1. CORNERSTONES TO MANAGING INFORMATION TECHNOLOGY

2. WHY SERVICE LEVEL AGREEMENTS? Customer Perceptions---Fantasy? Customer Expectations---Reality Customer Agreements---Targets @ What Cost

3. Define user measures and targets across all IT services Define what users are doing themselves Determine which are most important Survey users on subjective topics Perform periodic reviews with users/management IT Scorecard User GM

4. Compare to external benchmarks Establish continuous improvement goals Determine level of IT incentive pay Update as business changes IT Scorecard User GM

5. A critical piece of SLA’s is defining for all users the cost of meeting their “requirement” Let’s examine a study done by Booz-Allen for TXU to explore this further

6. BUSINESS ENVIRONMENT Business Growth Industry Restructuring (regulated vs. non-regulated) Shared Service Implementation Increasing Total I/T Costs NEW DEMANDS ON I/T COST MANAGEMENT Support new acquisitions cost- effectively Achieve scale benefits Support variety of business strategies Share resources without cross-subsidizing Demonstrate fair, equitable costs Support shifts in buying behavior, service level planning and scope management Drive down overhead Provide means for business to access value of I/T services

7. CURRENT CHARGEOUT MODEL Accounting tool to support cost recovery Difficult to understand Lack of options Year-end surprises Costs perceived as high Lack of control TARGET CHARGEOUT MODEL Communication tool to support sound business decisions Clear service definitions and pricing Product and service level options True-up when variance identified Costs are understandable Predictable fixed costs; determinable variable costs

8. FIRST STEP IS TO UNDERSTAND TXU’S I/T PRIORITIES What is the role of I/T in your business unit? Potential options include: –Provide necessary back office functionality –Help drive down operational costs –Support business growth via common infrastructure –Enable improved competitive positioning –Information management as a part of your service What are your future I/T priorities? What processes are used for managing I/T demand? How are budgets set? How are projects selected? What are your I/T cost management needs? Potential options include: –Understand the costs –Lower the costs –Support business decisions –Identify problem areas

9. EXPERIENCE WITH DIRECT CHARGEOUTS HAS HELPED TO IDENTIFY SEVERAL IMPORTANT PRINCIPLES Chargeout systems should be simple and equitable Chargeout approaches should, where possible, support the business vision(s) I/T should charge by service and prices should reflect full costs

10. EXPERIENCE WITH DIRECT CHARGEOUTS HAS HELPED TO IDENTIFY SEVERAL IMPORTANT PRINCIPLES Predictable or fixed I/T costs should be allocated annually based on simple drivers, and billed monthly or quarterly Discretionary and highly variable costs should be billed based on usage Chargeout pricing should be benchmarkable

11. EXPERIENCE WITH DIRECT CHARGEOUTS HAS HELPED TO IDENTIFY SEVERAL IMPORTANT PRINCIPLES Chargeout pricing must be auditable and defensible Chargeout systems should facilitate the reporting of total costs by business process The goal of chargeout is communication, not accounting

12. WE ARE AWARE OF SOME INCONSISTENCIES BETWEEN THE CURRENT CHARGEOUT PROCESS AND THESE PRINCIPLES, AND ARE EVALUATING OPTIONS TO ADDRESS THEM

16. HERE ARE SOME ADDITIONAL CONSIDERATIONS FOR THE NEW CHARGEOUT PROCESS Are our chargeout objectives and principles consistent with yours? Will the options identified address your needs? –Have we covered the right options? –Are there others we should consider? –Should any be taken off the table (e.g., unworkable here?) Are there other chargeout models that make sense to you (e.g., electric bill)? Moving forward, we would like your help assessing various chargeout alternatives (e.g., service level options, new pricing schemes were some prices go up and others down) –What is the best way to work with your organization –Who in your organization would you like to review our design? –How should we handle the change-over?

17. INTERVIEWS WITH BUSINESS UNIT EXECUTIVES HAVE IDENTIFIED PRIORITIES WHICH ARE CONSISTENT WITH THESE PRINCIPLES BUSINESS UNIT TOP PRIORITIES Understandable methodologies and algorithms, simple calculations Predictable monthly costs Separation of what can be controlled by the users (e.g., variable costs billed per unit) vs. what can’t be controlled (long-term fixed costs) Greater explanation of why things are the way they are, and greater visibility into what I/T is doing More choices of products and service levels Ability to monitor I/T cost effectiveness vs. the outside market and the option to not subscribe if I/T does not provide sufficient value