Tag Archives: ITBM

Strategizing and Modernizing your Cloud Delivery Practice

Part 1 – Establishing your Cloud Business Management Practice 

By Khalid Hakim, Charlie McVeigh

History, particularly IT history, sure does have a way of repeating itself.

Think back to the 80’s and the advent of mini computers.   Mini computers were widely adopted by business units because of the perceived difficulty and cost of having the IT organization implement business solutions on the corporate mainframe.   In the 1990’s it was the PC.  Again, Corporate IT was seen as too slow and too expensive for the business solutions that were needed.  In the  2000’s  it is the advent of 2nd and 3rd generation Internet applications followed quickly by  the mobile computing revolution.  Like a broken record, corporate IT organizations were perceived as being slow and expensive to react to these new business demands.   Now that we are  in 2015, IT organizations are fighting the proliferation of public cloud offerings that business units cannot seem to drink up quickly enough.

What is common to each of the historical phases that are described above?  Business units that consume IT services perceived that they could procure IT services and applications more quickly and at a lower cost than corporate IT organizations could provide them.

What does this mean for the CIO in the modern era of IT?  It means that CIO’s must adapt or run the risk of being rendered irrelevant in relation to the way IT is consumed today and into the future.  It means that  CIO’s must now get on board with the concept of “running IT like a business.”  It means that CIOS’s must evolve such they are arbiters of technology and understand economically where is the best place for IT workloads to run.  Is it private cloud?  Public cloud?  Hybrid?  Outsourced?  Insourced? SaaS?  Iaas?  PaaS?  The choices are nearly endless – and you get it – todays CIO must be versed in all of these capabilities.

Todays effective CIO is asking and seeking answers most of the following questions:  Can you tell me on the spot what your total cloud spend is, and, what that spend is comprised of?  What’s the cost for you to deliver a unit of cloud service (IaaS for instance)? And what about your consumers: Who consumes what service and at what cost?

Can you identify the services used and the cost allocation for each service? How is your cost efficiency compared to that of other public cloud infrastructures? How can you use that type of information to optimize the cost of your existing and future operations? How can you create a showback report to each of your stakeholders?

Let’s say that you’re the VP of Cloud — think through how you would justify your data center investments. Have you proactively analyzed demand vs. capacity and how this is impacting your forecasting/budgeting exercises?  How can you scale dynamically to fulfill your consumer needs? Have you thought about your goal to optimize the cost of delivering cloud services? “What if” scenarios, benchmarking, and the reduction and optimization cost and price of your cloud services should be considered as well. Don’t you need closer monitoring to the quality of your delivery, such as continuous analysis and improvement? Have you thought of aligning your efforts with the corporate marketing and promoting your cloud services value?

(I can hear you thinking, enough with the questions already…)

What I would like to share with you today is a 6-month program (shown in the diagram below) to transform your cloud initiative into a successful robust cloud business management practice. The goal of the Cloud Business Management (CBM) service is to set up a cloud business management practice to enable effective, efficient, and agile business management of your cloud services.

Cloud Business Management

The following components are addressed in the full cloud business lifecycle service.

