THE CMX GROUP, INC 65 BROADWAY SUITE 1806 NEW YORK CITY NY 10006 (212) 346-7560

Consolidated Chargeback for a Consolidated World

Sidney Finehirsh

www.cmxgroup.com

2002

Demand

Technology

This document contains unpublished confidential and proprietary information of The CMX Group. No disclosure or use of any portion of these materials may be made without the express written consent of The CMX Group. © 2001 The CMX Group.

The 90’s:The 90’s: Motivation to Motivation to DecentralizeDecentralize

Application development logjam in ITApplication development logjam in IT Unreliable response Unreliable response Control of critical business systemsControl of critical business systems High cost of central ITHigh cost of central IT

This document contains unpublished confidential and proprietary information of The CMX Group. No disclosure or use of any portion of these materials may be made without the express written consent of The CMX Group. © 2001 The CMX Group.

The 90’s:The 90’s: Economies of Economies of ScaleScale

Duplication of effortDuplication of effort Low utilizationLow utilization Hidden costsHidden costs

systems supportsystems support outside servicesoutside services

Absence of standards and proceduresAbsence of standards and procedures Inability to negotiate volume discountsInability to negotiate volume discounts Administrative chaosAdministrative chaos

This document contains unpublished confidential and proprietary information of The CMX Group. No disclosure or use of any portion of these materials may be made without the express written consent of The CMX Group. © 2001 The CMX Group.

The 00’s:The 00’s: Cost Does Matter Cost Does Matter

Downsizing organizationsDownsizing organizations Driving to efficiencyDriving to efficiency Lowering growth of IT budgetsLowering growth of IT budgets Moving to centralizationMoving to centralization

This document contains unpublished confidential and proprietary information of The CMX Group. No disclosure or use of any portion of these materials may be made without the express written consent of The CMX Group. © 2001 The CMX Group.

The Shift to CentralizationThe Shift to Centralization

Changing Attitude towards Centralization

No shift Decentralization Centralization

1990

2000

Source: McKinsey Study

21% 23%

51%

18%

28%

59%70%

60%

50%

40%

30%

20%

10%

0%No shift Decentralization Centralization

1990

2000

Source: McKinsey Study

21% 23%

51%

18%

28%

59%70%

60%

50%

40%

30%

20%

10%

0%

This document contains unpublished confidential and proprietary information of The CMX Group. No disclosure or use of any portion of these materials may be made without the express written consent of The CMX Group. © 2001 The CMX Group.

Consolidation:Consolidation: As New As New Technology Technology

Better, faster, cheaper networksBetter, faster, cheaper networks Central support Central support Rapid application development Rapid application development

This document contains unpublished confidential and proprietary information of The CMX Group. No disclosure or use of any portion of these materials may be made without the express written consent of The CMX Group. © 2001 The CMX Group.

Consolidation:Consolidation: “The Utility” “The Utility” ModelModel

Plug on the wallPlug on the wall Always availableAlways available Always responsiveAlways responsive

Commoditization of IT ServicesCommoditization of IT Services Demand managementDemand management Measure of successMeasure of success ““The Venture Partner” ModelThe Venture Partner” Model

This document contains unpublished confidential and proprietary information of The CMX Group. No disclosure or use of any portion of these materials may be made without the express written consent of The CMX Group. © 2001 The CMX Group.

Consolidation:Consolidation: Opportunities Opportunities

Physical co-locationPhysical co-location Server sharingServer sharing Centrally managed networksCentrally managed networks Storage networkingStorage networking

This document contains unpublished confidential and proprietary information of The CMX Group. No disclosure or use of any portion of these materials may be made without the express written consent of The CMX Group. © 2001 The CMX Group.

Consolidation:Consolidation: Systems Systems Management down on the Management down on the Server FarmServer Farm

Quality assuranceQuality assurance Change controlChange control Security and fraud detectionSecurity and fraud detection Backup and disaster recoveryBackup and disaster recovery ChargebackChargeback

This document contains unpublished confidential and proprietary information of The CMX Group. No disclosure or use of any portion of these materials may be made without the express written consent of The CMX Group. © 2001 The CMX Group.

Consolidation:Consolidation: Why do Why do Chargeback ?Chargeback ?

An expensive shared resourceAn expensive shared resource It’s unavoidableIt’s unavoidable Provide management informationProvide management information

cost of productioncost of production cost of doing businesscost of doing business

Control the demand for servicesControl the demand for services IT financials for scorecardsIT financials for scorecards

This document contains unpublished confidential and proprietary information of The CMX Group. No disclosure or use of any portion of these materials may be made without the express written consent of The CMX Group. © 2001 The CMX Group.

Consolidation:Consolidation: The Cost The Cost Accounting Challenge Accounting Challenge

Asset cost transferAsset cost transfer Need for a standard costing modelNeed for a standard costing model Usage Based Billing (UBB)Usage Based Billing (UBB) Activity Based Costing (ABC)Activity Based Costing (ABC)

This document contains unpublished confidential and proprietary information of The CMX Group. No disclosure or use of any portion of these materials may be made without the express written consent of The CMX Group. © 2001 The CMX Group.

Consolidation:Consolidation: The Technical The Technical ChallengeChallenge

Spanning the number of server and and Spanning the number of server and and network technologiesnetwork technologies

Identifying business ownersIdentifying business owners Standardizing units of measures in a Standardizing units of measures in a

diverse worlddiverse world Mixing dedicated and shared serversMixing dedicated and shared servers

This document contains unpublished confidential and proprietary information of The CMX Group. No disclosure or use of any portion of these materials may be made without the express written consent of The CMX Group. © 2001 The CMX Group.

Consolidation:Consolidation: Costing Costing

Shared n-way

PP11 PP22 PP3…3… PPnn

Dedicated n-way

PP11 PP22 PP3…3… PPnn

Billable Units = C x n x N

C = Effective Capacity %n = Number of ProcessorsN = Normalization Factor

Un = Measured Usage Per UserN = Normalization Factor

Billable Units = Σ (Un x N)

User1

EffectiveCapacity

Limit

U1 U2 U3 U4 U5 U6 Un

This document contains unpublished confidential and proprietary information of The CMX Group. No disclosure or use of any portion of these materials may be made without the express written consent of The CMX Group. © 2001 The CMX Group.

Yankee Group Report – Yankee Group Report – Oct. 2002Oct. 2002

The most important chargeback The most important chargeback qualification for a vendor solution is that it qualification for a vendor solution is that it conforms and adapts to the IT cost structure conforms and adapts to the IT cost structure to properly distribute the financial aspect of to properly distribute the financial aspect of service usage. Without an appropriate service usage. Without an appropriate understanding of the cost structure, the understanding of the cost structure, the ultimate goals of chargeback (allocating ultimate goals of chargeback (allocating costs to users) will be lost.costs to users) will be lost.

This document contains unpublished confidential and proprietary information of The CMX Group. No disclosure or use of any portion of these materials may be made without the express written consent of The CMX Group. © 2001 The CMX Group.