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IIR IT naklady (english)

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Information about IIR IT naklady (english)

Published on December 29, 2007

Author: mblk

Source: slideshare.net

Description

Odborný trénink
IIR IT náklady (english)
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IT náklady – Financial Management (FM) for IT Services mblk.cz

Intro Q/A 'Why can't the IT organisation provide a better level of Service ?' 'Why does the IT organisation budget have to be so large?' 'How much will it cost to implement and run this new System ?' 'Why do we spend so much time performing redundant tasks, like reprinting large reports that are not read?'

'Why can't the IT organisation provide a better level of Service ?' 'Why does the IT organisation budget have to be so large?' 'How much will it cost to implement and run this new System ?' 'Why do we spend so much time performing redundant tasks, like reprinting large reports that are not read?'

Intro FM ensures that any IT solution meet the requirements defined in SLM are justified from a cost and budget standpoint = cost-benefit analysis Same accounting principles found in use today across a wide variety of industries The links to other service management functions and process IT is not for today only cost center – FM is foundation for strategic business and market planning

FM ensures that any IT solution meet the requirements defined in SLM are justified from a cost and budget standpoint = cost-benefit analysis

Same accounting principles found in use today across a wide variety of industries

The links to other service management functions and process

IT is not for today only cost center – FM is foundation for strategic business and market planning

FM benefits The questins that IT mgmt must be able to answer at any moment are: How do I, and my department, help the organization accomplish its goals? What does the IT department contribute to shareholder value ? Cost visibility Planning Optimization Cost recovery

The questins that IT mgmt must be able to answer at any moment are:

How do I, and my department, help the organization accomplish its goals?

What does the IT department contribute to shareholder value ?

Cost visibility

Planning

Optimization

Cost recovery

Goals and Objectives Cost-effective stewardship Account fully for the spend on IT Services Assist management decisions on IT investment Provide detailed business cases for Changes to IT Services

Cost-effective stewardship

Account fully for the spend on IT Services

Assist management decisions on IT investment

Provide detailed business cases for Changes to IT Services

FM scope Identity assets and activities – develop cost allocation schemes Develop budgets Analyze the cost and benefits of proposed changes and new services Recover the cost of IT services – developing charge-back methods

Identity assets and activities – develop cost allocation schemes

Develop budgets

Analyze the cost and benefits of proposed changes and new services

Recover the cost of IT services – developing charge-back methods

Key Definitions Capital costs Cost element Cost unit Depreciation Direct cost Fixed cost Indirect cost Net present value Operational costs Payback period Total cost of ownership Variable cost

Capital costs

Cost element

Cost unit

Depreciation

Direct cost

Fixed cost

Indirect cost

Net present value

Operational costs

Payback period

Total cost of ownership

Variable cost

Overview Components of FM Cost accounting is the monitoring activity Budgeting is the planning activity Project investment analysis is the analyzing activity Cost recovery is the charge -back activity

Components of FM

Cost accounting is the monitoring activity

Budgeting is the planning activity

Project investment analysis is the analyzing activity

Cost recovery is the charge -back activity

IT Accounting, Charging and Budgeting cycle

Cost Accounting enables account for the money perform cost-benefit identify the cost of Changes provide cost targets facilitate prioritisation make day-to-day decisions support for charging Information only Break-even method Make a profit

account for the money

perform cost-benefit

identify the cost of Changes

provide cost targets

facilitate prioritisation

make day-to-day decisions

support for charging

Information only

Break-even method

Make a profit

Zero profit method IT department as an integral part of the organization The cost charged are the true costs IT personnel have more of a stake in reaching corporate goals There is less pressure from outside vendors

IT department as an integral part of the organization

The cost charged are the true costs

IT personnel have more of a stake in reaching corporate goals

There is less pressure from outside vendors

Cost Accounting Service level agreements Cost classification Cost categorization Cost units Depreciation Cost accounting methods

Service level agreements

Cost classification

Cost categorization

Cost units

Depreciation

Cost accounting methods

Service Level Agreements (SLA) SLA is the contract IT – customer Tracking performance (agreed SLA) Accurate cost collection Properly written and implemented SLA Renegotiating SLA Components SLA Fewer, more critical metrics Measurement of quality of service Metrics agreed to by customers (based on best practices a procedures) Better measure minimum performance

SLA is the contract IT – customer

Tracking performance (agreed SLA)

Accurate cost collection

Properly written and implemented SLA

Renegotiating SLA

Components SLA

Fewer, more critical metrics

Measurement of quality of service

Metrics agreed to by customers (based on best practices a procedures)

Better measure minimum performance

Cost Classification Cost Type = categorization of IT costs Cost Element Capital Costs Operational Costs Cost Model Direct Costs Indirect Costs Absorbed overheads Unabsorbed overheads Fixed Costs Variable Costs