  • Cloud Business Manager Workshop – Educate the cloud service delivery teams on the foundations of cloud business and financial management aspects including costing, pricing, showback/chargeback, budgeting, forecasting, and cost optimization.
  • Cloud Business Strategy Assessment – Evaluate the IT business operational maturity of an organization and compare with VMware recommended practices. VMware will recommend possible strategies and propose a plan that best fits the organization IT and business models.
  • Cloud Services Definition – A comprehensive methodology to define cloud services and their constituent components end-to-end.
  • Cloud Services Costing – Understand Customer’s cloud services cost end-to-end and create a service-based cost allocation and classification strategy for Customer’s cloud services.
  • Cloud Services Pricing – Help Customer set a cloud pricing strategy and propose rates for the various components and offerings. This includes showback, cost recovery, investment funds, and driving particular behavior.
  • Cloud Services Marketing – Set up the cloud services marketing strategy including branding, marketing objectives, cloud service positioning, communications plan, value measurement, cultural considerations, and catalyst of change. Also, identify types of promotions and drivers of cloud services consumption and behavior impact.
  • Consumption and Showback / Chargeback – Help Customer develop a process for reporting on cloud service consumption and billing for cost recovery using VMware vRealize™ Business Advanced. In addition, determine the required people roles and dashboards.
  • Cloud SLM and Contracts Management – A comprehensive Cloud Service Level Management process including SLA and OLA templates between Cloud Infrastructure and Tenant Operations teams and the consumer. Additionally, basic vendor contract management process is provided.
  • Cost Optimization – Develop and execute a cloud cost optimization repeatable process that includes competitive analysis, benchmarking, public cloud comparison, and cost savings realization.
  • Cloud Services Budgeting and Forecasting – Develop a cloud-service-based budgeting and forecasting process to enable a more efficient demand and supply chain supported by the vRealize Business Advance cost model.

So, how is this valuable to your organization?

  1. Help your business consumers be accountable for better management of their cloud spend  rate cards, showback, chargeback, service tier options, and fair recovery of IT costs
  2. Help you make informed decisions for hybrid cloud, cost takeout, application rationalization, intelligent workload placement and bill of cloud
  3. Empower your IT to deliver on cloud promises for the desired quality, at the right cost by creating tighter alignment and accountability between IT, Business, and Finance
  4. Present you a comprehensive cloud business management practice within your IT organization leveraging your investment on vRealize Business and enabling you to run your cloud like a business
  5. Accelerate your transformation journey to an IT organization that is more consumption and cloud-service based

In our next blogs, we’ll cover the cloud business management components in greater details to help you plan for your Cloud Business Management (CBM) practice within your organization.

And if you’re heading to VMworld, don’t miss this session!

VMworld 2015

Using vRealize Business for Cloud Business Management

IT services and applications gradually rely on cloud services that provide more flexibility and agility for IT providers to supply the value to the business on demand. However this change also introduce new challenges to manage a dynamic environment that needs to scale economically per consumer’s demand. The cloud model can facilitate the shift to a business focus for the entire IT hierarchy—from the top to the technical teams managing and delivering the cloud. But to achieve the full business value of the cloud, companies need to put in place a more specialized and robust Cloud Business Management (CBM) practice. The CBM practice addresses the key business aspects of cloud operations.  Khalid Hakim, global operations financial and business management architect, and Kobi Katzir – Senior Product Line Manager at VMware will shed light on this new business practice using VMware vRealize Business to move your cloud management to the next level in maturity and position it as a strategic partner to your business consumers and line of businesses.

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Khalid Hakim is an operations architect with the VMware Operations Transformation global practice. You can follow him on Twitter @KhalidHakim47.

Charlie McVeigh is an IT business management strategic advisor, and you can follow him on Twitter @cbmcveigh

How to Create a More Accurate, Useful, and Equitable Service Costing Process

By Khalid Hakim

In my last post, I described the pressing need for a more effective IT service costing process (as a solution to the pressing need for tighter business/IT alignment!). The question now… is how.

How can companies create a service costing process that is fast, accurate, transparent, granular, fair, and consistent—without introducing yet another time-consuming and expensive project to the IT docket?

To answer this question, I’ll use a real-world example—a company that has recently been through the process and achieved excellent results.  I won’t name the company but I can assure you it’s a real enterprise, and the results were also quite real. I’ll refer to it as “The Company.”

In the past, The Company charged for IT services by simply allocating the total IT costs among service consumers based on the number of desktops and laptops they used. This “lump sum” cost allocation of course led to the perception that “IT is always expensive.” The Company knew it needed to move to a more service-oriented, customer-centric model.

Our team provided guidance in setting up a better service costing process. The implementation began with three key steps:

1. Create a service-based cost model diagram.
A cost diagram depicts the flow of IT costs from the general ledger or cost sources all the way to the services being provisioned—in such a way that IT can present consumers with a statement showing all service costs.

