Caring Culture | Open Communication | Unmatched Service | Personalized Solutions Effective Financial Management of Communications and Technology Paul Lapan – Manager of Solutions Paul Lapan – Manager of Solutions Engineering Engineering PINNACLE Software Solutions PINNACLE Software Solutions ITPX 2010 ITPX 2010
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Caring Culture | Open Communication | Unmatched Service | Personalized Solutions
Effective Financial Management of Communications and Technology
Paul Lapan – Manager of Solutions EngineeringPaul Lapan – Manager of Solutions Engineering
Effective Financial Management of Communications and Technology
Effective Financial Management of Communications and Technology
Changes…1. Exponential increase in Data
Center located applications
2. Focus on service – business value relationships
3. Changing cost models from physical to virtual resources (big increase in absorbed indirect costs)
Why is this so much more important today?
Integration to the General LedgerIntegration to the General Ledger
• True chargeback to the responsible
account/party
Integration to Accounts PayableIntegration to Accounts Payable
• Lifecycle view of what is ‘going out the
door vs. what is coming in
Self-Service details for customersSelf-Service details for customers
• Employee Accountability
• 3-5% Savings across the board (per
Aberdeen)
The end result – Visibility and AccountabilityThe end result – Visibility and Accountability
Effective Financial Management of Communications and Technology
Transparency is Accountability without the need for a formal Transparency is Accountability without the need for a formal punishment system to manage misbehavior.punishment system to manage misbehavior.
Effective Financial Management of Communications and Technology
Focus on the legacy business ‘best practices’ from Telecom that many IT shops didn’t immediately adopt.
1. The business is the customer of Telecom.
2. Managerial Measurements - i.e. ITIL Service Level Agreements, Operational Level Agreements (Underpinning Contracts) - Benchmarking Metrics!
How do we start and/or continue to improve what we have?
Effective Financial Management of Communications and Technology
Measuring associated costs around…
Service Hours
Service Availability
Reliability
Customer Support
Targets for Incident Resolution (Fix) times
Service Performance
Functionality (if appropriate)
Change Management Procedures
Security
Effective Financial Management of Communications and Technology
What other ‘best practices’ are key to focus on to establish a model for IT/Telecom?
Predetermined Acceptable Fixed and Variable Costs
Automated Process for Approvals, Payment and Dispute
Effective Financial Management of Communications and Technology
Measuring Cost by Service Type Measuring Cost by Service Type
Vendor Charges
Software Personnel Hardware Real Estate
AbsorbedIndirect Costs
UnabsorbedIndirect Costs
Direct Costs
•Hardware•Software
•Personnel•Vendor Charges
•Hardware•Software
•Real Estate
•Software•Real Estate•Personnel
•VendorCharges
Monthly Recurring Charges
Usage Charges
One TimeCharges
Cost of theService
Cost ElementsCost Elements
Effective Financial Management of Communications and Technology
DefinitionsDefinitions
Cost Model:Cost Model: Based on calculating the costs for each Customer by service, Based on calculating the costs for each Customer by service, location, or other allocation method. location, or other allocation method.
Cost TypesCost Types include: include:
• Hardware
• Software
• People
• Vendor Services
• Space/Accommodations
Cost ElementsCost Elements provide detail on cost type provide detail on cost type
• Specific asset assignment (Hardware, Software, Office Space)
• Resource Utilization (Bandwidth, CDR, Kilowatt Hour, Number of Copies
Effective Financial Management of Communications and Technology
Capital or Operational CostsCapital or Operational Costs are typically associated with the physical are typically associated with the physical assets that are required to run day-to day operations such as maintenance assets that are required to run day-to day operations such as maintenance and support staff costs.and support staff costs.
Direct CostsDirect Costs are costs that are attributable to a single customer or such as are costs that are attributable to a single customer or such as software used for a research project or PDA’s for sales personnel. software used for a research project or PDA’s for sales personnel.
Indirect CostsIndirect Costs are costs shared on behalf of many such as shared are costs shared on behalf of many such as shared bandwidth or technical resources.bandwidth or technical resources.
• Absorbed Indirect Costs can be metered. Examples include: power,
network utilization, and phone calls
• Unabsorbed Indirect Costs can not be metered. These are shared
services such as a network pipe, IT Salaries, or share facilities.
Effective Financial Management of Communications and Technology
Effective Financial Management of Communications and Technology
What are the drivers for today’s business requirements?
1. Cost Justification (technology refresh)
2. Cost Allocation (alignment w/business value)
3. Capacity Planning (SLA, QoS)
4. Cost Containment and Transparency
Effective Financial Management of Communications and Technology
What is the ‘real’ situation for many today?
• Managing to stay in good graces of vendor accounts.
• Quarterly audits and spot checking after the fact
• In-house and homegrown chargeback systems
• Flexible and equitable financial chargeback processes that use;
3. Well defined and easily explained cost models – not subject to interpretation
4. Costs unlinked to direct business processes – not transitory
5. Simple and inflexible pricing mechanisms
Effective Financial Management of Communications and Technology
How can we all improve?• Increase throughput of our organizations*
All organizations can be measured by 3 financial things;1. Inventory
2. Operating Expense
3. Throughput
*Theory of constraints model - Dr. Eliyahu M. Goldratt -The Goal
Effective Financial Management of Communications and Technology
How can we all improve?• Increase throughput of our organizations*
All organizations can be measured by 3 financial things;1. Inventory
Money invested in communications technology
2. Operating Expense
Money spent in converting Inventory into business enablers
3. Throughput
The SPEED of converting Inventory into business enablers
*Theory of constraints model - Dr. Eliyahu M. Goldratt -The Goal
Effective Financial Management of Communications and Technology
Inventory• Communications inventories
are not ASSETS to your organization
Operating Expenses• All costs associated with
procuring, provisioning and enabling the use of inventory by the business.
