Delivering Business Value Through IT Cost Transparency ... business value through IT...Overview of...
Transcript of Delivering Business Value Through IT Cost Transparency ... business value through IT...Overview of...
Delivering Business Value Through IT Cost Transparency Using IT CMF
Sharad JoshiVice President, IT Business Management
March 24th, 2015
Office of the CIO
About the Depository Trust and Clearing Corporation (DTCC)
OUR PROMISE: As a global financial services leader, we proactively develop solutions to secure today’s marketplace, while shaping the future of our industry. We promise to stand at the forefront of innovation to
mitigate risk, create market efficiencies and reduce costs.
With 40 years of experience, DTCC is the premier post-trade market infrastructure for the global financial services industry.
From operating facilities and data centers around the world DTCC, through its subsidiaries, automates, centralizes, and standardizes the post-trade processing of financial transactions and mitigates risk for thousands of institutions worldwide.
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What Do We Stand For?
OFClearingSettlementAsset ServicingInstitutional Trade Matching
Global Data ManagementInformation Services
FOREquitiesCorporate & Municipal BondsGovernment & Mortgage-Backed Securities
DerivativesSyndicated LoansMoney Market InstrumentsMutual FundsAlternative Investment ProductsInsurance Transactions
WITHBroker/DealersInvestment BanksInstitutional InvestorsInvestment ManagersIssuersFund CompaniesExchanges and MarketplacesBanksTrust CompaniesInsurance Carriers & DistributorsCentral Securities DepositoriesTransfer Agents
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IT Cost Transparency - Purpose
WHAT behavior does it influence?
HOW will the business benefit?
• Buying decisions• Vendor decisions• M&A decisions• Strategy alignment
• Trend of IT costs per transaction• Product or venture profitability• Transparency and Predictability• Continuous improvement
...Drives Insight
Information...
WHAT services do we offer?
HOW much do we charge for them?
• Hierarchical service portfolio• Technical services• Engineering services• Tiers and configurations • Consumption model
• Understanding costs • Cost components• Cost and savings levers• Unit pricing
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Overview of Accounting and Allocation (AA)
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DefinitionThe policies, processes and tools used for calculating and distributing the costs of IT. A range of methods such as chargeback, transfer pricing, and allocation are used to manage the cost of IT services and to influence the demand for IT services within an organisation.
What’s in scope What’s out of scope• Accounting platform capabilities• Policy for the allocation and chargeback of IT
costs• Agreements on which IT services are covered by
the Policy for allocating and chargeback of IT costs
• Business Planning of IT funding level and target spending by IT portfolio (refer to BP).
• Oversight of IT finance and overall budget performance (refer to BOP)
• Variance analysis of IT intensity compared to a benchmark (refer to BGM)
Categories and Underlying Capability Building Blocks for AA
Category Capability building block Description
Model
Cost CoverageDevelopment of an IT cost allocation and chargeback policy, detailing the scope of IT service costs allocated back to business units (basic services, as needed services, discretionary services)
Quality of Accounting Model
Sophistication of the model, including alignment between IT, finance, and BUs
Transparency of Accounting Model
Quality and transparency of documentation re accounting logic including alignment of stakeholders
Deployment
Usage of Accounting Model
The extent to which accounting models are used in strategic decision-making
Accounting and Allocation Governance
Governance between IT, finance, and other business units leading to continuous improvement of methods and practices
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Problem Statement
• Strategic
o Financial pressures and higher capital requirements
o Emerging businesses with faster time-to-market and quick decision-making needs
o Geographical expansion into Europe, Australia & Asia Pacific
o Increased complexity – technology and business
• Operational
o Different allocation models existed for IT (App Dev, Infrastructure, Other Overheads) with different owners and systems
o Monthly chargeback was already being executed but using Excel spreadsheets and SAS code running on Mainframe
o High person dependency
o Limited or no ability to provide required analysis and transparency without spending a lot of manual effort
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Established Vision and Objectives
• Vision
To structure IT service offerings that are integrated with both business goals and risk
tolerance profiles, thereby providing IT customers with a clear and consistent
understanding of their IT service costs and giving them the flexibility and transparency to
make informed business decisions and manage their costs using IT service tiers and
levers.