2. Develop a service-based cost allocation strategy.
The Company already had a cost allocation process in place, but it did not deal with service-to-service cost allocation. So The Company’s lump-sum allocation did not demonstrate any IT value but only the cost of IT when running the business. That’s why a service-to-service costing method was needed that would account for everything:

  • Servers and their related hardware
  • Network and security allocation to servers
  • Data center, storage and data center facilities costs
  • Software and enterprise license agreements
  • Support and operations contracts
  • IT project costs
  • Labor costs
  • IT overhead

This way The Company was able to fully load IT costs into services being delivered and transfer these costs to the business.

3. Develop a service-based cost classification strategy.
The Company classified all IT service costs into the following categories:

  • In/Out Service Costs: All direct service-related costs should be part of a service cost, while non-related service costs should be part of accounting period costs.
  • Fixed vs. Variable costs. Variable costs vary based on usage or time (i.e. data center utility bills, support tickets, or service consumption). Fixed costs are fixed regardless of service or resource usage (i.e.  software license costs, hardware purchases and support contracts).
  • Direct vs. Indirect. A direct cost is directly related to a service and can be easily traced. Indirect costs are indirectly related to a service and are typically spread over a number of services.
  • CapEx vs. OpEx. Capital expenditures are major expenses incurred whose costs have to be depreciated (split over) over the useful life of an IT asset, while operational expenditures are incurred periodically.

After the strategic IT/business processes were carried out, service-specific tasks began. These included defining and charting individual services, developing service-specific cost packages, and tracking and managing service costs over time.

Next it was time to consider the “people” aspects of service costing. Technology cannot provide a solution on its own; it must be developed and deployed in conjunction with stakeholders.

Along the same lines, handling IT financial management (ITFM) activities is not a one-man show. At The Company, the following roles were defined, along with specific responsibilities:

  • Financial Controller
  • IT Financial Manager
  • Service Manager
  • IT Manager
  • CIO
  • Customer Relationship Manager
  • VP of Infrastructure Services

Developing a roles/responsibilities chart (known as a RACI) then provided a concise and easy way to track who does what along with the level of contribution and accountability.

Next came identifying the right technologies to use in the service costing process. In this case The Company made a strategic investment with VMware and deployed the VMware IT Business Management Suite. This is the technology that will help them gain cost transparency, align with the business, enable the CIO’s transformation agenda, and control and optimize the IT budget and costs.

In addition, The Company has implemented basic CIO and Service Manager dashboards to provide insight into the financial performance of all managed services. The dashboards define the visual layout of the user experience. Each dashboard is composed of frames that display customized information designed for the intended user. The dashboards enable the CIO, IT Financial Manager, and Service Managers to gain access to cost information and make data-driven decisions.

SCP white paper coverToday The Company’s IT department is well on its way to being more business-oriented and service-oriented through better service costing. The Company can now trace IT costs from general ledger all the way to all business units consuming IT services. The new costing model also lays out the key roles and responsibilities, and VMware technology helps provide cost automation, transparency, and service-based cost modeling.

I’d encourage you to get full details about the service costing process outlined in this blog post by reading my white paper, Real IT Transformation Requires a Real IT Service Costing Process.”

Until next time—may all of your IT service costs be allocated with fine granularity and full transparency!
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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 #OPT1572!

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.

 

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.

Does IT Financial and Business Management Matter When Implementing Your Cloud?

 By Khalid Hakim

This is one of the common questions that I keep getting from my clients when building IT operations transformation roadmaps. In fact, one of the key considerations of a transformation roadmap is the business management side of your cloud, which often gets deprioritized by key stakeholders.

Let’s think it through: Can you tell me on the spot what your total cloud spend is, and, what that spend is comprised of? Here’s another one:  What’s the cost for you to deliver a unit of infrastructure as a service (IaaS)? And what about your consumers: Who consumes what service and at what cost?

Can you identify the services used and the cost allocation for each service? How is your cost efficiency compared to that of other public cloud infrastructures? How can you use that type of information to optimize the cost of your existing and future operations? How can you create a showback report to each of your stakeholders?

