will work with any IT service and that can be reused over again.. The New ITIL Financial Management Position In the diagram ( IT Service ManagementProcess Model ), we now have a much better and clearer relationship understanding of how the Financial Management area is fully incorporated under ITIL.

The financial management area, including costing, is both an integral element of both Service Delivery and Service Support.

Costs are no longer just burdened by IT but now can be spread across (or charged back between both IT and IS user groups).

Now Financial Management clearly sits in the middle of the process flow is not just associated with Service Delivery.

Now we have full picture of the importance of ITIL Financial Management.

Understandably, they have been several ITIL areas we have glossed over, but one concept is important to remember in our efforts.

It could be place onto a stone tablet for our IT Best Practices, but it’s stated simply as: “ If you can’t measure it, then you can’t mange it.” Orignal Author Unknown. It a simple measure of costs, given the ITIL arena of disciplines that can be used for any simple or complex IT service and TCO is a significant but not the main portion of our picture.

So, a lot more information and detail will follow to reinforce this concept. Part of this concept goes to the heart of Customer Relationship Management in the ITIL process flow.

Our customers are both internal user groups and outside supplies, channel partners and re-sellers of our products.

Clearly they can’t do this without some direct involvement with the Financial Management area, because it has its links into overlapping areas of both Service Delivery and Service Support and the ability to measure each.

As an example, our Help Desk / Service Desk is in the Service Support area, but Monitoring and providing current Technology Copyright © The Art of Service. Page: 7 equipment and value is in the Service Delivery side.

Therefore, to show this in a slightly new form, I have included a graphic (see below) which shows this view from the IT Customer affect our IT services over the course of our analysis period.

We will put this all together and build a sample Costing Catalog then extend its value by describing the Yearly Unit Pricing value.

Finally, we will describe how to handle non- Relationship Management position.

So now, we need to put some substance behind our new method of costing in these important area. — The Costs of necessary Servers, Disk storage (SAN or NAS) arrays, Fail-over hardware, Switches, Hubs, Routers, PC Work stations, Cabling, Fiber Connectivity..

Etc If any Software packages, components, or upgrades are not already included in either Monitoring or Engineering, then their costs should be stated in this Category, otherwise it is optional.

The cost of any incremental upgrades or replacement / refresh of Technology area items that will increase value, serviceability, reliability and possibility decrease overall IT costs for service delivery.

Provide internal user training or educational services.

Provide or contract for outside consulting training or educational services.

Provide desktop CBT services.

Provide off-site training sessions.

Develop training materials Use Train-the-Trainer techniques Implement self-managed User group Training Engineering Software Technology Upgrade or Refresh Install & Customize Software Maintain Connectivity Track and Resolve Security Issues Install and Configure Hardware Develop Measurements Techniques Provide Capacity Planning Prepare Budgets Develop, Negotiate & Reporting SLAs Provide Continuity Planning Prepare Service Catalogues Engineer Disaster Recovery Systems Test Disaster Recovery Systems Perform Maintenance of the Configuration Database Identifying Configuration Items Test Changes (Quality Control) Personnel / Labor costs ITIL Disciplines to our CI Values From the above table, we purposely avoided using the exact ITIL Discipline categories (as column-1 terms) since they are too vague and too high level.

We need to crawl underneath and get to their CI values.

But I think you will agree that in examining the CI values in column-2, we can immediately assign them into ITIL areas but more importantly easily assign cost values to each.

This is a key point! Others are mentioned below. Training Important Considerations First, the items in column-1 color coded in red, are considered as your mandatory minimum set.

The areas in black are optional, but highly desirable and recommended.

Also each of the CI areas in column-2 should have a metric cost value across an annualized period, Copyright © The Art of Service. Page: 14 for at least the initial year, called your base year.

You can therefore spread (amortize) these costs across the period of your choice, either 3, 4 or 5 years. (3-years is recommended.) In order to amortize these values, we will need to know some basic facts: 1.

Are there any major factors in our IT service that may influence how costs are incurred and when? 2.

