It one conf it costs chargeback 2008_04_22

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

Agenda

March 12, 2013 Industry sector best practices in IT 2

Preamble

Identify your IT costs

Chargeback

Practical example

Conclusion

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

http://kazman.shidler.hawaii.edu/carrhbr.pdf

Who knows where IT costs are

going ?


Source : “Six Chix”, Rina Piccolo

http://bitaites.org/2006/page/28

http://bitaites.org/2006/page/28

“Why do we get so many IT

employees ?”


Because they are all looking for new and

more productive software development

tools on Internet ….

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 …


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. 23rd 2005

= 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 …


Agenda


Preamble


Chargeback

Practical example

Conclusion

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)


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


The Cost Centers (CC)

Devide the total IT cost by functional area


Source : Gartner Conference, IT cost Management, Luxembourg, Aug. 27th 2002

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.


Agenda


Preamble


Chargeback

Practical example

Conclusion

Definition

IT Chargeback (or charge-out)

= Charging user departments for IT costs

they incur


Methodology

“There is no common chargeback model

to be implemented” - Henri Gilabert –

GLG Conseil


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 …

Find the key … ?


Functional vs. IT cost allocation key

Functional

◦ Nb of users

◦ Nb of invoices

It related keys

◦ Nb of PCs

◦ Nb of licences


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.


Agenda


Preamble


Chargeback

Practical example

Conclusion

Legacy information

2 cost centers

◦ MES (Manufacturing Execution System) or PPS

(Produktionsplanungs- und Steuerungssystem)

◦ EDV or IT

◦ Figures were not up-to-date


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


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


IT costs distribution per BU


IT department

INFOR

CATIA - PDM

Distributed computing

Lintgen

Development

Distributed computing

other sites

Man

pow

er

cost

Hard

ware

So

ftwa

re

Co

nsu

ltancy

Tra

inin

g

163 : 1 PC – 146 € / month

166 : 1 INFOR client – 76 € / month

168 : Devpt based on time spent yearly

169 : 1 CATIA licence – 365 € / month

170 : 1 PC other site – 38 € / month

Tele

ph

ony –

Natio

na

l + In

tern

atio

na

l calls +

Mo

bile

ph

on

e c

alls

Co

pie

rs + F

axe

s

Expanditures managed by IT = IT Dept. BudgetExpanditures managed by IT

but not included IT Dept. Budget

Total IT Dept. expenditures w ith depreciation

2005

31%

17%16%

22%

14%

Distr. Computing Lintgen

Computing VPPS Team

Computing Development

Computing CAM/CAD

Distr. Comp. Other Sites

Total IT Dept. expenditures w ith depreciation

2005

37%

13%

46%

4%

Adm., Fees, Off ice

Equipment Total

Depreciation Total

Manpow er Costs Total

Other

IT costs distribution per BU


- €

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 €

SELFA

SM

T

PURETE

C

FIRETEC

TOOLT

EC

INDUTEC

MEDIT

EC

RO

TAREX

Fin

ance

RO

TAREX

Aut

omot

ive

LUMEC

PRAHA

SRG

Rota

rex Sta

r

Sag

ana

SAS

SELFA B

oiss

y

Cry

otec

LUDEC

RO

TAREX

Fra

nce

LPGTE

C

USA_C

eodeu

x_IN

C

Axite

c

Rota

rex Spa

in

RO

TAREX

DIS

TRIB

ITIO

N

RO

TAREX

Mexi

co

USA_R

otare

x_NA

SER

VITEC a

uto

Eife

lspr

itzgus

s

PCs - Distr. Comp. Other Sites

CAM CAD

DEVPT

INFOR

PCs - Distr. Compt. Lintgen

IT costs distribution Evolution


Actual C.C. distributuion 2002

85%

15%

EDV

VPPS

Actual C.C. distribution 2004

33%

21%10%

21%

15%


Computing VPPS Team


Computing CAM/CAD


Total IT Dept. expenditures with depreciation

2005

31%

17%16%

22%

14%


Computing VPPS Team


Computing CAM/CAD


Results


37 %

Drop

Agenda


Preamble


Chargeback

Practical example

Conclusion

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


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


Thanking you for your attention


Q & A

It one conf it costs chargeback 2008_04_22

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