Achieving IT Cost Visibility
Cost visibility is the single starting point and the most important determining success factor for IT organizations operating in the new world of technology business management. Cost visibility means understanding all cost components that go in to delivering a solution or service – hardware, software, network costs, infrastructure, facilities, and the personnel that manage, deliver, and support these solutions. Additionally, cost composition will vary based on how and where technology is delivered, and how and to what extent it is consumed.
For instance, cloud service providers often price services on an hourly basis, providing clear costs for processor time, storage consumption, and bandwidth utilization. In an IT service brokerage model, the broker must be able to compare these costs across both third party solutions and internal offerings. This requires new levels of insight into internal costs that account for everything from hardware and power consumption, to software licensing and labor costs.
The first step on the journey toward cost visibility is accurately identifying the costs of internally provided services. Business analysts must review IT equipment purchases, software license agreements, power consumption models, physical plant maintenance, staffing requirements, and other financial factors. Taken together, these expenses start to create a picture of the true costs or “fully burdened costs” of an organization’s technology services.
Once IT leaders have an understanding of the true cost of IT, they can use this data to inform business decisions and recommendations. When evaluating the appropriate location for a new service offering for instance, they can compare the cost of hosting the service internally to the cost of outsourcing to external service providers. They may also benchmark internal IT costs against the internal costs of similarly situated organizations to identify areas with the potential for cost savings. Cost visibility also enables “what if” decision-making that eliminates the guesswork from IT decisions. Curious about the cost of transitioning from Windows to Linux services? Look to your costs to provide the answer.
As a service broker, with full knowledge of costs and quality tradeoffs, your business partners will come to you for trusted recommendations. The problem of shadow IT, becomes a powerful conduit for technology evaluation. As a business technology broker, you become a trusted advisor, completely agnostic to whether a solution is delivered by internal IT or third party providers.
The IT service broker will also need to measure, monitor, and adjust services based output and outcome. They will need to have processes in place that provide insight into the quality of services delivered to customers over time, and what return the business is getting out of their technology investments. Results-oriented metrics come in two major forms: quality of IT service and achievement of business objectives. These measures should span the services brokered by the IT organization, whether they are inside the corporate firewall or provided by external vendors.
When designing metrics that focus on the quality of IT service, organizations should look to service-oriented measures that demonstrate the ability of the IT service to meet customer requirements. Many of these metrics are based upon the service level agreements (SLAs) reached between customers and service providers. For example, the IT broker may track the SLA breach rate, showing the number and/or duration of events that failed to achieve the SLA. Organizations may also track their ability to quickly respond to IT incidents by recording, for example, the mean time to restore (MTTR) when an outage occurs.
Finally, units may track customer satisfaction with IT services, either on a service-specific or overall basis. When taken together, these metrics provide valuable insight into the quality of the IT service portfolio. You should be aware though that quality by itself is meaningless if you don’t know the costs required to achieve those quality levels.
Metrics focused on business outcomes are less common in IT, but are quickly gaining traction as technology leaders are asked to justify investments in technology. Developing these measures requires close coordination with other business leaders and alignment with their goals. Is the business focused on customer acquisition? IT leaders may then wish to focus on the cost of IT per customer acquisition. Is the business trying to lower the cost of producing units of inventory? IT can measure the change in technology costs associated with the manufacturing process.
Moving IT organizations into a data-driven service brokerage model allows them to become more effective business partners. IT leaders must earn a seat at the organization’s leadership table, and this requires speaking the language of the business rather than the language of technology. Those leaders who are able to articulate and quantify the business value of technology will find themselves quickly accepted as partners by other business leaders.
How Can Businesses Achieve These Results?
Achieving IT cost visibility and measuring the effectiveness of technology investments is not easy if you don’t have the right tools and capabilities to manage the business of technology. Organizations that embrace these challenges head on will achieve unprecedented levels of technology-enabled business output, reduction of unnecessary technology costs and waste, and ultimately lead their organizations to be more agile and more competitive.
Learn more about Technology Business Management (TBM) tools, and how you can take the necessary steps forward to becoming a Business-Technology leader and IT Service Broker.
Part one and two of this blog post are available as a share-able PDF: download the complete post now: The Future of IT Service Brokerage Is Here.