Let’s say that you’re the VP of Cloud Infrastructure — think through how you would justify your data center investments. Have you proactively analyzed demand vs. capacity along with operations cost of your cloud services?  How can you scale dynamically to fulfill your consumer needs? Have you thought about your goal to optimize the cost of delivering cloud services? Don’t you need closer monitoring to the quality of your delivery, such as continuous analysis and improvement?

(I can hear you thinking, enough with the questions already…)

If you are the IT financial manager, imagine how you can reduce your long-term commitments by moving from CAPEX to OPEX if appropriate. With financial and business management capabilities, your planning and IT budgeting would be based on actual cloud service demand and consumption practices. You would also be able to leverage benchmarking and “what if” scenarios for your cloud service costing optimization opportunities.

What keeps CIOs awake at night during a cloud implementation is the challenge of how they will demonstrate and deliver value for the cloud investment, as well as contribute as an innovator to the business by dynamically supporting growth and transformation as a result of their cloud cost optimization.

In fact, your ability to respond at the speed of business through fact-based decision making and responsiveness to changing needs in a dynamic environment is key to your success. The transparency of your cloud delivery value in context of demand, supply, cost, and quality will help improve your alignment with business goals to cloud services delivered.

In my next blog, I’ll cover some of the built-in functionality and business disciplines of the VMware IT Business Management Suite that can help you succeed in your cloud delivery and accelerate time to value.

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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-graphicCheck out the VMworld 2014 Operations Transformation track for opportunities to hear from experienced VMware experts, practitioners, and the real-world experiences of customers transforming their IT infrastructure and operational processes.

 

Provide Transparency with an ITBM Service Costing Process

By Khalid Hakim

Last week I wrote about the growing need for IT to provide cost transparency to the business, especially to support its transition to a service provider or broker model. I also outlined some of the problems caused by opaque, decentralized costing strategies.

At VMware, we rely on an IT Business Management (ITBM) Service Costing Process (SCP) to help customers run IT like a business. Behind the acronyms lies a powerful tool that allows IT to validate its expenditures and solidify its role as a business leader. Here are four areas where our ITBM SCP solution helps address the challenges I outlined last week.

1. Service-based cost models
The ITBM SCP helps your organization establish a well-defined, repeatable, and consistent service-costing process with clear roles and responsibilities. This includes engaging the IT and finance teams to create and possibly mature your service-based cost model to encapsulate both technical and business services. Once developed, a service-based cost allocation strategy is signed off on by all involved departments to ensure standardization across the IT organization.

Using the SCP methodology also helps standardize how costs should be classified based on IT Financial Management (ITFM) and ITBM management principles, along with finance department policies. By implementing a full-service cost model, IT helps explain the cost of its services and deliverables, eliminates random cost allocation, and ensures more effective cost optimization efforts.

2. True cost transparency
An ITBM SCP approach encourages service-based cost models to be built in a collaborative way that provides IT with internal cost transparency which can be shared externally (with your executive and line of business stakeholders, and customers). A series of workshops help cost an end-to-end service using a number of use cases and alternative scenarios to come up with a service-specific cost structure that best fits your organization and business needs. This in turn helps avoid any over- or under-costed services. The SCP empowers service managers/owners to defend their numbers more confidently and helps shift IT’s image from “always expensive” to “always valuable.”

3. Value-driven approach
Our SCP methodology is supported by an Agile approach, which provides coverage to all IT services, along with more reliable data sources and processes. The iterative, phased approach delivers quick wins, ensuring that value is immediately recognized by all your stakeholders. This in turn helps you rebrand IT as a value creator rather than a cost center.

4. Improved ITBM maturity
The SCP solution targets service managers and owners (in addition to IT financial managers) via a series of knowledge transfers, educational workshops, and discussions to provide the background needed to manage IT as a business and optimize ITFM processes. It also raises the awareness of the finance team, since their view is typically limited to non-service management accounting. All together this helps elevate the investment planning process to a more service-oriented approach that drives higher IT and business value. Moreover, it helps define the success metrics required to sustain the SCP process and ensure strategy continuity.

