How to Implement IT Showback or Chargeback Like a Pro Focus on - - PowerPoint PPT Presentation

How to Implement IT Showback

• r Chargeback Like a Pro

Focus on Value

3

Enable Transparency

4

Provide a Positive Customer Experience

Executive Summary

Key Outcomes:

• Demonstrate the Value of IT (IT spend is not clearly aligned with business outcomes)
• Drive Cost Optimization (the business consumes IT like it's free)
• Enable Informed Decision-Making (Inaccurate or missing data drives uninformed, emotional

decisions)

After this session, you’ll be able to:

• Understand and communicate the value of IT transparency
• Assemble the right people, tools, and processes for successful showback or chargeback
• Limit complexity in your showback or chargeback processes
• Provide an ideal customer experience to cultivate trust and shared accountability
• Utilize transparency to become a trusted advisor to the business

Elevate IT. Ignite Possibility. 5

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Transparency + Insight = Your Value

• Creating transparency and providing visibility
• Translating and delivering insight
• Continually teach and educate stakeholders
• Value = Stakeholders make informed decisions = Optimized costs

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Common Challenges & Business Outcomes

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Common Challenges & Initiatives

• Challenges – Common challenges for IT & IT Finance
• Initiatives – Business & IT initiatives supported by ITFM

Challenges Initiatives

• Uncontrolled run costs – need to shift to innovation
• Rising IT costs – not clearly aligned with business value
• Unplanned, unbudgeted spend
• IT has a poor reputation with the business
• Perpetual reactive mode
• Endless questions about costs
• Moving too slowly
• Manually translating between Finance & IT
• Inaccurate data
• Uninformed, emotional decisions
• Time wasted on ad-hoc analysis
• Business consumes IT like it's free
• Comparisons to cloud vendors
• Pressure to do more with less
• Cost Optimization
• Cost Transparency
• Digital Transformation
• Service Transformation
• Hybrid IT
• Multi-Cloud
• DevOps
• Agile
• Benchmarking
• ITFM Process Automation

Start with Desired Business Outcomes

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Cost Transparency

• Elevate IT by partnering with the business
• Demonstrate IT value in a common language the business understands
• Optimize costs by improving management of IT usage and consumption
• Enable informed decision-making by delivering tailored insights
• Shift run-to-change by redirecting optimization savings toward future digital business innovation
• Provide a deep understanding of infrastructure usage and costs
• Get deeper visibility into consolidated cloud costs (inside and outside IT)
• Better align resources to business priorities
• Enable application rationalization
• Promote shared accountability of IT costs

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A Value Focused Approach

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Opex spend is generally focused on run the business (RTB) activities, so the ITFM focus is to: Optimize

How IT Dollars Are Spent: Optimize & Maximize

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Cap to Opex Transition

Cap (20-30%) Opex (70-80%) Revenue Impact Projects Risk Mitigation Projects Optimization IT Budget

Cap spend is generally focused on grow and transform the (GTB) activities, so the ITFM focus is to: Maximize “Most CEOs and CFOs do not understand IT operating expenses and believe, on average, that 20% of the IT operating budget is wasted money” – Gartner 2018

Maximize (Cap) Optimize (Op)

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Visibility Into Key Spend Viewpoints

GL ACCOUNTS SERVICES CONSUMERS & APPLICATIONS BUSINESS CAPABILITIES

• GL & AP Data
• Cost Center / Account
• Compute, Servers, Storage,

AD, Desktops, Laptops, etc.

• Consumers (100%)
• Application or End User
• Apps grouped and allocated

to business services

• Business Service Metrics

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Multi-Dimensional Views of Transparency

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View Services Consumer Application Business Capability

Allocates GL costs to IT Service Allocates service costs to consumers based on usage Allocates service costs to Applications based on usage Total Application costs are grouped and allocated to Business Services

Example

• Compute power
• Servers
• Storage
• Application Development
• Desktop/Laptop
• End User
• Business Partner
• Cost Center
• Department
• On premises
• Hosting Applications
• Cloud Hosting
• Storage
• Marketing
• Sales
• Billing

Answers

• How much are we spending to deliver

each service?