Cost Type = categorization of IT costs

Cost Element

Capital Costs

Operational Costs

Cost Model

Direct Costs

Indirect Costs

Absorbed overheads

Unabsorbed overheads

Fixed Costs

Variable Costs

Cost Types 6 or more Cost Types Hardware Software People Accommodation External services Transfer costs Management Communication Support Change and implementation

6 or more Cost Types

Hardware

Software

People

Accommodation

External services

Transfer costs

Management

Communication

Support

Change and implementation

Cost Units Used for collect indirect costs and then allocate the costs to customers (ratio or percentage) CPU seconds Number of licences Number of personal computers/keyboards Number of personnel File storage Bandwidth consumption

Used for collect indirect costs and then allocate the costs to customers (ratio or percentage)

CPU seconds

Number of licences

Number of personal computers/keyboards

Number of personnel

File storage

Bandwidth consumption

Depreciation Straight-Line Depreciation Reducing balance method By usage

Straight-Line Depreciation

Reducing balance method

By usage

Cost Accounting Methods Cost-by-Customer Accounting Method Cost-by-Service Accounting Method Activity-based Costing

Cost-by-Customer Accounting Method

Cost-by-Service Accounting Method

Activity-based Costing

Cost Model of Costs-by-Customer

Complete view of the Cost-by-service

Cost Model for a Cost-by-service

Project Investment Appraisals Investment decisions are never easy to make No one method is the best to use Net Present Value Payback Period Return on Investment Total Cost of Ownership Real Cost of Ownership

Investment decisions are never easy to make

No one method is the best to use

Net Present Value

Payback Period

Return on Investment

Total Cost of Ownership

Real Cost of Ownership

Net Present Value Use value of cashflows with discount rate Present Value = (Future Value) / (1+Discount Rate) N Calculate NPV for invest years and then sort average NPV Best investment is project with higher NPV

Use value of cashflows with discount rate

Present Value = (Future Value) / (1+Discount Rate) N

Calculate NPV for invest years and then sort average NPV

Best investment is project with higher NPV

Payback period Another method for comparing alternative investments Initial investment cost divided by the anticipated annual savings or resulting increased revenue Quickest payback be the best to select Taking into considaration the salvage value

Another method for comparing alternative investments

Initial investment cost divided by the anticipated annual savings or resulting increased revenue

Quickest payback be the best to select

Taking into considaration the salvage value

Return on Investment ROI is measure of financial performance ROI = Savings / Cost Higher ROI is better Use for project which brings Lower maintanance costs Lower service costs Less required training User time saved using the new asset

ROI is measure of financial performance

ROI = Savings / Cost

Higher ROI is better

Use for project which brings

Lower maintanance costs

Lower service costs

Less required training

User time saved using the new asset

Total Cost of Ownership Total cost of an item over its useful lifetime (TCO) Purchase price Training costs Application costs Support and maintanance costs Enviromental change costs Contracted technical support costs TCO does not adress the concept of risk TCO does not adress benefits TCO is hard to quantify

Total cost of an item over its useful lifetime (TCO)

Purchase price

Training costs

Application costs

Support and maintanance costs

Enviromental change costs

Contracted technical support costs

TCO does not adress the concept of risk

TCO does not adress benefits

TCO is hard to quantify

TCO studies Planning and deployment are more expensive in a more complex organization The more undefined process will have higher TCO More complex IT environment typically leads to a higher TCO More information provide Gartner Group

Planning and deployment are more expensive in a more complex organization

The more undefined process will have higher TCO

More complex IT environment typically leads to a higher TCO

More information provide Gartner Group

Real Cost of Ownership RCO Measurement Direct costs Management Indirect cost factor Managerial Reports Small org Midsize to Large org Outsourcing

Measurement

Direct costs

Management

Indirect cost factor

Managerial Reports

Small org

Midsize to Large org

Outsourcing

Outsourcing Advantages Stable price level Focus on core competencies Eliminates the need to purchase Eliminates problem of hiring and retaining employees Can improve an IT resource that is not working effectively Increased vendor competition

Stable price level

Focus on core competencies

Eliminates the need to purchase

Eliminates problem of hiring and retaining employees

Can improve an IT resource that is not working effectively

Increased vendor competition

Disadvantages of Outsourcing Loss of control Having to conform to the vendor´s way of doing things Being locked into contracts Having to be dependent on external resources Loss of in-house expertise Possible loss of internal career paths

Loss of control

Having to conform to the vendor´s way of doing things

Being locked into contracts

Having to be dependent on external resources

Loss of in-house expertise

Possible loss of internal career paths

Budgeting enables Predict the money Ensure that actual spend can be compared Reduce the Risk of overspending Ensure that revenues are available to cover predicted spend (where Charging is in place).

Predict the money

Ensure that actual spend can be compared

Reduce the Risk of overspending

Ensure that revenues are available to cover predicted spend (where Charging is in place).

