Transcript DaimlerChrysler Financial Services IT Finance Management

IT FINANCIAL SERVICES MANAGEMENT
PRESENTED TO: SIR OMMAR HAYAAT.
BY
MUHAMMAD SUHAIL ASLAM
AND SABIR AHMED.
MS-IT
BIZTEK KARACHI.
PAGE 1
FINANCIAL MANAGEMENT
FOR AN IT SERVICE ORGANIZATION
AGENDA
Running Internal
Services Organizations
like a business
Roles of Financial
Management for Internal
Services Organizations
Overview of some
leading financial
management practices
for Internal Service
Organizations
Recommended Next
Steps
MANY INTERNAL SERVICE ORGANIZATIONS FACE
SIMILAR CHALLENGES
External Competition – Customers perceptually benchmark them
against External Service Providers, creating external competition
and outsourcing pressures.
.
P
Demand Management – They are funded as a utility to provide
lowest-common-denominator, “one size fits all” service. No ability
to scale resources to demand. Demand perpetually exceeds
D
Q supply.
S
Operational Effectiveness – They have historically been run as a
cost center with management emphasis on sticking to budget,
rather than service quality, reliability and cost effectiveness. Now
these things matter, and traditional competencies are insufficient.
Unclear Value Proposition – The value they deliver
to the business in relation to your costs cannot be demonstrated.
Their customers assume the worst.
CFO ISSUES WITH IT
We often hear recurring and disturbing themes from our clients that
many CFOs think:
IT is a cost to be controlled and reduced.
IT investments are high risk, relative to other potential investments.
IT projects continually go wrong.
Too many business problems seem to have an IT-based solution.
IT organizations do not understand their costs, and their ability to
conduct financial planning is poor.
There are large pockets of “hidden” IT spending
Other IT service providers can deliver value and control their costs
better than an internal IT organization.
IT organizations have no clear idea about their efficiency relative to
others and the market.
A partial list of issues / challenges facing
Chief Financial Officers.
FUNDAMENTAL CYCLE OF TASKS WHEN RUNNING ANY BUSINESS: THESE
ALSO APPLY TO SERVICES SUCH AS IT
Update products,
services based on
changing customer
needs and iterative
understanding of
Deliver
customer satisfaction
products, services
Specify target
market,
understand
customer
constituencies
Define and develop
products, services
Market, sell
products, services
Price products/services
(value-based, cost-plus,
competitive pricing)
Understand costs
Forecast
demand
PAGE 6
THE SERVICE-BASED IT
ORGANIZATIONAL FRAMEWORK
Operations Management Capabilities
Relationship Mgt
Product
Management
Delivery Management
Quality
Assurance
Service A
Outcome
Cust.
1
Service A
Process
"Red"
Cust.
2
Service B
Process
"Blue"
Service B
Outcome
Cust.
3
Service C
Process
"Green"
Service C
Outcome
Sales, etc.
Product
Development
Process Engineering
Measurement
Operations Execution Capabilities
PAGE 7
SERVICE FULFILLMENT:
PROCESS, PEOPLE, STRUCTURE AND TOOLS
The Service Management Universe
Structure
People
Service
Process
Definition
Tools
Integrated Process Teams
Server
Security
Network
Help
Integrated Process
Admin.
Admin.
Mgmt. Teams Desk
Server
Security
Network
Help
Service: Application
Hosting
Admin.
Admin.
Mgmt.
Desk
Sample Processes: Change management,
Service: Application Hosting
problem management, availability management
Sample Processes: firewall mgmt., database
mgmt., production control,
data center
mgmt. Support
Service:
Workplace
Desktop
Support
Desktop
Support
Sample Processes: user
ID/account
maintenance;
PC configuration,
Service:
Workplace
Support
installation,
maintenance;
trouble shooting,
first-level/just-in-time
help
Sample Processes:
user ID/account
maintenance;
PC config., install,
maintenance; trouble shooting, first-level/just-in-time help
Process Automation
Process Automation
PAGE 8
CONTRASTING TRADITIONAL IT VS. SERVICEBASED IT ORGANIZATIONS
The differences between a Tradition IT organization and a Service IT
organization require vastly different behaviours, not only from IT, but also from
its business customers as both groups learn new interaction styles.
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IMPLICATIONS OF FINANCIAL MANAGEMENT
FOR A SERVICE-BASED ORGANIZATION
From







Cost Center
“Guaranteed” funding
Service is free
Real costs of Service is
elusive
Estimated budgeting
and forecasting
Internal focus
Compete with self and
peer organizations
To