• What items and services are in my IT

bill?

• What are our unit costs and how do

they compare?

• What costs and services are included in

the unit rate?

• Which business partners

consume IT resources? (% and $)

• Why is my IT bill going up?
• What do I get for my IT

expenditure?

• How do my expenses compare to
• ther business partners?
• How/where can I impact my

budget and corporate profits?

• What is the total cost of my

applications?

• How much are we spending

internally vs hosted?

• What are the technology costs

associated with enabling my Business Capabilities ?

Stakeholder

 Executives  Business Partners  IT  IT  Executives  CIO  IT  Executives  CIO  IT  Executives  CIO  Business Partners

The Value/Payoff (the data provided enables):

• Understand the cost of services and

components

• Understand and drive down unit rates
• Benchmark against third-parties and

peers

• Insight into which business

partners benefit from IT

• Transparent view of consumption

rates

• Helps show value
• Application Rationalization

exercises

• Business Service Metrics
• Align new investments more directly to

business functions Elevate IT. Ignite Possibility.

Stakeholder Value Matrix

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Stakeholder Planning Services View Consumer View Application TCO Business Capabilities View

CIO

• Drive down unit rates
• Benchmarking
• Demonstrates value of IT
• Aligns IT spend to

business value CFO

• Faster, more detailed analysis
• Better control

Business Leader

• Understands value of IT
• Gains control of consumption
• Aligns IT spend to

business value Service Owner

• Drive down unit rates
• Benchmarking

Application Owner

• Application rationalization

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Keys to Success

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Keys to Success

Define Your Mission

• Drive Business Outcomes
• Align with CIO Initiatives

Engage ITFM Stakeholders

• CIO
• CFO
• Service/Product Owners
• Application Owners
• Business Leaders
• Corporate FP&A

Provide Insights

• Give relevant, actionable analysis and data
• Go beyond just providing transparency – provide insights and context as well

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Build the Foundation

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Build the Foundation

• Executive Support
• Quality Staff
• Analysts +
• Critical thinkers
• Data and process expertise
• Advanced communication skills
• Engage leadership (in the business & IT)
• Be analysts and educators…
• Quality processes, policies, tools, and data

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Modernize IT Finance

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How to Modernize IT Financial Management

Automate ITFM Processes Transition IT Finance team from processing data to analyzing results. Establish a Strong IT Planning Process Know spend changes in real-time. Align spend to business value and initiatives.

IT Finance

Plan Automate Measure Optimize

Measure, Allocate, Optimize Gain detail transparency into how all IT services are being consumed by applications, projects, and end users. Analyze Results Leverage analytics, dashboards, and detail content to improve value and enable decision making.

Analyze

4 3 2 1

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Measuring and Communicating Success

• Measuring success – Stakeholder feedback and use cases
• Communicating success – Promote your program

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3 Phases of Transparency

Challenge Phase:

• Educate – Be prepared to educate your consumer on the insights the data provides.
• Defend - Be prepared to defend your model – this will require accuracy & detail.

Black Hole Challenge Phase Enabled Decision- Making

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Answer Questions & Gain Trust

• Superior level of detail
• Thorough answers
• Rapid response

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Building & Managing Cost Models

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Key Capabilities

• Create multi-dimensional views
• Include budget, actuals, and forecast
• Trace forward and backward

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Key Challenges

• Iterate – Limit initial scope: define and refine,

address data gaps over time

• Limit Complexity
• Service Catalog Size – Cost & measure
• Avoid Precision Traps
• “Directionally Correct”

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Tiered & Layered Model

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The Tiered Model & Allocation Methodologies

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Run IT like a business

IT pricing

Flat rate tiered negotiated IT domain cost allocation High-level allocation – hybrid chargeback - showback Subscription fee Measured/ resource usage Direct cost

Challenge of external market comparison Challenge of choice Challenge of fairness Challenge of accountability Operational service levels Service contract Governance Service level

• bjectives

Cost Model: Budget, Actuals, Forecast

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Budget Service Cost Model Cost of Services (Forecast) Actuals Forecast Cost of Services (Budget) Cost of Services (Actuals)

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Building & Managing Cost Models:

Managing Complexity

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What Drives Complexity?

