Todd Tucker, Director of Strategic Marketing at Apptio, discusses fixed costs and how IT can reduce them. He explains that fixed costs hinder financial agility and distort unit costs. The presentation identifies three bad habits that drive fixed costs: making capacity decisions in silos, failing to consider ongoing costs of new investments, and delivering excess services. Tucker describes how Apptio's Technology Business Management tools provide insights into total cost of ownership, capacity utilization, and service costs to help IT optimize resources and reduce fixed costs.

1. Fixed Costs: Three Bad Habits that
IT Finance Must Quit
Todd Tucker
Director, Strategic Marketing, Apptio
Research Director, TBM Council
© 2013 Apptio, Inc. All rights reserved.

2. Agenda
What are fixed costs and why do they matter?
What are the 3 bad habits that drive fixed costs?
What can you do with Apptio to change those habits?
How does Apptio measure fixed/variable costs?
Questions?
Where to learn more.
1
© 2013 Apptio, Inc. All rights reserved.

3. Variable Costs Illustrated
The Truth about Variable Costs:
 On-demand services (public cloud)
 Some power & cooling
 Few cloud services are purchased as ondemand
 Many telecom costs (including mobile)
Total Cost
Variable Cost Examples:
 Much power & cooling and telecom is fixed
 Some hardware
(depreciation and/or expensed amounts)
 Capacity costs (investments) are not easily
reversed
 Purchased end-user software
(amortization/maintenance/subscriptions)
Volumes You Deliver
2
© 2013 Apptio, Inc. All rights reserved.

4. Fixed Costs Illustrated
The Truth about Fixed Costs:
 Enterprise license agreements (ELAs)
 Some power & cooling
Total Cost
Fixed Cost Examples:
 Almost all fixed costs are variable in the
long-term (step-function costs)
 Most facilities costs including data center
networking (only within a particular volume
range)
 Fixed costs usually represent your
greatest opportunity for both short- and
long-term cost reduction
 Developed end-user software
(amortization/maintenance)
Volumes You Deliver
3
© 2013 Apptio, Inc. All rights reserved.

5. Most Capacity Costs Are Step-Function
The Truth about Step Costs:
 Data centers including power/cooling
equipment, data center networking
 With smaller, more frequent steps, they
appear variable
 Support labor
Total Cost
Step-Cost Examples:
 Like other capacity costs, the problem is
they don’t always fall with declining
volumes
 Server/compute hardware and support
software
Volumes You Deliver
4
© 2013 Apptio, Inc. All rights reserved.

6. Why Do Fixed Costs Do Matter?
On the negative side…
On the plus side…
•
Hinder financial agility
•
•
Distort your unit costs (when
actual volumes don’t match
planned volumes)
Fixed assets (common source of
fixed costs) sometimes improve
corporate valuations
•
Fixed costs can be leveraged for
unit cost benefits
•
Variable cost services are often
more expensive on a
price/performance basis
•
•
5
Contribute to under- and overrecovery of costs (for shops that
charge back)
Eliminate practical levers for BUs
to alter consumption
© 2013 Apptio, Inc. All rights reserved.

7. Fixed Costs Create an Opportunity with a Risk
“One man’s
variable
costs are
another
man’s
fixed
costs.”
6
© 2013 Apptio, Inc. All rights reserved.

8. Agenda
What are fixed costs and why do they matter?
What are the 3 bad habits that drive fixed costs?
What can you do with Apptio to change those habits?
How does Apptio measure fixed/variable costs?
Questions?
Where to learn more.
7
© 2013 Apptio, Inc. All rights reserved.

9. Habit
Making capacity
decisions in silos
without insights
Failing to appreciate
the “opex” hangover
of new investments
Delivery of services
in excess of the
demand for them
Impact
The Three Worst Habits
Excess capacity
consumes significant
time and budget
RtB grows or holds
steady at 70% to 80%
of IT budget
Business value is not
commensurate with
total cost
8
© 2013 Apptio, Inc. All rights reserved.

10. Agenda
What are fixed costs and why do they matter?
What are the 3 bad habits that drive fixed costs?
What can you do with Apptio to change those habits?
How does Apptio measure fixed/variable costs?
Questions?
Where to learn more.
9
© 2013 Apptio, Inc. All rights reserved.