If so, then what’s the percentage of increase or decrease anticipated in each major category based on these influencing factors.

For example, we can anticipate that our Help Desk costs will increase (due to adding staff and equipment) if the number of users we are supporting increases in future years due to call-in volume.

So, the number of supported (application or outside) users is a major factor.

But our Monitoring category costs may (or could) remain constant or even decrease over the same time period. A Single ITIL Costing Area Single CI Metric “Provide Physical and Logical Security Protection “ •Has a cost value •Can be measured •Part of an ITIL Discipline — Granted, this is an assumption – but this is where you start building a bridge (communication dialog) with your User Groups and Business units.

I can always adjust these values later and re-run my Costing Model, if necessary.

So the total (sum) number of users = 21,000 are spread out across three (fiscal) years, but there is a queuing effect (see Compounding) of adding these users each year.

One must be careful not to assume this is a pure lineal progression.

The concept of Queuing Theory, Single-Server and Multiple-Server Queuing with respect to response / service times in your Help Desk area, is not addressed here and beyond the scope of the White Paper.

So we will continue with our example. Copyright © The Art of Service. Page: 24 Recommendation Key Point If you have to make a (hopefully educated) choice on these values, then it’s best to go slightly on the high side.

Why? Because in your Costing model if you miscalculate on a lower number of yearly users, then you may end up spending more in your Technology Refresh area to take up the demand, if more users need to be supported.

Conversely, if you estimate high, and a lower amount is supported, you can save (at least on paper) any Technology upgrade costs. Note: Some additional comments are described in the sub-section New Users and their Impact in the section: 4-New User Pricing Methods.

If you are only are asked to financially develop a cost analysis for one IT service based on you’re an input Service Catalog, then you may skip the next Cost Allocation Matrix description.

However, you should be familiar with its concept if future IT services will be implemented and supported within your ITIL areas.

If this is the case, then be aware that additional IT Services will require an increased load on your Cost Allocation categories and force you to re-develop your table values Now, let’s start building our Cost Catalog.

We start by defining our IT services and their Common Cost Area (CCA) percentages.

This is called a Cost Allocation Matrix. Copyright © The Art of Service. Page: 25 Cost Allocation Matrix For example, Data Warehousing and Email are both considered IT services, because they At this point we are ready to develop a Cost play a part in your organization’s IT support Allocation Matrix or table.

The purpose of this charter.

SAN can also be considered an IT matrix is to identify and verify how ITIL Cost service and indeed both Email and your Data areas should be spread across either a single Warehousing services would make use of your or multiple IT services and placed into our Cost SAN fabric for their disk storage needs.

Catalog.

The steps involved are shown below Therefore one could safely point to your SAN along with a sample table: service as a crucial business impact service if disabled even for a short Remote Data Branch period of time.

LAN Email Warehouse SAN Office NAS These type of Service Service Service Service Service discoveries ITIL Totals are usually by ITIL the output Costing Area result of a Areas 30% 30% 10% 5% Help Desk 25% 100% D/R business impact 10% 10% 10% 60% Monitoring 10% 100% analysis 20% 20% 10% 20% Engineering 30% 100% assessment (BIA). 10% 60% 5% 5% 20% Training 100% Therefore Yes Yes Yes Yes Hardware Yes there is a unique set of Hardware relationships Yes No No Yes Yes Refresh to our combined set Cost Allocation Matrix of IT services in our Matrix table. Identify the IT Services Identify what IT Services will be part of a implementation or rollout program.

They do not have to be new services, but may already exist and are now being made available to your User community (sometimes call LOBs – Line of Business) or finally officially documented for your IT department.

It is helpful at this point to be global in identification of your IT Services. Understand the Service Relationships Interrelationships within services will occur.

You will find that one service may rely or directly depend upon another service or multiple services.

For example, it would be hard to rollout an Email service for a department if your LAN service is not deployed and available.

But from a costing viewpoint, you have to decide what portion of a common service is used by other services.