Budget A budget is a detailed plan that specifies how resources are acquired and used over a specified period Prior period trends SLA with each organizational group IT organizational requirements such as personnel training and systém upgrades Organizational changes Industry and economics trends Special requirements such as developing „in-house“ applications Customer satisfaction

A budget is a detailed plan that specifies how resources are acquired and used over a specified period

Prior period trends

SLA with each organizational group

IT organizational requirements such as personnel training and systém upgrades

Organizational changes

Industry and economics trends

Special requirements such as developing „in-house“ applications

Customer satisfaction

Budget inputs SLA Customer Requirements Internal Cost Inputs Trends

SLA

Customer Requirements

Internal Cost Inputs

Trends

Budget types Operating Budget Capital Budget

Operating Budget

Capital Budget

Budgeting methods Prior Year Budgeting Zero-based Budgeting

Prior Year Budgeting

Zero-based Budgeting

Charging enables make formal evaluations of IT Services and plan for investment based on cost recovery and business benefits recover IT costs in a fair manner influence Customer behaviour

make formal evaluations of IT Services and plan for investment based on cost recovery and business benefits

recover IT costs in a fair manner

influence Customer behaviour

Charging For instance, it may not be possible to provide a higher quality of service to an individual Customer even if that Customer is prepared to pay a premium for it, nor to provide less service to a Customer who expects a discount.

For instance, it may not be possible to provide a higher quality of service to an individual Customer even if that Customer is prepared to pay a premium for it, nor to provide less service to a Customer who expects a discount.

Transfer Pricing Methods At Cost Cost Plus Flat Rate Plus Premium Market Rate Billing

At Cost

Cost Plus

Flat Rate Plus Premium

Market Rate

Billing

Roles and Responsibilities Financial Manager Providing guidelines on organizational financial policy Assisting in setting up cost accounts Creating budget templates Ensuring that all finance-related policies developed conform to generally accepted accounting principles Budget Committee

Financial Manager

Providing guidelines on organizational financial policy

Assisting in setting up cost accounts

Creating budget templates

Ensuring that all finance-related policies developed conform to generally accepted accounting principles

Budget Committee

Relationship to other ITSM processes Service Level Mgmt IT Service Continuity Mgmt Availability Mgmt Capacity Mgmt Workforce Mgmt Configuration Mgmt Change Mgmt Problem Mgmt Network Administration

Service Level Mgmt

IT Service Continuity Mgmt

Availability Mgmt

Capacity Mgmt

Workforce Mgmt

Configuration Mgmt

Change Mgmt

Problem Mgmt

Network Administration

Costs Associated with Budgeting, IT Accounting and Charging fall into 3 broad categories: 1)  the administration and organisation costs 2)  the extra computing resources 3)  the purchase and support of tools

Associated with Budgeting, IT Accounting and Charging fall into 3 broad categories:

1)  the administration and organisation costs

2)  the extra computing resources

3)  the purchase and support of tools

Planning for IT Accounting and Charging Terms of Reference The Project Board The project team Feasibility study The project plan Designing the Cost Model and related processes Performance indicators Dependencies Organisation Tools Training

Terms of Reference

The Project Board

The project team

Feasibility study

The project plan

Designing the Cost Model and related processes

Performance indicators

Dependencies

Organisation

Tools

Training

Implementation Documentation Preparation Awareness Pilot the systém Monitor the systém Plan IT Accounting and Charging Continuity

Documentation

Preparation

Awareness

Pilot the systém

Monitor the systém

Plan IT Accounting and Charging Continuity

Ongoing management and operation Daily/Weekly Monthly Quaterly/ half – yearly Annually

Daily/Weekly

Monthly

Quaterly/ half – yearly

Annually

Reporting Report to Management how much they have spent on IT during the financial year whether the charges made match the predicted profile the current Charging policies and IT Accounting methods how the IT organisation is investing any profits Reports to IT Services cost total, broken down by business cost analyses by service line, equipment domain or other relevant view revenues total, broken down by business costs and cost recovery against profile outlook on costs and cost recovery problems and costs associated with IT Accounting and Charging systems recommendations for changes future investments required.

Report to Management

how much they have spent on IT during the financial year

whether the charges made match the predicted profile

the current Charging policies and IT Accounting methods

how the IT organisation is investing any profits

Reports to IT Services

cost total, broken down by business

cost analyses by service line, equipment domain or other relevant view

revenues total, broken down by business

costs and cost recovery against profile

outlook on costs and cost recovery

problems and costs associated with IT Accounting and Charging systems

recommendations for changes

future investments required.

Possible problems New disciplines - limited understanding of leading practice in Cost Modelling and Charging mechanisms Accountancy support for IT IS strategies and objectives of an organisation may not be well formulated and documented The monitoring tools providing resource usage information are inaccurate

New disciplines - limited understanding of leading practice in Cost Modelling and Charging mechanisms

Accountancy support for IT

IS strategies and objectives of an organisation may not be well formulated and documented

The monitoring tools providing resource usage information are inaccurate

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