• Precision traps
• Technical accuracy
• Financial accuracy
• Granularity
• Different audiences/different perspectives
• Data availability & quality

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The Sweet Spot

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Simplicity Complexity

• Easier to digest
• More actionable
• Management gravitates to simplicity
• Accuracy drives up complexity; lack of

accuracy can damage credibility

• Poor data quality can drive complexity
• Finance and IT gravitate to complexity

The Sweet Spot

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Cost Modeling Outcomes

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Tangible Outcomes & Use Cases

• What-If Analysis
• Control Costs and Consumption
• Valuable Benchmarking
• Empowered Accountability
• Multi-Dimensional Views

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Building & Managing Cost Models:

Service Catalog Impact

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ITSM & ITFM

ITSM

IT Service Management

ITFM

IT Financial Management

ITFM Focus:

• Service Costing & TCO
• Transparency
• Enable Cost Allocation,

Chargeback or Showback

• Benchmarking
• Application Rationalization

ITSM Focus:

• Service Strategy
• Service Design
• Service Transition
• Service Operation
• Continual Service

Improvement

IT Service Catalog

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Collaboration Between IT & Finance Required

• Price & Measure - Remember that for every IT Service you define, you will

need to be able to map costs to it and choose a reasonable metric to develop rates and bill consumers

• Verify Finance can measure (or reasonably allocate) costs
• Verify IT can measure the consumption of the service
• Both are needed to produce cost of service, set rates, and bill consumers

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Service Catalogs & Models: Real World Examples

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Client 1 Client 2 Client 3 Client 4 IT Spend $ $100M $385M $190M $400M Model Type Decentralized Centralized Centralized Centralized # of Services 76 50 100 450 # of Budget Lines <2,000 <2,000 <1,000 1,800 Steps in Cost Model ~100 ~25 ~50 ~100 General Methodology Double Step Down Layered Layered Layered Business Functions

• Budget Collection
• Demand Forecast
• Service Costing
• Rate Setting
• Invoice
• Actual Service

Cost/True-Up

• Budget Collection
• Service Costing
• Rate Setting
• Invoice
• Actual Service

Cost/True-Up

• Invoice
• Actual Service

Cost/True-Up

• Budget Collection
• Demand Forecast
• Service Costing
• Rate Setting
• Invoice
• Actual Service Cost/

True-up

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Use Case

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Use Case

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Use Case

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Executing Showback

• r Chargeback

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Bill of IT (IT Showback/Chargeback)

Avoid data transformation responsibilities COTS or Home Grown or Manual (Excel) Calculations, Reporting Invoicing Data Source Management Adjustments, True-ups Operation

Showback vs. Chargeback

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Detail Required

Chargeback

Accuracy Effort Required

Less More Less More Low High

<0.1% 1.5%

Bill of IT Cost Allocation Showback

Project Cost

<0.1% 1.5%

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Service Catalog: Salads

Salad Bar

• Charge out individual salads depending on the ingredients
• Users know they can impact their price based on toppings

Salad Menu

• Create predetermined salad offerings
• Set higher prices for special toppings or proteins

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Service Catalog: Servers

Asset-level

• Allocate D&A, power, and labor to individual assets
• Assets are charged to consumers
• Effectively, each asset is treated as a separate service

Services

• Avoid going to the extreme of treating all servers equally
• Group similar assets into services
• Allow for layering of cost components based on asset type

* Servers are often broken out separately due to higher acquisition and maintenance costs. They can also require higher rates of data center power.