Throughput• The speed at which Inventory
items are converted to use by the business
Inputs & Outputs: Email with
attachments Hardcopy & Faxes
Challenges: No complete view Manual intervention Tracking status Multiple copies of
same Data record Synchronization Data Integrity Manual Billing
TSScheduling
OO (Order Originator)
Customer
TSField Work
CUST Support
Close
App
WO folder
email
email withattached file(s)
data and workflow
data
workflow
direct interaction routinely required
notification
CUST Support
Materials
MaterialsAdjust
Cable Adjust
Vendor
Vendor
Database
OO/Customer
CUST Support
Cable Assign.
Custom App
Custom App
Custom App
Other Design Groups
Workflow - Voice Services
Example Workflow – Voice Service Delivery
Effective Financial Management of Communications and Technology
How can we all improve throughput?• Eliminate bottlenecks
What creates bottlenecks?Leadership Skill Tools
Resources Behavioral Change Deployment
issues
People Process Technology
Financial tools that enable visibility of costs will increase your
business throughput if you take care not to create a model that
fails.
Effective Financial Management of Communications and Technology
Why do efforts to improve financial chargeback models often fail?
1. System development and maintenance issues
2. Pushback on management metrics
3. Usage Misunderstood
4. Changes over time - lack of flexibility
Financial Management – Our Observations
ActivityActivity Common Assessment ObservationsCommon Assessment Observations
Production Production OperationsOperations
Incomplete insight into network and mobile assets prevents optimizationIncomplete insight into network and mobile assets prevents optimization Massive quantities of invoices prevent accurate validation Massive quantities of invoices prevent accurate validation Inability to automatically exchange information with other enterprise systems such as:Inability to automatically exchange information with other enterprise systems such as:
ReportingReporting
Insufficient tools prevent adequate financial analysis Insufficient tools prevent adequate financial analysis No correlation of procurement cost to operational use by service type or owner No correlation of procurement cost to operational use by service type or owner Incomplete information to help properly forecast budget requirementsIncomplete information to help properly forecast budget requirements
Financial SystemsFinancial Systems Support OperationsSupport Operations Human resources (HR)Human resources (HR) General ledger (GL)General ledger (GL) Accounts payable (AP)Accounts payable (AP) Billing receivables (BR)Billing receivables (BR) Accounts receivables (AR)Accounts receivables (AR) ProcurementProcurement
InventoryInventory FacilitiesFacilities Service deskService desk Telephony provisioning devicesTelephony provisioning devices Network provisioning devicesNetwork provisioning devices Carrier systemsCarrier systems Utilization of network servicesUtilization of network services
Telephony Data networks Printers Storage Power consumption
Cost vs. Profit Centers – Cost vs. Profit Centers – Our ObservationsOur Observations IT as a Cost Center
• Silos and stovepipes within IT
• Subject to cost cutting initiatives
• Lack of common processes, language, job titles,
skills, and tools
• Lack of transparency into IT costs
• Reactive to government regulation
• New technology – because it’s new
IT as a Profit CenterIT as a Profit Center
• IT management sees IT as a key to winning
• Deploys IT strategically to empower the business
• Seeks innovative IT solutions to stay ahead of the
competition
Transparency in IT – Our Observations
Business Requirements:
• Implement sound stewardship of the monetary
resources for the organization.
• Planning & execution of budgeting, accounting and
chargeback to the organization responsible for the
cost.
Common Observations:Common Observations:
• Lack of visibility
• Challenges with Audit Compliance (Sarbanes Oxley, OMB)
• Budgeting is based on last year +/- 3%
• C-Level Management can not determine why/where there
are cost fluctuations
• No way to correlate cost to revenue
• No SLA’s in place to account for high-maintenance
customers
Integration to the General LedgerIntegration to the General Ledger
• True chargeback to the responsible
account/party
Integration to Accounts PayableIntegration to Accounts Payable
• Lifecycle view of what is ‘going out the
door vs. what is coming in
Self-Service details for customersSelf-Service details for customers
• Employee Accountability
• 3-5% Savings across the board (per
Aberdeen)
The end result – Visibility and AccountabilityThe end result – Visibility and Accountability
About Today’s DiscussionAbout Today’s Discussion
Objectives of Financial ManagementObjectives of Financial Management
Why is this relevant today?Why is this relevant today?
Value of Best Practice FrameworksValue of Best Practice Frameworks
Cost ModelingCost Modeling
Business DriversBusiness Drivers
Improvement of Process ThroughputImprovement of Process Throughput
Eliminating BottlenecksEliminating Bottlenecks
Questions?Questions?
Service Management Service Management
Manage access, distribution, configuration and financial ownershipManage access, distribution, configuration and financial ownership
Operations Operations ManagementManagement
Streamline workflow, Streamline workflow, service delivery and service delivery and service support service support operationsoperations
Integration ManagementIntegration Management
Automate the exchange of data with other systemsAutomate the exchange of data with other systems