In all these ways, the ITBM Service Costing Process can help your IT organization understand its costs, increase efficiency, identify areas of improvement, and provide the transparency necessary to help the business continue to see IT as a value creator.

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Khalid Hakim is an operations architect with the VMware Operations Transformation global practice. You can follow him on Twitter @KhalidHakim47.

An ITBM Service Costing Process is Key to IT Transformation

By Khalid Hakim

KHALID-cropAs more businesses recognize the integral role IT plays in the overall success of the enterprise, executive and business stakeholders have higher expectations of IT’s performance and its ability to prove its value. Providing cost transparency back to the business is key to meeting those expectations.

That is why today’s IT organization needs to have an in-depth understanding of the costs associated with delivering IT services, enabling each service manager/owner to defend his or her numbers from a service angle (not from an expense code or department/project budget) and hence improve the overall IT service value perception.

This highlights the need for a new management discipline that provides a framework to deliver IT as a service and manage the business of IT: IT Business Management (ITBM). Yet many IT leaders do not have the support, knowledge, or bandwidth needed to implement an effective ITBM practice, with its core focus on minimizing IT costs while maximizing business value.

When I’m working with customers, I use VMware’s ITBM Service Costing Process (SCP) to facilitate a modular service-based costing approach that offers ease in manageability and operability. In my next post I’ll dig into the details of how the SCP solution is used as well as the benefits and business value it addresses. But first, I want to clarify the far-reaching repercussions of failing to implement these processes.

Common challenges facing IT
The biggest problem for today’s IT organizations is not insufficient funds or financial management people skills, but rather IT planning, budgeting, costing, allocating, and pricing, all of which are based on by-department cost management.

Traditional IT costing methods don’t explicitly call out value-service based structures and bills. They are more focused on costs associated with technology component purchases, projects implemented, cost code totals, department costs, and customer allocations of these non-value-add cost elements.

These situations create a host of business issues for IT:

Failure to understand the costs of IT deliverables Not all service managers are able to understand their end-to-end service costs and defend their expenses due to the lack of true service views, including service catalogs and definitions, as well as service-based cost models.

  • Arbitrary cost cutting and budget shrinking decisions — Management often looks at expense lists from cost-codes or a totals view, not from a service-based view that enables top management to see a holistic path to savings.
  • Random cost allocation — IT’s cost allocation is typically based on policies and guidelines set by the finance management department that are usually technically driven and don’t reflect the full value of IT.
  • Overstated or understated service costs — IT service cost calculations may include superfluous cost elements or exclude key cost elements. This is all caused by lack of a well-defined service-based costing process standard across IT, which results in services that can’t be compared “apples-to-apples” with outside service providers.

The “IT is always expensive” perception — Service managers and owners can’t confidently defend their numbers, which results in a common perception that IT is expensive.

Lack of trust and value realization — Due to the lack of value-centric conversations and full service-based cost transparency, talks tend to focus on numbers instead of the true value delivered to the business. As long as services are not being managed as business, then customers will continue to question what their money is buying.

Data does not support making meaningful decisions — One of the biggest challenges IT faces without an ITBM SCP is unreliable and inaccurate financial data related to IT assets.

Poor budget processes or lack of budget clarity —The traditional IT budgeting process follows a limited approach that limits IT’s capabilities view and creates uncertainties and inefficiencies in day-to-day operations.  Running IT like a business requires budgets to be based on services demands, rather than expense codes.

Limited financial and business management background — Financial management is not stressed across the IT organization, instead seen as a specialized role important for ITFM managers only. Service managers and IT generally lack basic financial management background that could provide them important insights.

But there is good news for the IT organization. Check back, and I’ll share more details about the ITBM SCP solution and the four key areas in which it addresses these challenges.
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Khalid Hakim is an operations architect with the VMware Operations Transformation global practice. You can follow him on Twitter @KhalidHakim47.