11. Apptio TBM. The Business System For IT.
Apptio Technology Business Management
Analytics, data and process to manage IT cost, quality & usage for value
COST
TRANSPARENCY
IT
BENCHMARKING
Total & Unit Cost
Peer Cost Metrics
•
•
•
•
•
•
Subscription to data from
more than 3,400 peers
across 28 industries, e.g.
GL & Cost Pools
Tower & Products
Applications
Products
Vendors
Projects
Spend Views
• Budget Variance
• OpEx & CapEx
• Fixed/Variable
• Time period, location…
Sample Unit Costs:
• Wintel
• SAP per Employee
• Mainframe MIPs
• Network Port
• SAN GB
• Email
• Mailbox
BILL
OF IT
IT
PLANNING
Usage, Quality, Cost &
Business Impact
Showback/Chargeback
of Cost & Consumption
Demand & Budget
• Infrastructure
• Apps & Services
• Vendors
•
•
•
•
•
•
BUSINESS
INSIGHTS
Breakouts include
• Infra use per app
• % capacity utilization
• Allocated / used
• App portfolio attributes
• Asset lifecycle status
• Vendor performance
Data Quality Reporting
10
© 2013 Apptio, All rights reserved
•
•
•
•
•
Business unit
End user
Service level
Business capability
Business metrics
Rates management
Cost center
Budget center
Business unit
Service
Resource
Process Capabilities
Process Capabilities
•
•
•
•
•
•
BU self-service: w/ What-If
Approvals
Adjustments
Data entry
XLS upload
Status & approvals

12. Make Better Capacity Decisions
Give your decision makers
insights, such as:
 Total Cost and Unit Cost (Trend over
time) and Cost of Used/Unused
Capacity
 Breakdown by
Physical/Virtual, Type, Tier, Location
, Application, Consumer, OS, Class,
etc.
 Median and Peak averages of
utilization
11
© 2013 Apptio, All rights reserved

13. Enable People to Use TCO/Capacity Insights
 Train tower
owners, capacity
managers and
purchasing managers
on using reports
 Work with them to set
capacity utilization
targets/thresholds
 Incorporate utilization
and TCO data into
purchasing decisions
12
© 2013 Apptio, All rights reserved

14. Know the TCO of Your Services
Give app/service/tower owners:
 TCO per App across the Portfolio
 TCO Trends (MoM, QtD, YtD)
 Cost Decomposition to Resources and
Cost Pools
 Budget Variance by Application
 Application Run vs. Dev Cost breakdown
 License/User Counts and Unit TCO of
applications/services
 Support Tickets per App/Service
13
© 2013 Apptio, All rights reserved

15. Enable People to Use App/Service TCO Insights
 Train service
owners, app
owners, architects and
others on using reports
 Work with them to set
unit TCO goals
 Incorporate app/service
TCO data into your
portfolio management
(rationalization)
programs
14
© 2013 Apptio, All rights reserved

16. Be Transparent to Your Business Partners
Give your business partners:
 Cost and consumption of your
services, technologies, projects
 Ability to drill down to understand
and verify details
 Easy way to report errors or
disputes
 An understanding of which levers
they can pull to manage their own
consumption/costs
15
© 2013 Apptio, All rights reserved

17. Enable People to Use Showback/Bills
 Train business partners
and business relationship
managers on how to use
bills/reports
 Create alternatives from
which BU partners can
choose more cost effective
services
 Consider chargebacks to
drive accountability for
consumption
16
© 2013 Apptio, All rights reserved

18. Other Things That Can Reduce Fixed Costs
 On-demand cloud
services to reduce
purchased
infrastructure
 Use private cloud to
drive up utilization rates
and thus higher ROITA
 Take smaller steps in
acquiring new capacity
17
© 2013 Apptio, All rights reserved

19. Agenda
What are fixed costs and why do they matter?
What are the 3 bad habits that drive fixed costs?
What can you do with Apptio to change those habits?
How does Apptio measure fixed/variable costs?
Questions?
Where to learn more.
18
© 2013 Apptio, Inc. All rights reserved.

20. How We Measure Fixed/Variable
 Tags are applied to
cost source data
(general ledger,
fixed assets, labor
data)
 Imperfect…
 But allows tracing
of fixed/variable
through model
layers (e.g., up to
services)
19
© 2013 Apptio, All rights reserved

21. Questions?

22. Where to Learn More
 Download principal member
teleconference summary on
fixed/variable:
bit.ly/tbmc_1303_telecon
 Get a demo of Apptio
www.apptio.com/get-started
 Join the TBM Council
bit.ly/JoinTBMC
21
© 2013 Apptio, Inc. All rights reserved.

23. Thank You!
Todd Tucker
TTucker@Apptio.com
22
© 2013 Apptio, Inc. All rights reserved.