1. IT Cost Optimization using a Financial Management for IT Service Approach
Transforming Information Technology departments into IT Service Management (ITSM) organizations

2. About Us
Keeping Enterprise Data and Applications Resilient using information technologies
An innovative IT Service Management consulting company creating IT Governance solutions from strategy to implementation .
Founded 2001
Headquarters in Lewisville, TX
Offices in Fort Worth and Washington, DC
Operations in San Diego and Singapore
Certifications
Minority Business Enterprise (MBE)
Service Disabled Veteran Owned Business
Texas Historically Underutilized Business (HUB)
Staff
16 consultants and developers
Define where resources are or can be drawn from 2 2

3. Some Of Our Customers 3 3

4. Evolution Of IT And Financial Management
Manual Processes
CRM
SCM
ERP
Single-function Applications AR AP G L
CIM
CIM = Customer Inventory Management, AR = Accounts Receivable, AP = Accounts Payable, GL = General Ledger
CRM = Customer Relationship Management, SCM = Supply Chain Management, ERP = Enterprise Resource Planning
<1970
1970s to early 90s
Early 90s to present
Present to 2015+
Cloud Computing
Virtualization
SaaS
Distributed Systems
Composite Services 4

5. What is IT Financial Management?
Financial Management within an IT function performs activities that develop and maintain business intelligence systems which:
Follow general accounting practices,
Apply managerial accounting concepts and disciplines, and
Map to approved business objectives.
IT Financial Management is different from Accounting or Investment Management.
The overall mission of IT Financial Management is to provide timely and accurate information that:
Achieve the main goal of the Financial Department – supporting top management’s direction, control and decision making
Provide clarity and understanding to Business Unit Executives about the financial benefits and relevance of IT decisions
Describe how technology investments and changes deliver business value 5

6. IT Financial Management Activities
Strategy
Policy
Planning
Pricing
Investment
Budgeting
Annual
Forecast
Optimization
Accounting
Closure
Delta Management
Allocation
Charging
Value Statement
These processes and combinations of IT Financial Management activities are examples that give you a high-level overview of IT Financial Management activities performed by an IT Department.
For example, if your level of IT Financial Maturity is at a “Internal IT Department” level then pricing and charging may not apply. Or, if you at a Market Service Provider level additional activities may be required.
THE STRATEGY PROCESS
Policies – activities that define clear guidelines and practices for budgeting and accounting for all people, process and technology. Some are developed and some are dictated by regulations
Planning – activities that predict and control spending to achieve business objectives in the medium and log term
Pricing – activities that determine the selling/allocation price of IT services
Investment – activities to that compare the cost with the expected benefit from implementing an initiative
THE BUDGETING PROCESS
Annual – activities that ensure the correct financial management 12 month budget is defined, and is also a means of delegating control with targets
Forecast – activities aimed at periodically defining costs and/or revenues compared with budget
Optimization – activities that determine the value of IT services and reduce costs for improved effectiveness and agility
THE ACCOUNTING PROCESS
Closure – Activities that provide accurate and reliable business intelligence about costs and/or revenues over a period
Delta Management – activities that make decisions on comparison of Forecast and Actual at the time determined
THE ALLOCATION PROCESS
Charging and/or Value Statement – activities that define customer charges and statement of value according to agreed terms 6

7. IT Financial Management Maturity Levels
Market Provider
Enterprise Provider
Internal IT Department
Maturity and Complexity
OBJECTIVE: Ensure total evaluation of IT Services provisioning and sustainable value for users and/or customers.
OBJECTIVE: Apply budgeting and accounting practices for IT Services to establish allocation or charging systems.
OBJECTIVE: Determine the cost of business functions and value of assets to achieve business goals.
Our experience with large and medium size IT organization across multiple industries has resulted both IT Departments and organizations and their financial management maturity can be defined into levels.
Internal IT Department : Acts as an internal function providing applications and infrastructure to the business.. The budget is generally structured around the IT function and the activities/projects it manages. The core financial topic evolves around new investments in IT. IT actual costs versus budget and financial plans, If a charging system is in place, it is rarely driven by service consumption.
Enterprise Service Provider : Adopted service management approach and a philosophy focused on delivering improved service and support, and cost optimization. Identified services and determined how to handle financial management information aimed at charging for IT services or allocating cost based on value.
Service Provider Vendor : Core business competes in the market place to provision IT service(s) for use by external companies. There is no difference between financial management and IT financial management. Financial management is focused on the whole service provider organization and profit driven.
This evolutionary path for IT Financial Management has more to do with maturity than complexity. Even though it is reasonable to think that this has more to do with organizational size, complexity, and business objective. Regardless of the rationale, the point is that today’s IT organization should develop IT services that can be financially measured and create value for their customers. From this perspective, IT financial management maturity aims to support the IT Department with data and analysis that define strategies, controls spending, and determines the total cost of delivering an IT Service and the total value to the business that uses the service. 7

8. Untangling The IT Hairball 8
Tell a story about our experience with CIO’s that perceive the complexity of IT to be like a Hairball. 8