This is because you only want to state the cost once and not duplicate it in again in another service.

It’s ok to have a break-down or percentage of costs, which is where the Matrix is used — Copyright © The Art of Service.

Page: 26 Spotting Sub-Services Within a defined IT service, you may find what is called sub-services.

These are defined in both your Service and your Cost Catalogs.

For example, maybe operationally in your SAN service you also provide the capability of Backup & Recovery of disk data.

Ideally, this would be a logical extension to your overall SAN capability.

In this way, users (obtaining storage from your SAN pool) would not have the burden of doing their own backups.

That functionality would be provided inside of your SAN and is called a sub-service.

Costing for sub-services is common and is discussed fully in the section Handling of Non- Ordinary Costs. The ITIL Percentage of Costs After we get agreement on the ITIL Cost areas and how they should be allocated, we can populate our table with the percentage values.

Note: Each ITIL Costing Area percentages must add up to 100% across your services.

This is probably where you are going to spend 50% of your time, is in getting the percentages close to what is expected.

Also, having historical or previous time spent charts would be a good starting point.

Make sure you have agreement from your IT executive staff on these percentages before proceeding!! The Matrix itself is for your reference and usage when you start cataloging the specific costs.

In the examples we are using: • • • • Help Desk Monitoring Engineering Training Costs Associated to ITIL Areas The last part of the Allocation Matrix is assigning a percentage value to ITIL functional cost area across all of your services.

If you only have one defined service, then each ITIL area would be allocated 100%.

If you had two IT Services A and B, for example, then you need to decide what percentage allocation seems feasible before you start listing the costs.

You want to avoid the mistake of having both services A and B use 100% of your Help Desk ITIL area.

If it won’t work in real life, it won’t work in Service Costing. Setting Up the Allocation Matrix As an example, I have included a Cost Allocation Matrix on the previous page.

Inside the table I have listed my IT Services on the top row and listed my ITIL Cost Areas on the left side.

Since we have already defined the components or configuration items (CIs) inside of the ITIL Cost Areas, we know what is included. Cost Allocation Structure In my example, I have five IT Services listed.

Some may already be implemented (deployed) and others may be in the early stages of rollout.

Note here, that as I create/define new IT services, I will need to go back and update my Matrix table.

Also in my table I have the additional two areas called: Hardware and Hardware Refresh.

I will explain these later.

I have already defined the Software components inside of the Engineering area. (I could have a separate lineitem called: Software in my Matrix table). This is the minimum or basic set..

You can add others, if necessary.

Each one of these areas is called a Common Cost Area (CCA).

In our example, if our total cost for supporting and delivering a Help Desk function is $10 million dollars (which includes salaries, labor and materials), then we would expect to spend $6 million dollars (or 60%) to utilize my Help Desk to support my LAN and Remote Email services combined.

This could be very reasonable since I may have 300 or more people in my Help Desk area needed to support my user population for those services.

Notice also that I am only allocating 5% of my Help Desk costs to my SAN service.

Again, this could be reasonable since the number of incident calls (from my users) handled directly by the Help Desk specifically for SAN problems is likely to be minimal.

My backend users probably don’t realize they are using storage from a SAN fabric.

Therefore any problems Copyright © The Art of Service. Page: 27 with my SAN would be noticed and handled first by my Monitoring and Engineering groups. — Technology Optional SubServices Technology Refresh Software Your at Completion (… Almost) When you completed all the ITIL Cost Areas, then run your report and produce the Cost Summary table and the individual Cost Detail tables.

See Block Diagram below a top-down view: However, you may need to go back and modify your cost percentages, based on either current or envisioned (possible) circumstances.

See the next section for specific detail: Amortization for IT Costs – Realistic. Top to Bottom Approach to Costing Examine the block flow for the Cost Catalog Sequence of input sections.

Remember this is just a template.

You may include other major categories, as long as, their associated costs are not duplicated in any other area and are consistent with the ITIL areas we have defined. Copyright © The Art of Service. Page: 33 Amortization for IT Costs – A Realistic Approach All of the ITIL categories shown above, plus any new categories you include, will be amortized across the period you specify in your TCO tool of usage (unless you specify just one year).

