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The Missing Link of IT: An Effective Service Costing Process

By Khalid Hakim

For years now, there has been much discussion about the urgent need for tighter alignment between business and IT. Why are we still talking about the “need for” alignment and not the “results of” better alignment? Because all too often, IT cannot answer one of the key questions business leaders ask: “What exactly does this service cost?”

In many cases IT does not have an adequate service costing process, which means it does not have a fast, accurate, consistent, fair way to provide cost information about IT services to constituents. And the lack of an effective service costing process is costing both IT and the business—big time.

Cost transparency is important not only because IT service users want to know what they’re paying for, but also because it provides an opportunity for IT to quantify its value to the business.

If IT can provide accurate cost information, both business and IT leaders can make better decisions about IT investments, outsourcing, cost cutting, business strategy, and competitive differentiation.

We’ve all heard the mantra “Minimize IT costs while maximizing business value,” or its short form: “Do more with less.” It’s a core principle of IT business management (ITBM). But without an accurate, transparent service costing process, how can IT leaders truly deliver IT as a service (ITaaS) and run IT like a business?

Take a closer look at your existing service costing process and ask yourself a few tough questions:

  • Is it accurate? Does it take into account all of the CapEx and OpEx elements of delivering an IT service?
  • Is it equitable? Does it charge the right constituents the right amounts for IT services, based on their actual consumption—or does it simply charge a lump sum based on voodoo economics?
  • Is it transparent? Can constituents get an accurate breakdown of what’s included in the final price tag and what isn’t?
  • Is it improving IT investment planning? Your service costing process should enable business and IT leaders to create more finely honed investment strategies that cut costs while creating new competitive advantages. Is it?

If you can look in the mirror and answer “yes” to all those questions, congratulations—you’re a member of a small minority of enterprise IT departments with an effective service costing process. If not, ask yourself the next logical question: How can you develop a better service costing process?

I’ll address that question in my next blog post. So stay tuned.
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Khalid Hakim is an operations architect with the VMware Operations Transformation global practice. You can follow him on Twitter @KhalidHakim47.

VMworld-graphicAnd if you’re heading to VMworld, don’t miss Khalid’s session!

Accelerate Your IT Transformation — How to Build Service-based Cost Models with VMware IT Business Management (ITBM)
A recent VMware survey showed 75% of IT decision makers list the number one challenge in IT financial management as lack of understanding of the true cost of IT services. ITBM experts and VMware Operations Transformation Architects Khalid Hakim and Gary Roos shed light on this alarming figure, and give practical advice for obtaining in-depth knowledge of the cost of IT services so you can provide cost transparency back to the business.

When you visit the VMworld 2014 Schedule Builder, be sure to check out the SDDC > Operations Transformation track for these and other sessions to help you focus on all the aspects of IT transformation.

One thought on “The Missing Link of IT: An Effective Service Costing Process

  1. RAMKUMAR KALAIYARASAN

    Sometimes some costs can be Predicted through the intangible benefits we get today in business which would pay back later with the new wing of future business area. Little compromises with today’s costs in certain business area may yield good business results down the line.

    But still some adjustments are needed with the current business. Adjustments may depends on the current market as well.

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