IT costs management and chargeback to internal BU & subsidiaries

1. IT costs management and
chargeback to internal BU &
subsidiaries
iTOne conference on
Industry sector best practices in IT
Luxembourg – Hamm
April 22nd 2008
L. Remmy, former IT & Telecom Director Rotarex
VP Operations P&T consulting

2. Agenda
Preamble
Identify your IT costs
Chargeback
Practical example
Conclusion
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3. IT costs do matter !!!
Source : “IT doesn’t matter”, Nicholas G. Carr, June 2003, Harvard Business Review
Free to download on http://kazman.shidler.hawaii.edu/carrhbr.pdf
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4. Who knows where IT costs are
going ?
Source : “Six Chix”, Rina Piccolo
http://bitaites.org/2006/page/28
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5. “Why do we get so many IT
employees ?”
Because they are all looking for new and
more productive software development
tools on Internet ….
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6. The “IT costs” Problematic
“Free lunch” aspect of traditional IT activity
model, poor or no cost-benefit analysis : main
objective  launch the project …
Executive Management do not have a clear view
of where the IT budget is spent
BU heads don’t know exactly what they are
paying for …
How can IT staff measure some of their
performance improvements ?
IT is not part of the company’s ERP …
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7. Objectives
Get transparency over the company IT costs
Be able to charge the business owners in accordance to
the IT resources they are using:
“Once managers understand what they are paying for,
their focus quickly changes” Mc Kinsey Quarterly _ Aug. 23 2005 rd
= realistic and figure (or mathematically) justified cost
allocation.
Start some IT performance indicators
In a recession climate, search for cost-justification and
reply to IT cost-cutting pressure
For our IT community : -)
◦  Start identifying what IT activity could be outsourced …
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8. Agenda
Preamble
Identify your IT costs
Chargeback
Practical example
Conclusion
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9. How many companies know their
workstation TCO ?
In 2002, a study from 01net, said that only 30 % of
French companies know their workstations Total Cost
of Ownership …
At that time, the mean TCO was 4000 € but ranging
from 1300 € to 8000 € / PC / year.
Figures from Gartner in 2001/2003 gave a “PC budget
per PC device” of US$ 9300 to 9600 (Discrete
Manufacturing sector, 8100 employees & 286 IT
workforce average)
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10. Who gets the information ?
IT department is, of course, the original
source of information. They know what is
spent for whom. They have the inventory
figures.
But they have to work closely with
Finance / Management Accounting.
Starting point will be the actual figures
and next year budget estimates
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11. The Cost Centers (CC)
Devide the total IT cost by functional area
Source : Gartner Conference, IT cost Management, Luxembourg, Aug. 27 th 2002
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12. The Cost Centers (CC)
You can have has much CC has you want,
but don’t under estimate :
◦ data collection work
◦ invoice encoding work
What will be the cycle used to update BU
information ?
Generally accepted : not more than once
a year.
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13. Agenda
Preamble
Identify your IT costs
Chargeback
Practical example
Conclusion
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14. Definition
IT Chargeback (or charge-out)
= Charging user departments for IT costs
they incur
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15. Methodology
“There is no common chargeback model
to be implemented” - Henri Gilabert –
GLG Conseil
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16. Find the key … ?
You will only finalize the job with your
finance dept. if you get the Key …
Of course, there you can wait a bit before
you know what Finance exactly wants …
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17. Functional vs. IT cost allocation key
Functional
◦ Nb of users
◦ Nb of invoices
It related keys
◦ Nb of PCs
◦ Nb of licences
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18. Best Practice
Keep it simple …
Do not multiply your Cost Centers don’t
go to deeply into details
Keep a good balance between the cost of
chargeback-data collection and the real
utility of data gathered.
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19. Agenda
Preamble
Identify your IT costs
Chargeback
Practical example
Conclusion
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20. Legacy information
2 cost centers
◦ MES (Manufacturing Execution System) or PPS
(Produktionsplanungs- und Steuerungssystem)
◦ EDV or IT
◦ Figures were not up-to-date
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21. Legacy information
2 cost centers
1. MES (Manufacturing Execution System) or
PPS (Produktionsplanungs- und
Steuerungssystem)
2. EDV or IT
◦ Figures were not up-to-date
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22. CC and chargeback key
IT based chargeback keys
◦ 2 tools used to gather data : EZaudit & home
made .Net application
5 Cost Centers with the following keys
Cost Centers CB key
◦ Distributed Computing Luxbg nbr of PCs
◦ MES lic. usage
◦ CAMCAD lic. usage
◦ Developments shortcut pres.
◦ Distributed Computing Out. Luxbg nbr of PCs
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23. IT costs distribution per BU
Consultancy
Software
Hardware
Total IT Dept. expenditures w ith depreciation
Manpower
2005
Training
cost
14%
Telephony – National + International calls + Mobile phone calls
31%
Distr. Computing Lintgen
IT department Computing VPPS Team
22% Computing Development
Computing CAM/CAD
Distributed computing Distr. Comp. Other Sites
Lintgen 17%
16%
Copiers + Faxes
INFOR
163 : 1 PC – 146 € / month
166 : 1 INFOR client – 76 € / month
168 : Devpt based on time spent yearly
Development 169 : 1 CATIA licence – 365 € / month
170 : 1 PC other site – 38 € / month
Total IT Dept. expenditures w ith depreciation
2005
CATIA - PDM
4%
Adm., Fees, Office
Distributed computing 37% Equipment Total
other sites Depreciation Total
46% Manpow er Costs Total
Other
13%
Expanditures managed by IT
but not included IT Dept. Budget Expanditures managed by IT = IT Dept. Budget
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24. -
20,000.00 €
40,000.00 €
60,000.00 €
80,000.00 €
100,000.00 €
120,000.00 €
140,000.00 €
160,000.00 €
180,000.00 €
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IT costs distribution per BU
INFOR
Industry sector best practices in IT
DEVPT
CAM CAD
24
PCs - Distr. Compt. Lintgen
PCs - Distr. Comp. Other Sites