• Objectives
o Define detailed Business and Technical service catalog
o Implement a single integrated system for IT costs (from expenses to products)
o Automated cost model for Budget, Forecast and Actuals
o 100% Chargeback to businesses and corporate functions using Bill of IT
o Service Benchmarking
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Action Plan
• Business Case for IT Financial Management solution with the following key drivers
o Cost savings on infrastructure and effort that was not required any more
o Risk mitigation regarding key person dependency and antiquated systems
o Value-added services in long term with what-if scenario capability
• Initiated RFP for leading IT Financial Management vendors
o VMWare was selected as the vendor of choice
o Sound company with long-term financial stability
o Strategic fit with infrastructure synergies
o Ease of use and configurability in the tool
o Strong relationship team with demonstrated commitment
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Program Execution
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Workstream #1: IT Cost Transparency – Core Chargeback
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Workstream #2: Service Catalog
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Workstream #2: IT Service Catalog Conceptual Model
* Not currently being established as a service; under consideration for a future effort13
Workstream #3: Advisory Group
– Established Charter with Leadership representation from Business, IT and
Finance
– Meets once a month and makes decisions on cross-functional policy on
chargeback/allocation
– Typical topics covered are:
• Labor chargeback approach
• First tenant on new technology
• Chargeback approach on new technology
• Overhead charges on new businesses
• Corporate functional charges
• Stranded costs
• Standard rates14
Client Outreach – Understanding Cost Drivers
Infrastructure Example
• Service Cost Pool comprises the following costs:
▪ Employees/Consultants directly managed by you
▼ Cost Lever #1 is Location and Sourcing strategy
▼ Cost Lever #2 is Automation
▪ Employees/Consultants outside your function supporting you
▼ Cost Lever #1 is Location and Sourcing strategy
▼ Cost Lever #2 is Automation
▪ Hardware and Software supporting your service
▼ Cost Lever#1 is Vendor negotiation
▼ Cost lever#2 is Reduce / consolidate/ optimize the asset footprint
▪ Occupancy, Other expenses
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Client Outreach – Consumption and Enablers
Understanding Consumption
• Who are your consumers?
• How do you charge your consumers for that consumption?
• How do you measure that consumption?
• What behavior change are you influencing with your consumption model?
• How does business reduce costs (saving levers) – what is in their influence vs not?
• How are you measuring your own performance?
Key Enablers
• Clean ITAM feed with application-service-asset mapping
• Accurate timesheet submission and approval
• Fixed-contracts properly aligned to your projects/services
• Alignment of cost centers to services
• Agreement on supporting services and their allocations16
Learning from the Journey So Far…
Inhibitors Enablers
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Way Forward – Multi-dimensional View of IT Services
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Accounting and Allocation (AA)Target Capability Building Block Maturity Levels
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Category Capability building block Level 1 Level 2 Level 3 Level 4 Level 5
Model
Cost Coverage Limited Key IT projects Essential IT services
Major subscription & discretionary services
All IT services
Quality of accounting model Ad hoc Basic model
established
Overall framework aligned with finance, not yet embedded
Fully embedded in cost model of finance and other business functions
Continuously optimised
Transparency of accounting model Limited
Documentation and explanation selectively used
Model defined for essential IT services
Fully documented. Available upon request
Shared as a catalogue with business
Deployment
Usage of accounting model Ad hoc
Basic gathering & reporting of some IT expenses
Understanding of costs to business units
Enterprise wide understanding influences consumption
Used in strategic decision making across enterprise
Accounting and Allocation Governance
No formal body Clear role of IT Clear role of IT & finance
Clear role of IT, finance & business
Clear improvement cycle realized
Way Forward – Key Takeaways
BUY-IN• Common problem that drove senior management support
o Businesso ITo Finance
• Created an advisory board for cross-functional policy decisions
• Engaged and communicated with key stakeholders
OWNERSHIP• Formalized roles of Service Owner, Service Catalog Process Owner
• Created scorecards for these formalized roles
VALUE-DRIVEN• Not the Data, drive the Insight to help change behavior and drive business decisions
• Leverage industry standards and frameworks (IT CMF, COBIT, ITIL)
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