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March 5, 2007

IT Services: Who Pays for Them?

Boris By Boris Pevzner

I see this problem time and time again: the business does not value IT because IT can't show that the services they’re providing justify the amount the business customers are spending on IT. What to do?

The business relies on IT for so many services. For example, when your marketing team brings on a new team member, they likely look to IT to provide the workstation set-up, computer, phone, application access, and ongoing support. But who pays for this service? Is the customer directly responsible for the cost or is it included in a blanket allocation of IT costs that gets evenly spread out across the organization (even if some departments rarely use IT)? Many IT organizations fail to address these and other cost issues associated with the services they provide. This is a big mistake. If IT is to be perceived as valuable, it has to have a well-defined price.

There have recently been some notable posts on this in the blogosphere.

Dawn Mular makes an interesting point in her blog about how everything costs something—even when it appears to be free. For example, according to a recent Help Desk Institute best practices survey, more than half of all IT service centers surveyed did not know the average cost of a service request. Without a solid idea of how much things cost, these IT centers had implemented operational practices to manage the top three contributors to “incident” volume baselines to get at least some handle on the IT costs. Mular’s main takeaway is that everything costs something, and that an effective IT organization needs to consistently review performance, financial and service data to effectively deliver value for money.

Troy DuMoulin observes in his blog that IT departments tend to view themselves as a “cost center” and thus fail to charge for their services. He suggests that IT does this to avoid looking at IT costing in any significant detail. However, even though they are not billing their internal business clients, they still have to account for and report on the cost of delivering IT Services to the business. If they fail to do so, they can kiss their budget goodbye.

I have also blogged on this topic before, with particular emphasis on how service-based IT costing methodology can address two critical issues:

  • Lack of visibility into IT costs from the customer’s perspective
  • Misalignment between how IT is costed (in “IT Technical Speak”) and how services are delivered (in “Business Customer Speak”)

Cost_transparency_1

Usage-based cost transparency around IT services provides an excellent way to ensure that IT’s customers understand the value IT is providing in a language they can readily understand. Furthermore, as long as IT knows what its operating costs are, it can use pricing to improve alignment with the business by giving business leaders more control over IT resources. (You may want to check out this Service Catalog provide the basis for service-based costing. If IT uses a Service Catalog to determine all costs for a service, they can clearly show how and where the money was spent: i.e., which customers used which services and how much.

And implementations of service-based costing are becoming exceedingly streamlined these days: consider, for example, the QuickStart program from my company.

Quickstart_1

The bottom line is this: The issue of IT spending is gaining more and more attention, as companies increasingly focus on cost containment, outsourcing and financial governance. The business is now demanding that IT organizations track and account for all IT costs. So charging is no longer optional. If IT is to be perceived as valuable, it has to have a well-defined price, which needs to be communicated to IT’s customers in a language that they can easily understand. To do this, IT organizations at most large companies are now deploying Service Catalogs in conjunction with IT financial management and demand planning solutions.

Posted on March 5, 2007 | Permalink

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