9. Configuration Management Incident & Problem Management
IT Is Complex
Configuration Management
Change Management
Incident & Problem Management
From an internal IT perspective, IT operates on 4 dimensional levels.
Physical Level – fixed assets and users that consume services
Organizational Level – functional areas aligned and organizationally staffed to deliver services and provide support
Process Level – to ensure quality and efficiency in dealing with the velocity of business change on technology
Financial Level – to perform financial due diligence and accountability for all services delivered and operations performed. 9 9

10. The IT Hairball We keep feeding it We can’t describe it
It’s difficult to unwind
It keeps growing in complexity
Justifying improvements is difficult
Changes often causes more problems
We can’t benchmark because value or cost of services are not defined
Typical conversation …
“We need virtualization.
Why?
Because we should, and we need to build it to scale.
Because others are doing it?
To lower cost.
How much cost can we reduce?
We don’t know. But we need to do it anyway.” 10

11. What The Business Wants
IT Service
Network
Domains
Storage
Application
Workstation
Services defined in terms of the availability, responsiveness, integrity, and security delivered to all IT users of the service.
This is where [Company] is leveraging its process architecture work to align service delivery to business needs
Historically, IT managers have measured the effectiveness of their organizations by looking at the individual hardware and software components. In the beginning, this made perfect sense. Today, analyzing individual components provides information that is relevant and important for managing a specific device or component, but it does not provide a perspective on the overall service being provided to the end user.
This means IT organizations must thoroughly understand each service it provides, its relative priority and business importance.
An SLA (Service Level Agreement) is a documented agreement between IT and its Customer (Internal to an Organization), on the levels of a service being provided. In my opinion the most important aspect of an SLA is that it is an Agreement and hence bears no contractual weight to meet these targets but it is still a commitment.
The SLA should not favor one side but be a fair reflection of what the business wants and what IT can
provide and not a smoking gun held pointing towards IT or a method of avoiding providing an adequate
service to the business.
It does however set expectations’ of what should be provided. The obvious risk of missing Service levels
is damage to the business however one of the biggest failings of not hitting agreed Service Levels is the
effect this will have on Customer perception that can ultimately result in Customers losing faith in IT.
Another common failing is the inability for organizations to create agreements which are simple to read
and concise. An SLA should not be twenty pages long (and my experience this is not uncommon) but be
simple, easy to read and preferably no longer than 3 to 4 pages.
ITIL itself identifies ways of making this work across large organizations with multiple services. The use of:
Customer based SLAs (one SLA per Customer across multiple services), and
Service Based SLAs (one SLA per service)
Multi-tiered SLAs where there will be Corporate based SLAs, Customer based SLAs and then Service Based SLAs in three tier format all offer the ability to enable the creation of simple easy to manage SLAs.
Technology Centers of Excellence 11

12. Unanswered Questions What is the cost of each service?
What are the service cost drivers?
How many services do we support?
What is the demand and usage of services?
What is the cost to complete a service work unit?
How viable are ‘managed services’ solutions for us?
Who are involved, and what are their roles?
KEY NOTE:
You will see how our Cop-S Solution allows you to quickly answer all and more of the Unanswered Service Questions. 12 12

13. IT Financial Management Strategies
Total Cost of Ownership (TCO) is the total of direct capital investment in hardware and software plus indirect costs of installation, training, repairs, downtime, technical support, and upgrading.
Activity-based costing (ABC) is a costing model that identifies activities in an organization and assigns the cost of each activity resource to all products and services according to the actual consumption by each: it assigns more indirect costs (overhead) into direct costs.
Financial Management for IT Services (FMITS) is cost effective stewardship of IT assets and resources used in providing IT Services. It is used to plan, control and recover costs expended in providing the IT Service negotiated and agreed to – typically in the Service Level Agreement (SLA). 13

14. What the Cost Optimization Service (COp-S™) Delivers14

15. Advanced IT Financial Management
Budgets, Inventory & Resources
Services Cost
Accurate Services Costing
& Charging
Detail Supply-Chain BI
Value Alignment
Service & Customer Catalog
Optimized Service Costs
Staff & Process Utilization
Value Aligned Work Activity
What-If Analysis
Accurate Forecast Planning
Client Data
COp-S™ Features
Client Benefits 15

16. Improved Capabilities
Cost Transparency
Line of Business
IT Organ- ization
Value Alignment
Business Objectives
IT Resources
Business Intelligence
Cost Drivers
Unit Cost
Just gathering IT Financial Management data and information in today’s complex and face paced business environments is not enough. Successful IT Departments and CIOs are providing automated transparency, value alignment, and business intelligence capabilities to Business Unit Executives, the CFO and CEO, and internal to the IT Department. We have experienced IT Departments addressed these CSFs using our Cost Optimization Service SaaS solution achieve 3% to 8% cost reductions, develop innovative IT Service delivery approaches jointly with Business Units, and attain higher levels of customer satisfaction with minimal or no additional cost.
Todays successful and IT Financial Management mature IT Department must:
Make IT Service cost more transparent to Business Unit Executives to facilitate open dialog about costs,
Align and monetize the value of IT services to the mission of the Business Unit, and
Provide the Business Intelligence information and capability that allow Business Unit Executives to easily control and/or be innovative regarding their utilization of IT Services 16

