ICT-News Dach

An Effective Service Costing Model: Hybrid Roles Play a Key Part

Matt Erickson Research Alerts

Summary and Key Takeaway

Technology Business Management (TBM) is transformational, but until the present, the focus has been on obtaining cost transparency through data and analytics. Yet once a Service Costing model is in place, many client enterprises often find themselves asking “What’s next?” Having an effective and efficient service costing model requires understanding that it is a continuous and repetitive improvement that crosses many IT functions and pushes IT organizations to reach their desired future state Service Costing model. The expanding reach of cost transparency enforces the necessity for labor resources to move from having skills in one area to having skills in multiple areas. In simple terms, labor resources’ roles become hybrid roles.

Perspective

Hybrid roles exist to expand domain experts from a singular focused area, and provide them with the hiring and training resources to have multiple skills on both sides of the IT-Business divide. One of the biggest issues that hinders cost transparency is the difference between how Finance and IT Operations utilize, communicate, and understand data. However, it is becoming increasingly important for both IT Operations and Financial resources to understand one another, as well as what skills are required to effectively and efficiently execute a Service Costing model.

Continuing with Finance and IT, a financial analyst needs to know why it is important to understand the mappings between the GL, Fixed Assets, the Configuration Management Database (CMDB) and Service Catalog. Conversely, IT Operations need to be cognizant that Finance needs cost data in order to be clear and concise for strategic business-making decisions. Efficient communication is key, as it not only eliminates unnecessary resource waste, but it helps address business and IT questions quicker and with less re-work. More time means that resources can better utilize their efforts towards strategic, business goals. IT Operations and Finance are becoming more and more intertwined, and hybrid roles will allow an organization to transition to a Service Costing model more smoothly.

There are three (3) necessary components for implementation of an efficient Service Costing Model, as follows:

  • Designing and implementing an IT Service Catalog,
  • Having accurate relationship mappings in the CMDB, and
  • Standardizing where needed.

Each requires labor resources with multiple skills and knowledge that will allow them to hold meaningful and impactful meetings and conversations.

Designing and Implementing an IT Service Catalog. A well-defined and effective Service Catalog should be developed in parallel with a Service Costing Model. A Service Catalog contains an exhaustive list of IT services provided to both the business and employees of an organization. But to be effective, the Service Catalog requires that the services have clear and precise details that come from the parallel activities of costing out and defining services. A good Service Catalog provides details such as:

  • The service’s name and description
  • Features
  • Service request authority (who can request the service?)
  • The availability of the service
  • Prerequisites for the service
  • Caveats
  • How the service is supported
  • How to request the service
  • How the service will be charged or showed back (cost transparency)

A higher quantity and quality of detail derived from the Service Catalog and Service costing will help alleviate the pressure of any questions regarding cost transparency and chargeback/showback models.

Hybrid roles play an essential part in obtaining all this information for the Service Catalog. A labor resource can not only know what is needed to complete what is required for the Service Catalog, but also that service costing requires the ability to connect these services to infrastructure, specific business units and consumption units. They need to be able to understand questions like “What applications run on this service?”, “What consumption units drive the Services cost?”, “What will be included in a Chargeback or Showback?” These types of questions enable an essential basis for a service costing model.

Governance and continuous improvement activities need to be addressed for the Service Catalog and Service Costing model. A strict review process is vital to keep the service catalog up to date, and it requires hybrid resources to understand the service costing universe. By being able to connect governance and continuous improvement with hybrid roles, the IT organization will have the ability to focus on what is required to further progress towards long-term business objectives. With a well-defined Service Catalog and multi-faceted labor resources, the service costing model has a strong foundation for success.

Accurate Relationship Mappings in the CMDB. One of the main purposes of the CMDB is to be a data repository that holds data for IT assets (or configuration items) as well as the relationships between these assets. It is the single source of truth for the IT organization’s infrastructure. Because of this, the CMDB is the glue that connects IT Infrastructure to IT Finance and IT Services. Service Costing requires the ability to connect IT costs at a lower level to IT and Business Services at the top as well as for resources to comprehend all these connection points.

To de-risk the sub-optimization of cost transparency benefits, the IT organization not only needs to understand the total cost of a services, but also the entire service costing solution architectural design. This means that resources would be required to understand how data comes in from specific software programs, or how certain software has specific requirements for data feeds. It also means understanding how costs are allocated from the general ledger to applications and service offerings.

The “loaded” cost of a service contains at least the following: labor, project work, vendor costs, applications, server, and storage. The CMDB gives an organization the ability to connect configuration items like applications to services, servers and other applications, and then provide a model in which costs can be accurately tracked. The constraints are deciding on which consumption units to use, and how each would be split into multiple services.

This entire process is not an effortless task. It takes time and many resources to reach a high-level of cost-transparency. However, if an organization can institutionalize hybrid roles, this process will become much easier. Resources in hybrid roles bridge the gap between IT Operations and Finance that normally may take many weeks of meetings and workshops. These labor resources will have the ability to answer financial requests, as well as understand the requirements to account for different services and costs.  By knowing where configuration items are connected, which consumption units are measured, and how each resource will be allocated, costs can be correctly allocated to IT Services. This gives the IT organization transparency as to how each of their services are being consumed, how services, software and infrastructure are mapped, and will help answer strategic costing questions. This transparency is imperative to reach the end goal of an effective Service Costing Model.

Standardization. Standardization of processes in the Service Costing Model allows an organization to clone, run and re-run costing exercises with minimal time, resources and re-work. It delivers a consistent result and helps keep costing data organized and easily manageable. The key benefit of standardization is allowing labor resources to develop an understanding of how everything, and everyone, works together. Standardization drives resources through steps that show how finance is needed in one step and then how IT Operations is needed for another. It allows labor resources to develop multiple skills quicker and more effectively, which in return, gives the resources the capability to fill the necessary requirements of hybrid roles. These benefits help eliminate the risk of losing knowledge by developing processes that can be picked up and learned by others efficiently.

Process standardization is crucial to the success of service costing because it develops a sense of trust within an organization by providing results that are consistent and accurate. Having standardization and labor resources with multiple skills allows TBM and Service Costing to transform an IT organization to be more cross-functional and cost efficient by limiting any variance, and eliminating unnecessary resource waste. It also allows for organizations to move towards areas like machine learning and automation. Hybrid roles and standardization create efficiencies that open time for more strategic and transformative ideas that come from having an effective and trusted Service Costing model.

Impact and Guidance

It is not enough to have simply completed a service costing exercise. The Service Costing model must align down-stream benefits with long-term business objectives. Businesses cannot have an effective Service Costing model without a Service Catalog, a CMDB, and process standardization. That being said, client organizations cannot efficiently run those three areas without hybrid roles and resources to fill those roles.

When clients truly desire to transform their organization to a service costing model and obtain cost transparency, they must invest in the development of resources to be multi-faceted, create the necessary hybrid roles for these resources, and then, intertwine them into the correct areas of the Service Costing model. The IT Service Catalog, CMDB and standardized processes are great places to implement change. Hybrid roles are the basis for the long-term strategic view that allows cost transparency and TBM to transform an IT Organization. Without them, businesses cannot effectively run a Service Costing Model.