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Service Catalog: Tableau

Software-level

• Charge out individual software packages that are highly

specialized or material in cost

• Educate users on how to return unused licenses and reduce

their bill

Services

• Bundle common or non-material software packages into End

User Services or a Desktop/Laptop service

• Avoid long, itemized bills

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Service vs. Cost Component: Guacamole

Service

• Chipotle charges separately for guacamole
• They remind customers before adding it, so they’re not

surprised

Cost Component

• Qdoba includes guacamole in the price of main dishes
• Their customers did not want to be “nickel and dimed”
• Looking to increase repeat customers

* Chipotle and Qdoba both understand the cost of guacamole but have different strategies

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Service vs. Cost Component: Network - WAN

Service

• Charge network based on port counts or traffic analysis
• Requires defendable usage data, which is often difficult to

collect

Cost Component

• Layer into the service cost of compute platforms if there is

no distinct lever for consumer

• Can use dynamic spread, port or device counts, or

bandwidth by platform

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Service vs. Cost Component: Labor Services

Service

• Application development and maintenance are generally

allocated to consumers

• Generally requires time-tracking data to be defendable
• Complexity around number of labor rates

Cost Component

• Layer in the cost of management overhead and

infrastructure support into services

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Dynamic Spread vs. Metrics: Restaurants

Dynamic Spread

• Weight restaurant cost to dishes based on ingredient costs
• Simple math

Metrics

• Restaurant owner can use an estimate of space required to

store and prepare each dish

• Requires analysis and consideration of desired outcome

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Dynamic Spread vs. Metrics: Data Center

Dynamic Spread

• Weight the cost of the data center to services based on their total

service cost

• Simple and avoids cumbersome or frequent data refreshes

Metrics

• Expose a lever for Service Owners to manage costs
• More defendable, depending on data quality

* Power usage or rack units are commonly used to allocate facility costs to IT services

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Percentage of Use

Pros

• Billing reports will tie to GL without true-up
• Billing reports contain a more accurate

reflection of costs

Cons

• Rates require monthly due diligence to

ensure expenses are mapped accurately

• One-time expenses or credits will cause the

rate to spike or potentially be negative

• Fluctuating rates are difficult for the

consumer to understand and predict

• Focus is on total spend by service instead of

driving the unit cost down

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Percent of use ties billing directly to the GL and is where companies often start.

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Set Rates

Pros

• Simpler to calculate and predictable for

consumers

• Consumers can focus on their lever to reduce

costs, which is their consumption of IT Services

• IT can operate like a business and set rate

reduction targets

• Can set a price higher or lower than the rate

calculated in the cost model to drive different behaviors (e.g. incent the use of newer technology)

Cons

• If billing reports need to tie to GL, manage
• ver/under recovery through true-ups
• Must have proper analytics in place to charge
• ver/under (e.g., rate vs. volume variances)
• Rates need to be monitored for accuracy

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Setting rates annually allows consumers to focus

• n what they can control – usage.

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Direct Cost

Pros

• Highly specialized hardware or software is

segregated and will not increase rates for the

• ther consumers
• Can drive specific behaviors by creating a

separate lever

Cons

• Can drive complexity for both Finance and IT

partners

• Increases overall number of Services to

manage

• Consumer may not understand fluctuations

in cost

• Reducing usage may not immediately impact

cost

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Establishing direct services can improve transparency but can also increase complexity quickly.

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Rates vs. Percentage of Use: Tacos

Fixed Rate

• Restaurant Owner sets a price per burrito or type of taco
• Owner must consider fluctuating produce prices
• Price includes an assumed amount of spoilage
• Monitor cost of ingredients, labor, and overhead expenses

to see if burrito price needs to be adjusted

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Rates vs. Percentage of Use: Mainframe

Fixed Rate

• Consumer can reduce bill by using less CPU seconds or MIPS
• Service Owner can benchmark rate internally

Percentage of Use

• Consumer may react to variability in cost each month if usage

is flat

• Service Owner will need to understand and explain spikes in

payments, one-time events

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Rates vs. Direct Cost: Seafood

Fixed Rate

• Consumers expect a certain price based on historical visits
• Restaurant Owner assumes risk of sudden cost increases

Direct Cost

(market price)

• Routinely change the price based on cost of ingredients, typically

reserved for expensive dishes

• Consumers know upfront that the prices will vary over time
• Restaurant Owner will include markup for preparation and
• verhead