This means that given your payback period and percentage, the principal payment values will increase but the percentage payment values will decrease over the period you indicate, by default.

If we use three years, then both the primary payments and percentage payments will be become zero at the end of three years due to the sliding amortization scale, ergo – your loan is paid in full.

However, we have seen examples previously where a yearly expected value might increase or remain constant instead of showing a decrease.

How does one know which category will impacted and what percentage should be expected? OK – first, we are dealing with “What Ifs”, which oftentimes become “It’s Happening Now” in real life circumstances.

IT expenses are not in the same category as automobile or mortgage loans.

Second, remember we are not paying for a simple car or real-estate mortgage loan, but a continuous ongoing cost of service sustainability in Service Management as long as we have a single LOB user group requiring our support for Service Delivery and Management.

Key Point Remember that our ITIL measured IT Service Cost method is really a snapshot in time of our total costs (TCO) for a span of x number years for an ongoing service.

Therefore because of reasons discussed before, our percentage of costs will be variable, but predicable within the following Cost Assumption Tables. Cost Assumption Tables The following two tables are provided to enable us to spot which events and area categories will be impacted, by a cost increase or decrease, based upon a given event.

It by no means attempts to define all of the events, but provides a reasonable set of guidelines (or Best Practice values) of how to adjust your yearly cost percentage values based on our amortization schedule. Events That Will Increase Costs The following major areas are generally the type of occurrences that will increase your yearly total amount by the percentage amount or range: • Increase in User Supported Population: The annual incremental or quarterly total number of supported LOB users expected for each year.

Impacts: Help Desk and Engineering areas. (+5-10%) Infrastructure Upgrades: The accelerated cost of upgrading or refreshing our technology infrastructure (Servers, Storage, SAN, Network components, Tapes, etc).

Impacts: Engineering and Monitoring. (+5%) Staff Increases: The additional number of technical staff positions required to support both the technically refresh and/or number of accelerated user demand.

Impacts: Service Desk, Monitoring and Engineering. (+25-40%) Training: How many IT and LOB users need to be trained.

Plus who will be conducting the training – either internal staff (good) our outside vendors (costly).

Impacts all areas. (+15-25%) Security: Since I am located in the Atlanta, US area, the effects of 9/11 has been seared into our minds.

But, the entire world is not immune from terror threats, as we have unfortunately seen many times over. • — • • Therefore the cost of increased Security awareness including software / hardware technology measures (monitoring) in the security of people, data, and its access has prompted enormous incremental costs of improvements to mitigate against company terror / security threats. (+ 30%).

Business Continuity: No surprise here.

It’s the continued cost of maintaining your company’s continuation of business in the face of a disaster (of any type).

Conducting BIA (Business Impact Assessments) and Risk Assessments (RA) on a regular basis will increase your IT and LOB costs to maintain a constant mitigation against disruptions.

This will impact Engineering and Monitoring areas. (+15-20%).

New Regulatory Requirements: Each country’s, region or market segment must respond to the current regulatory acts and mandated requirements, which usually falls upon their respective IT staffs to assure compliance.

This single item has the potential of dramatically increasing any of our major categories.

The value could be: (+35%) depending upon amount of enforcement and effort.

Impact of this will be across all areas.

The following graph, started in 2003 is • • provided to emphasize this is an area that should not be ignored, regardless of your international, geographical or political regulations in each diverse area. (The graphic is used with permission of the Enterprise Storage Group Compliance Study, Inc Management of the Life of Data: This new emerging area, called Information Lifecycle Management is now in full blossom, and is partly dependant upon the regulatory requirement concerns.

Impact will be in the Training (users), Monitoring and Engineering.

This is being driven by cost of storage and the retention of critical data and files, therefore a conservative estimate would be in the range: (+20-35%) Budgetary: Last but least, the impact of IT (and LOB) budgets being reduced is an impact.

