Absorption costing, Activity Based Costing & Standard Costing
1. Tracking and oversight 2. Costing and Charging
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Transcript of 1. Tracking and oversight 2. Costing and Charging
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1. Tracking and oversight 2. Costing and Charging
Assessment & Improvement of
IT Services / IT Service Management
Nynke de Vries
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Tracking and oversight
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Statement
You can not manage what you can not measure
(Informatie, IT-governance special, march 2004)
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Why T & O? Stakeholders
• Customer: performance ICT services and Service delivery: is it according the SLA?
• Supplier: performance service process managementprevent exceeding SLA
• Output:– Reports for evaluation with customer
Changes in specifications service or service delivery Changes in service process costing / charging
– Reports for evaluation with supplier changes infrastructure, processes and / or organisation
– Warning to the supplier while working pro-active management
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Benefit or trouble
• T & O as trouble– spend money– negative control– reduce expances
or• T & O = instrument for improvement
– SLM (service level management)– SPM (service process management)
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Measure trouble or usefull?
• Measuring is spending money• Measuring presses performance• Measuring is annoying, has no use
Rule 1• Only measure what is usefull with regards to
– Reports to customers– Reports to suppliers– Monitoring on behalf of quality agreed
Rule 2• If possible automate!
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You cannot measure of you do not manage…
• Conditions – SLA = SMART– ConfM and IncM do exist– Procedures for measuring and monitoring are clear and
standardized– Clear definitions and specifications
Example:– Don’t count downtime outside working hours customers
but inside working hours suppliers when calculating the availability to customers
– Do count downtime outside working hours customers but inside working hours suppliers when calculating the repair time to improve IT service delivery
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Measuring plan (1)
• Define the systems to be measured or monitored (stakeholder = customer)
• Define underlying resources (ci’s) to be measured or monitored (stakeholder = supplier)
• Remember the BSW model (business / service / work processes)
Business
Service
Work
Books on loan
Bookssearched
Booksreturned
Changes batch Requestsonline
CPU-time
Memory space
I/O's
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Measuring plan (2)
• Per measurement– Which entity will be measured– How will it be measured (automated, non-stop?)– In what unity is the measurement recorded– Which norms are used intern (in IT department)– Which norms are used extern (agreed with
customer)– How to react while exceeding standard
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Example monitoring e-mail service
• SLA: – Availability e-mail 7x24– Acceptable 95% monthly availability– Maximum downtime 15 minutes
• Measuring plan– Entity: non availability of e-mail– Unity: minutes– Norm internal: 10 minutes– Norm external: 15 minutes– How: while recording incident automated recording of
date/time and date/time solution– Reaction:
• Exceeding 10 minutes solution time: urgent call to ….. (IT manager)
• Exceeding 15 minutes non availability: urgent call to ….. (business manager, SLA – partner)
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Example monitoring e-mail underlying
infrastructure• Monitor mailserver memory utilization
– Norm: …– Warning to: …
• Monitor internal network utilization– Norm: …– Warning to: …
• Monitor server uptime ….
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Example reporting e-mail service
• Every month report to customer (SLA partner)
• on e-mail service
• Availilability in pct• Amount in minutes of non-availibility per
failure• Time of day of failures• Amount of users affected per failure
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Example reporting e-mail service underlying
infrastructure• Every month report to IT manager
• on • Availability mailservice in pct• Utilization mailserver• Utilization network• Downtime mailserver• Repair time failures• Respons time failures• …
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Trouble with measuring
• Known problems– Drawing conclusions from reports– Evaluating has no consequencies – Action: Who is to blame
• In stead of– adjusting SLA– adjusting SPM
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2. Charging for IT services
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IT Service Management
• Deliver and support IT services to satisfy the needs of the customer in a predictable, cost efficient way
• Combine and integrate various (sub)services to a consistent whole
• Improve services continuously in the interest of the customer
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Costing
• Cost management and ICT: hot item– TCO: Total Cost of Ownership– ABC: activity based costing– BSC: balanced score card– IT benchmarking– Performance management
• Steering by charging• Understanding and awareness of ICT costs
– Price quality rate
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Costs
• Investment costs and exploitation costs
• Costs ICT services determined by– Quality: SLA requirements– Quantity: how often, how many
• Negotiations supplier and customer (SLM):– Demand influences costs– Costs influence demand
2/2
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Perspective supplier
• Production factors ICT services – Staff – Resources – Services
• Staff • Resources • Services
– Staff – Resources – Services
• Steering by costs: service catalogue• Setting up the ICT service department
• Determine costs per ICT service
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SLA - OLA - UC
Contract Client Supplier
Service Level Agreement
Customer Service integrator
Operational level agreement
Service Integrator Supplier ‘internal basic service’
Underpinning contract
Service Integrator Supplier ‘external basic service’
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TCO and charging
TCO per servicecombined with% usage of a service per customer givescosts per customer
• See copy Ruijs (page 363-365)• Conclusion: charging per customer is now
possible
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Estimate and calculate
• Begin of the year: estimate required budget• End of the year: calculate real costs
– Fixed costs: no calculation review– Variable costs: more or less?
• Total Cost of Ownership (TCO)– Mean costs of a desk (in a specific department)– Benchmarking
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Charging ICT services
• Charging per customeror just one ICT budget?
• What is charging?– Every department pays the real costs of used ICT
services
• Why charging?– Better understanding, what is the price of our ICT?– Efficiënt use (scarse) resources– ICT costs are part of production costs– Steering on costs is possible
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Customer perspective
• Based on business process– Weigh out benefit and necessity ICT service
• Steer on costs– Negociate the service (delivery)– SLA-specification
• Knowledge and skill of own staff• Determine costs ICT service
– Profits and losses– Annual account– Choose supplier?
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Understanding …
• End user computing 65% total sum of ICT costs– Training time– Helping others (hidden costs)– Games and other private affairs …
• Ability for customer to steer on ICT costs!– Governance discussion– Sourcing issue– Duty of ICT staff to make ICT costs understandible
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Chapter 6 T & O
• Tracking & Oversight– Based on (SL Requirements) SL Agreement– Required reports for customer– Required reports for supplier
• Availability of the IT service• IT service as delivered to the customer• Sub services (hw & sw); sub sub services etc. • Per (sub)service: entity, unity, way of measuring, norm
internal, norm external, action
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Chapter 7 Costs
• Specify IT Service– Direct costs (hw, sw, hr)
• Specify infrastructure components– Direct costs (hw, sw, hr)
• Specify percentage used by IT Service per infrastructure component
• Calculate TCO of the IT Service• (Specify percentage IT Service for each
customer• Charge each customer with real costs)