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Rates vs. Direct Cost: Data Appliance

Fixed Rate

• Maintain fewer services and allocation methodologies by

including in server rates

• Specialized infrastructure may increase rates broadly

Direct Cost

• Able to expose additional cost driver and influence behavior
• Consumers may ask for more services to be created, increasing

complexity

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Takeaways

• There’s no silver bullet for IT transparency
• Consider user behavior, materiality, and other

factors before deciding on an allocation strategy

• Allocations can evolve over time as your ITFM

program matures

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Showback/Chargeback Options: Pros and Cons

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Model Type Pros Cons Requirements

Chargeback – Move dollars to consuming cost centers

• Financial transparency
• Shared service consumers

determine how to allocate expenses to LOBs

• More consumer accountability
• Complexity
• Potentially “less” accurate allocations to

LOBs

• Additional journal entries and expense

system processing

• Periodical under/over recovery
• Determine under/over recovery allocation to

line of business (less complex if it can go to a Corporate LOB)

• Must explain cause of under/over
• Determine whether to true up

Chargeback – Adjust business Allocations on providing IT cost centers to reflect usage

• Financial transparency
• Accurate allocations to LOBs

based on usage

• More consumer accountability
• Complex
• IT responsible for LOB allocations
• Additional journal entries and expense

system processing

• Periodical under/over recovery
• Determine under/over recovery allocation to

line of business (less complex if it can go to a Corporate LOB)

• Must explain cause of under/over
• Determine whether to true up

Showback – reporting only

• Financial transparency
• Can be a stepping-stone to

chargeback, familiarizing customers with IT costs/services prior to actually charging that way

• Less accountability since showback is

reference only

• Less connection between customer charges

for IT and what they’re consuming

• Review under/over periodically

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Fixed vs. Variable & True-up Options: Pros and Cons

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Rate Options Pros Cons Requirements

Fixed Rate Variable Consumption

• Consumers more

Accountable for usage

• Will generate Over/Under recovery
• Since there is a Fixed Cost component to services, a

decrease in consumption is not directly correlated to a decrease in expense

• Manage Over Under

Fixed Allocation based

• n Budgeted

Consumption

• Will result in 100% recovery
• Less direct accountability for usage

Fixed Allocation based

• n Actual Consumption
• Will result in 100% recovery
• Less direct accountability for usage
• A consumer’s percentage can change solely based on

another consumer’s actions

• Dollar fluctuations more difficult to explain

True-up Options

Periodic True Up

• Will result in 100% recovery

and charges to lines of business

• Additional Monthly, Quarterly, or Annual calculations

and processing

• Manage Over Under

No True Up

• Less processing and

complexity

• Less accurate allocation of total IT cost to Lines of

Business

• Manage Over Under

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Value of Transparency

• Aligns IT spend to business value
• Enables the CIO to transition from defending the budget to gaining support

for new initiatives

• Elevates IT from a cost center to a business partner by developing trust
• Provides several dimensions of TCO (service, consumer, application,

business capability), with each dimension providing insights to key stakeholders.

• Empowers practitioners to fully analyze, communicate, and justify the cost of

services they deliver to the overall organization

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Stay Focused On Value & Outcomes

• Do you enable impactful decision making?
• Has it improved your relationship with the consumer?
• Do consumers value IT?

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Words of Wisdom

• Stay Aligned with Value – success of your program will be based on the value you

provide to your stakeholders. The more aligned with value you are, the more support you will get.

• Educate & Enable – educate and enable everyone on the IT Finance mission and what you
• produce. Expose your roadmap and explain your impact.
• Constant Proactive Improvement – make incremental improvements – stay aligned with

value – with value you gain support to take the next step – technology and innovation never stop and neither does change for IT Finance.

• Answer the Questions, Gain Trust – be fast, be accurate, be detailed, be insightful –

these are all key to becoming a trusted partner.

• Be Friendly – be a friendly, confident, and calming voice throughout the process; diffuse

stressful conversation with facts, analysis, transparency, and insights.

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Thank You

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