“Value Center”
“Self-funded”
Service is not free
Service Delivery
Organization has a
financial statement
Accurate budgeting and
forecasting required –
costs are known
“Client” focus
Compete with external
service providers
PAGE 10
CAPABILITIES NEEDED TO MANAGE A SERVICE
ORGANIZATION
Capabilities
Needed
Financial and Business Management
Competitive Analysis * Financial Management * Product
Development * Product/Service Bundling *
Pricing Strategies
Demand Management
Business Development * Relationship Management * Sales
* Marketing * Communications * Market Research
Skills
Gap
Resource Management
Strategic Sourcing * Capability Management * Skills
Management * Recruitment/Retention * Continuous
Development * Compensation/Rewards
Process Management
Process Engineering * Measurement * Quality Assurance
Current
PAGE 11
THE STRATEGIC IT FINANCIAL MANAGEMENT
MATURITY MODEL
EVOLUTION THROUGH FIVE STAGES
Increasing need
for flexibility
Increasing need
for transparency
Increasing need
for sophistication
Black Box
Glass
Box
1
2
Simple
Portfolio
3
Comprehensive
Portfolio
4
Enterprise
Portfolio
5
 Stage 1: IM/IT spending is a “black box.” The budget is a single number. Business does not know how
the budget is spent.
 Stage 2: IM/IT spending is a “glass box.” The budget is still a lump sum allocated as the CIO sees fit, but
business has some input.
 Stage 3: IM/IT spending is a simple portfolio. The budget has two goals: Keep the lights on and invest in
the business.
 Stage 4: IM/IT spending is a comprehensive portfolio; IT is viewed as an investment portfolio.
 Stage 5: IM/IT spending is an enterprise portfolio; IT expenditures are business expenditures.
PAGE 12
RUN, GROW AND TRANSFORM - GARTNER’S STANDARD DEFINITION
There are 3 basic categories in which IT assets and investments can
provide value to the business.
Spending Categories & Business Value
Business Transformation
Run
This is IT spending that supports major business transformation.
This can be IT replacing traditional business processes, supporting
new lines of business, new products and services and new
business models. Emphasis: ROI
Grow the Business
IT spending that is dedicated to “grow” the business activity
supports organic business growth – this is
typically fuelled by increased customer demand.
Emphasis: ROI
New
Revenue
Income
Growth
Protecting
Revenue
and
Margin
Transform
IT on IT
Optimization
Run the Business
IT spending to run the business includes the IT support of
day-to-day operations – IT on IT improvements are also
classified as run. Run the business activities are necessary to keep the core
business functions operating. Emphasis: Protect business & efficiency
PA
GE
13
Regulation
Support
Revenue
Growth
Grow
IT FINANCIAL MANAGEMENT MISSION AND ROLES
THE “PROCESS” OF IT FINANCIAL MANAGEMENT
Source: OCG (http://www.itil.co.uk)
PA
GE
14
IT Financial Management Mission and Roles
The “Roles” of IT Financial Management
There are many job tasks and competencies associated with IT financial management that vary from
organization to organization. Not all IT financial managers are involved in all the activities discussed in this
research. However, many IT financial managers perform the majority of these tasks. The main job functions
of IT financial managers can be grouped into the following categories.
Financial Planning
Financial Management
The financial planning aspects of IT financial management
may include:
The financial management aspects of IT financial
management may include:
• IT budget development
• Development and implementation of service pricing and
chargeback models
• Capital planning
• Break-even and ROI analysis for projects and initiatives
• Contract management
• Procurement
• Project prioritization
• Asset management
• IT cost reduction
Financial Analysis
The financial analysis aspects of IT financial management
may include:
• Post-implementation auditing of projects
• Financial modeling and what-if analysis
• Activity-based costing
• IT cost trend analysis
Measurement
The measurement aspects of IT financial management
may include:
• IT cost benchmarking and unit cost analysis
• IT value measurement (for example, the development
of key performance indicators and balanced
scorecards)
Source: How to Define IT Financial Management Competencies and Roles
PAGE 15
FRAMEWORKS FOR TRACKING IT COSTS:
YOU’LL NEED MORE THAN ONE
Activity-based view
The general ledger view
Internal Staff
Hardware
Software
External Services
Telecom
Other
33%
21%
18%
15%
12%
1%
 Disaster recovery
 Workplace services
 Data-center operations
 Sales
 Marketing
Costs of key
activities or
services
IT costs of
business processes
Process-based view
Costs associated
with major
IT categories
Product launch
Compliance
testing
Documentation
development
PAGE 16
TCO IS MORE THAN JUST COSTS
Definition
TCO is the holistic view of IT costs
and issues across enterprise
boundaries over time.
Five Key Elements to Gartner TCO
Hardware and
Software
Downtime
Bill Kirwin, Gartner
Operations
End-User
Operations
Administration
Influencing factors
 Company specifications (industry, size $, region, end-user type)
 Asset Base (type, size, age, etc.)
 IT Environment Complexity (end user, hardware & software)
 IT Best Practices Deployment
PAGE 17
What Is the Point of Doing TCO?
 Establish a basis for understanding the economic aspects of IT
assets and their use.
 Better understanding of how IT investments support — or don't
support — enterprise business goals and processes.
 Gain objective information on costs and savings opportunities in
"right-sizing," internal resource allocation and alternate service
delivery options.
 Identify and implement strategies for improving operations and
performance.
 Gain comparative, competitive data against other world-class
organizations.
 Understand key metrics and measurements needed to better run IS
operations and provide value back to the enterprise.
PAGE 18
ACTION PLAN
Work with the Service Delivery Organization to define services in business value
terms, specifying:
 What the services are,
 How they're bundled or packaged, and
 What benefits they deliver
Establish a Baseline of Current Spending – Distinguishing between:
 Costs to run the operations (“Keeping the Lights On”)
 Projects (Discretionary Investment)
Establish Total Costs for Services
 Keeping this separate from funding
Help to manage Demand - Communicate results and resources consumed
 Breaking the culture of ‘free services’
PAGE 19