However the importance of maintaining productivity is still of major importance.

Obviously, this is called doing more with less… (+15-20%).

Realistically, this is an accurate range because even though budgetary costs are capped, the cost of doing business and maintaining productivity is still required.

Therefore all ITIL areas will be impacted. Copyright © The Art of Service. Page: 35 Events That Will Decrease Costs The following major areas are generally the type of occurrences that will decrease your yearly total amount by the percentage amount or range: • Infrastructure Upgrades: Yes, it is mentioned here as well as in the Increasing cost section.

Upgrading your infrastructure will over time decrease your overall costs assuming you can negotiate with your vendor(s) for the best rollout price.

This will benefit all of your areas. (10 to 15%) Consolidation: By consolidation of your Storage, Server, Switches, Hubs, Routers, SAN, NAS, Network infrastructure and other items (such as Software), you can anticipate an estimated (-20 to 30%).

In general, all of your ITIL areas will benefit from these savings.

Standardize Your Vendors: Vendors will be more receptive to pricing discounts for both Hardware and Software when they know your want them to be long term partners in your IT support.

Note, I am not saying that you should just use one vendor, but rather examine multiple vendors who offer your IT service the best overall pricing and service.

You can realize a decrease (-25 to 35%) on your IT costs.

Again, depending upon your vendors, all of your ITIL areas will benefit.

Transform IT into a Bus Centric Model: From an IT perspective, educate your staff that they are directly supporting your IS (application) groups, who in turn, may be supporting outside suppliers and distributors, who in turn, sell your products.

Foster the concept of partnership in sharing costs and support.

For example, we are seeing Page: 36 • • • • • more situations where a large IT supported SAN structures (over 15 Terabytes) exist, but the outside or edge (IS) Servers are owned, supported and maintained by the LOB users.

This allows IT and IS to share not only the costs but also the burden of the total Service Management arena.

Help Desk, Engineering and Monitoring areas are equally staffed by IT and LOB personnel.

The benefit of this partnership to IT far exceeds the perceived loss of control of what was considered historically as an IT protected domain.

Depending upon its implementation and how much sharing of costs are distributed, a (25 to 35%) decrease can be realized for IT in our specific service TCO.

Tune-up Your Existing ITIL Process Management Areas: In many circumstances your Help Desk, Service, Capacity, Change, Delivery Management areas, etc.

Can be examined for some improvements and elimination of wasteful, time consuming tasks.

Even a small change can make a large impact in assuring adequate service delivery and maintaining SLA provisions.

You can realize a (-15 to 25%) within your IT costs.

Staff Reductions: Ok, lets be honest here.

Cutting staff reduces costs.

Painful as it may seem, companies continue to eliminate jobs almost on a quarterly basis. (In past circumstances, even I have been the victim of this occurrence.) Is your job in IT more at risk then other areas in your company or in your market segment? To fully answer that question would be beyond the scope of this white paper.

But we could use a conservative value of (10 to 15%) decrease in your IT costs in our major categories. Copyright © The Art of Service. — Recommended First Analysis Approach Now run (execute) your TCO cost model using the application of support percentages mentioned above.

Review your output yourself (what I call: sanity checking), then review with your IT Sr.

Staff up to your CIO.

At this point you need to query whether there are any expected or anticipated events that would cause a predicable percentage change, based on the areas described above.

If so, rerun your model analysis using the acceptable value (either up or down) for those years indicated.

Then re-do your cost analysis calculation and schedule your final review. Costing Approach.

The diagrams, on the next pages shows a combination of this information, including a portion of the detail Costing Tables.

Notice that in our example tables, we included Software and Technology Refresh as top level costs.

The Software cost had to be included since it was new and not part of any other major ITIL Cost Area.

Key Point (Note: This is where the importance of the Service Catalog comes into play.

The Service Catalog is our reference to whether we have software or hardware costs encapsulated in one of the other CCA’s or as a separate cost area.

This is why the Service and Cost Catalogs are bonded together.