25. IT costs distribution Evolution
Actual C.C. distributuion 2002
15%
EDV
VPPS
Actual C.C. distribution 2004
85%
15%
33% Distr. Computing Lintgen
Computing VPPS Team
21% Computing Development
Computing CAM/CAD
Distr. Comp. Other Sites
10% 21%
Total IT Dept. expenditures with depreciation
2005
14%
31%
Distr. Computing Lintgen
Computing VPPS Team
22% Computing Development
Computing CAM/CAD
Distr. Comp. Other Sites
17%
16%
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26. Results
37 %
Drop
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27. Agenda
Preamble
Identify your IT costs
Chargeback
Practical example
Conclusion
March 12, 2013 Industry sector best practices in IT 27

28. Conclusion
Keep it simple !!! Fairness and simplicity
are key to chargeback (IT Business Edge
Nov 18, 2003)
Start measuring …
Don’t overkill your IT costs :
IT is about innovation … certainly not
only costs !!!
Innovation brought by IT does Matter !!!
Take care of your IT staff
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29. Bibliography
Books
◦ “The effective measurement and Management of IT costs and benefits”,
Dan Remenyi - Arthur Money - Michael Sherwood-Smith, 2nd ed. 2000
◦ “The IT Payoff”, Sarv Devaraj - Rajiv Kohli, 2002
◦ “IT success!”, Michael Gentle Towards a new Model for IT, Dec. 2007
Publications : CIGREF (Organization which promotes Information
systems for business value, Managed by a Board of CIOs elected by other
CIOs )  http://cigref.typepad.fr/cigref_publications/
Magazine’s articles
◦ “Chargeback for Good or Evil” CIO Magazine, March 2003, Malcolm Wheatley
◦ “Refacturer en Interne”, Corinne Zerbib, 01 DSI June 2005,
◦ “IT Budgeting for Uncertain Times”, Brian P. Watson, CIOinsight 2007-09-18,
◦ “The Cost of bad IT economics” Brian P. Watson - Feb. 2008
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30. Thanking you for your attention
Q &A
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