17. Comprehensive Evaluation Cycle
Cost Optimization Service allows CIOs to deliver the Cost Transparency, monetized Value, and detail Business Intelligence C-Executive and their staff need to work collaboratively to develop innovative cost optimizations, and other solutions that directly impact the strategic business objectives and IT spending. 17

18. Optimization and Reduction Opportunities
Opportunity
Description
Saving
Platform Standardization & Consolidation
Consolidation of Data Centers, Tools, and Organizational Roles
Standardization of Technology Platforms
8% - 20%
Contract Negotiations, Vendor Process and Interactions Management Optimization
Vendor Management
8% - 16%
Process Standardization
Operations, Development, Engineering, and Service Management
6% - 14%
Usage Transparency
Cost visibility of the IT supply chain
3% - 8%
Strategic Sourcing
Right Place, Right Cost
2% - 8%
Project Phases
Define Technical Services; Prepare catalog framework
Define Business Services and Consumers; Prepare catalog framework
Identify Unit of Measure for each Business Service
Identify Total Number of Units for each Unit of Measure
Align Business Services to Consumers
Align Technical Services to Business Services
Align Activities to Technology Resources
Align Technology Resources to Technical Services
Procurement Controls
Using approved vendors within parameters of negotiated contracts
2% - 10%
Needs-based Segmentation
Meet needs with cheaper and/or more efficient alternatives
2% - 5%
Source: Corporate Executive Board Study 18

19. Cost Optimization Service
(COp-S™ )
Solution Overview 19

20. Organizational Structure
SaaS Architecture
Financial Impact
Resource Usage
Organizational Structure
Consumer Demand
Service Cost Drivers
Service Managers
Cost Optimization Service
Cost Modeler
Reference
Library
Obtain an organization chart
Meet with directors, do show and tell, define what they will enter, show what they will receive, set expectations, determine the number of sub organizations that will participate
Determine what is supported
Identify db recipient, and Due Back By … date, Construct the workload database
Fill in the client company description part of the workload database, Label as Client Master
Distribute copies
As databases are received, create appropriate reports, send to participant
Receive final databases, construct the complete organization, run reports
Analyze for opportunities and discuss with management
Catalog of Services
Customers and Other Managers 20 20

21. Cost Modeling Framework
Expense
Customer
Service
Direct/Indirect
Allocation
Alignment
Service
Units
Utilization
Demand
Outcome
Resources
Revenue
Service Cost = 21

22. Shared Infrastructure
Methodology
Consumers
Cust. 1
Cust. 2
Cust. 3
Cust. 4
Cust. 5
Business Service
(per mailbox)
Technical Service
Shared Infrastructure
Applications
Security
Resources
Network
(bandwidth %)
Servers
(by the Server)
Storage
(by the Tb)
Applications
(% usage)
Labor
(Work Activities)
Projects
(Resource & Effort) 22

23. Engagement Deliverables
Service-based Cost Model
Services Alignment and Usage
Services Cost Allocation
Demand Management
IT Service Business Intelligence
Service Cost Drivers and Unit Cost
Comprehensive Service Cost Metrics
Organizational FTE Utilization
ITIL Adoption Assessment
Cost Optimization/Reduction
Recommendations
Implementation Roadmap 23

24. Business Intelligence (BI) Dashboards and Reports24

25. Customer Dashboard 25

26. Business Services Summary3 7 4 5 6 8 2 1
No.
Description 1
# of Business Services 2
Name of Business Service 3
Total annual IT Business Services budget 4
IT Department name responsible for Business Service Cost 5
Annual number of budgeted Business Service units 6
Description of Business Service units
No.
Description 7
Total number of Business Service customers 8
Annual cost per Business Service of:
Activity – all people cost
Technology – all technology and facility cost
Indirect – all indirect cost
Total – the total of all cost
% - the per of the Total Annual Cost 26
Proprietary & Confidential — Copyright ©2010 KEDAR Information Technologies, Inc.

27. Business Service Dashboard27

28. Technical Service Cost Detail1 4 5 6 3 2
No.
Description 1
IT Department name responsible for Technical Service Cost 2
Technical Group name for Technical Services 3
Name of the Technical Service 4
Annual Technical Service labor cost 5
Annual Technical Service technology component cost 6
Annual Technical Service total cost 28
Proprietary & Confidential — Copyright ©2010 KEDAR Information Technologies, Inc.

29. Technical Services Dashboard29

30. FTE Utilization Dashboard
bBB
FTE Utilization Dashboard 2 1 4 3
No.
Description 1
Indicator of the number of FTE above/below 100% of staff 2
Number of an IT Departments above/below needed FTEs 3
Name of the Technical Service 4
Note that FTEs are calculated minus overhead hours 30

31. KEDAR Information Technologies, Inc.
Charles Williams
KEDAR Information Technologies, Inc.
(972)