In addition, the Service Catalog will document any sub-services for this major IT service.

This is important and is discussed in the next sections.) Note, the Service Catalog, normally does not have lower level Configuration Items, which we use in this paper as Cost Items, but only major CCA (Cost Category Areas) – Help Desk, Monitoring, Engineering… etc, as examples. Building your Cost Catalog Sections Finally, document your input values, recommendations and suggestions from your IT and CIO / CFO staff as part of your Cost Catalog document – and build your first report output metric report. Some Output Examples of Cost Tables Your Cost Summary area should contain all of your Common Cost Areas (ITIL Areas) spread across your analysis period (e.g.

Three years).

Your Cost Detail tables contain the itemized costs for each CI in that specific Cost Area.

We commonly refer to this as our Top-to-Bottom Copyright © The Art of Service.

Page: 39 Cost Matrix Association Cost Summary Table Examples I have extracted some table diagrams from the example Cost Catalog included in Appendix-B for clarity.

These two tables, are linked together: The Matrix and Cost Summary tables are the starting points of our cost drilltop (top-down) approach.

The Cost Allocation Matrix table is our starting point of our analysis as to how we developed our assumptions made in our subsequent summary and costing detail tables.

Note in this example, we have assumed that the SAN IT service is the main focus for Service Delivery, since both the Email and Data Warehouse services do not require our immediate support – they may have their own collaborated LOB support teams.

But the point here is that we know this upfront and state it clearly. Cost Summary The Cost Summary table is our starting point for defining the initial amortized costs for our analysis period, in this case – three years.

Note in this example, we have assumed that the SAN IT service is the main focus for Service Delivery, since both the Email and Data Warehouse services do not have previously defined percentages of cost data (or cost support values). Copyright © The Art of Service. Page: 40 Cost Percentage to Cost Detail Table Examples — Help Desk and Engineering support for daily problems.

Costing and Charge-back for this implementation would involve only the above two areas, but are based on a per server charge.

Co-Located Servers: A User Group has purchased, installed and is running a Server based set of applications inside (Co-Located) a common IT managed site.

The User Group still owns the Server and associated application costs, but now needs Help Desk and Engineering support for daily problems.

The IT department can provide those services in addition to the environmental considerations (security, HVAC, space, rental, etc.).

Costing and Charge-back for this implementation would involve the server charge but the underlying costs would include the ITIL support areas including physical site protection costs. 3 – Chargeback Specific Method: Determine the pricing of each IT service based upon the specific user group’s capability to either: 1) – Derive savings from previous years expenditures (costs) – i.e.

A user group can do more with fewer resources and has demonstrated a cost savings from the previous FY. 2) – Develop the ability of the user group to generate increased revenue and profit from a previous FY. 4 – Level of Maturity Method: Allows for an objective analysis as to how mature or self-reliant a user group is with respect to help or assistance calls (e.g.

Help Desk) or whether a user group can resolve daily problems without burdening IT based support (ITIL service support area). 6 – WEB and/or e-Commerce Hosting: Probably the lowest level of support or cost granularity.

In this case the Unit Cost value is most likely on a Web page basis.

A User Group(s) require WEB page type development, some ongoing e-Commerce software/support, daily Help Desk and possibly other ITIL areas.

The IT department provides WEB and eCommerce support from existing servers and manages all Engineering, Monitoring (including backup and recovery) areas.

Providing Capacity Management would be the responsibility of the IT department. 5 – Server Based Method: Probably the least used or understood, but most powerful is the ability to calculate a user group costs based on a server (or multiple servers) co-located in a secure and environmentally controlled site.

The pricing approach now shifts to a physical server instead of per User Unit Price model.

There are also various spin-offs for this approach.

The major benefit for this method can lead to dramatic cost savings for User Groups or Departments being supported.

This is an example of the Treating IT as a Business Centric Model in the section: Amortization for IT Costs – A Realistic Approach.

Here are several scenarios that you might encounter or consider: Remote Servers: A User Group already has purchased, installed and is running a Server based set of applications at their own location.

They have already invested in the hardware, software, support and space requirements – but need Copyright © The Art of Service.

Page: 45 Summary In this section we’ve seen the importance of a Yearly Unit Price value and sample methods of its implementation, especially as we deploy our service(s) to the user community.

I consider this to be one of the most important aspects of this paper, in that, it forms a foundation block or common plug connection point with our users. Common Plug Connection Therefore both IT and IS Groups can now become a single service delivery and support entity.

In the next section, you will see an example of computing a User Price value using the Yearly Unit Price method.

This is one of the key values that will be input into your chargeback value or User Unit Price value. Copyright © The Art of Service. Page: 46 — • User Pricing Method: Allows all agency users to contribute a fair share of their usage costs based on current Costs and annualized adjustments (this is our initial recommendation – see above) High Resource Utilization Method: Categorize the agencies into Active, Sporadic and Minimal usage for each IT Service, then prorate the total service cost by percentage of these three areas (e.g.

Active = 60%, Sporadic = 30% and Minimal = 10%).

At the end of the three-year cycle re-calculate your costs and re-categorize each agency usage.

This assumes that some subjective decision would be made initially for each agency until objective metric data becomes relevant after FY03.

Revenue Specific Method: Determine the pricing of each IT service based upon the specific groups capability to either: 1.

Generate increase revenue to offset costs – i.e.

An agency has maintained costs constraints but has increased incremental revenue to the any of the revenue producing groups. 2.

Savings from previous years expenditures (costs) – i.e.

An agency can do more with fewer resources and has demonstrated a cost savings from the previous FY.

Level of Maturity Method: Allows for an objective analysis as to how mature or self-reliant an agency is with respect to help or assistance calls or whether an agency can resolve daily problems without burdening Ajack Inc’s.

Based support.

Server Based Method: Probably the least used or understood, but most powerful is the ability to calculate a user group costs based on a server (or multiple servers) co-located in a secure and environmentally setup site.

The pricing approach now shifts to a physical server instead of per User Unit Price model.

There are also various spin-offs on this approach.

The major approach in this method can lead to dramatic cost savings for the User Group or Departments being supported.

Here a several scenarios that you might encounter: • • • • 1.

Remote Servers: A User Group already has purchased, installed and is running a Server based set of applications at their own location.

They have already invested in the hardware, software, support and space requirements – but need Help Desk and Engineering support for daily problems.

Costing and Charge-back for this implementation would involve only the above two areas, but are based on a per server charge. 2.

Co-Located Servers: A User Group has purchased, installed and is running a Server based set of applications inside (Co-Located) of a common IT managed site.

The User Group still owns the Server and associated application costs, but now needs Help Desk and Engineering support for daily problems.

The IT department can provide those services in addition to the environmental site (security, HVAC, space, rental, etc.).

Costing and Charge-back for this implementation would involve the server charge but the underlying costs would include the ITIL support areas including physical site protection costs. • WEB and/or e-Commerce Hosting: Probably the lowest level of support or cost granularity.

In this case the Unit Cost value is most likely on a Web page basis.

A User Group(s) require WEB page type development, some ongoing eCommerce software/support, daily Help Desk and possibly other ITIL areas.

The IT provides department the support for WEB and e-Commerce support from existing servers and manages all Engineering, Monitoring (including backup and recovery) areas.

Providing Capacity Management would be the responsibility of the IT department. 4 Appendix-A: Cost Allocation Matrix The following Cost Allocation Matrix was used in the above example to distribute the costs.

It is based upon three IT current services: IT Service Monitoring Help Desk Engineering Training Network and/or Tech Equipment Tech / Network & Refresh SAN 100% 100% 100% 0 0 Email 0 0 0 0 0

Read more about 26 Costs Associated to ITIL Areas:

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ITIL and 26 Costs Associated to ITIL Areas

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ITIL and 26 Costs Associated to ITIL Areas

ITIL - 26 Costs Associated to ITIL Areas