Chapter 11

Value For Money, and Health Checks

Management of Computer System

Performance

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Agenda: Chapter 11 Outsourcing IT services

Objective: Students should be able: to identify the value

for money and health checks.

Value For Money, and Health Checks

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Value for Money and Health Checks

Value for Money and Health Check valuations are used to validate the efficiency in which the IT department is being managed.

They seek to measure the efficiency of the management of the department and the investments within the IT department.

These types of analysis lead to the identification of issues that can serve as a basis for change or in extreme cases, as a basis for IT outsourcing.

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Value for Money

VFM studies take an analytical look at the different services offered by the IT department. The object is to determine if: the department is providing a value at a level consistent

with the funding, the requirements being placed on the department are

reasonable, there are areas where efficiencies and savings are possible

and What the department does well and by extension, what

areas can be improved.

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Value for Money

A typical IT department provides numerous services.

Customized questionnaires are usually created for each department to obtain the optimum results from a survey. Consider that your firm will expend time and money collect

the data, an optimal data gathering approach should be exercised.

The components of those services, that should be examined, (assuming that they exist) for a VFM study are as follows:

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Value for Money

Staffing: Issues should include identifying what are their current skills, what technology trends exist and if they will be positioned to support new technologies as they roll out. Other elements include staffing turnover and levels of management.

Service Levels: Is the department successful in meeting or exceeding their service level agreement.. This crosses multiple areas from servers to helpdesk call response and problem solving.

Security: This seeks to identify all aspects of the firms security positions and what they do to enforce security throughout the organization. This covers the gamut from user logins to firewalls to Intrusion Detection Systems.

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Value for Money

Technical Support: This addresses the applications of patches and upgrades. Most patches are, by far, security related so there will be a partial overlap in these activities.

User Support: This predominately refers to users of the technology and how the IT department assists them in solving their problems.

Costs and Charges: This area of study refers to how the consumers of IT servers are billed back for those services. Examples include Desktops, Helpdesk calls, Software licenses, etc.

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Value for Money

Application Systems Development: What Software Development Life Cycle methodologies are used and how are the methodologies followed. This is a project management type of question and it involve the meeting of client expectations and the delivery of projects on time, to specification and to budget.

Networks: Is the system reliable and delivering adequate performance now and for the immediate future. This covers both Networking issues as well as Network Security. Again there is an overlap with the security element. They are intertwined and cannot be considered separate areas of work.

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Value for Money

IT Department Organizational Integration: This element is design to examine how the different support groups within the IT department interface and provide support to the rest of the organization. IT addresses internal and external reorganizations and how they are handled, how the IT staff interface with their users and the communications provided by the different elements with all external organizations.

Information Systems Plan: This is the long term IT plan as part of the their execution of the firms strategic goals.

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Value for Money IT managers may legitimately be concerned about this

type of study being performed on their departments if they are not co-sponsors of the activity. A lack of IT knowledge on the part of the investigators can

impact the results of the study. A biased study could be career limiting to the IT departments

staff. The knowledge of how the data gathered by the study will be

used may result in less than honest responses by the participants.

Select the right staff for the job. GET BUY IN OF IT STAFF / MANAGEMENT.

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Value for Money Components of the study should include:

Hardware and software refresh and maintenance. Includes servers, desktops, network equipment and all

related OS and applications. Staffing turnover and the underlying reasons. System and support SLA’s. Project Performance Security Budgetary performance and compliance. IT support of BPR initiatives. Integration into the corporations strategic planning.

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Value for Money In this case, each of these elements will involve a

significant methodology to identify and document what is being done in that particular area. This is a very involved and meticulous process. The larger the organization, the more involved this

becomes.

This type of study invariably leads to the discovery of inefficiencies.

Root cause analysis of those inefficiencies is the next step.

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Value for Money Study Results

Action item points as a result of a VFM Study. Such a study usually finds several areas for remediation. These may include: Security changes Hardware/Software refresh Integrated systems implementations

(ERP/CRM/SCM) Staff increases or decreases.

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Value for Money Study Results

The Root cause analysis will identify many causes, depending on the problem but in the end, it becomes a matter of determining if those problems can be fixed internally or if it would be more cost effective to resolve them externally (outsourcing). Hardware purchases at retail levels can be beat by getting

someone else that buys larger quantities to buy it for you. Skilled staff that is not needed full time may be acquired

through a larger organization. Costs associated with 7x24x365 support can be off loaded

to a third party.

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Value for Money Study Results Product support for home grown applications may need to

stay local. IT Strategic integration, Contributions to the

Organization and Delivery of services are all aspects that would be evaluated. Each has a cost element to it that should be quantified as

far as possible with a limited error range as possible. Internal examinations will get you to the point of

knowing your cost. The next element is to determine what you can get

those services for from an outside vendor.

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Value for Money Study Results This becomes the basis for a “keep in house”

or “outsource” decision. Outsourcing will remain a key tool in the IT

Staff’s arsenal in controlling costs. There are many aspects of this that must be

examined in great detail before firm undertakes this type of challenge and risk.

This is clear case of knowing what you’re getting into before you move forward.

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IT/E-Commerce Outsourcing

Outsourcing (Specifically, IT Outsourcing) Definition - Contracting Key Information

Technology (IT) Services to another company or companies.

Key IT Services are defined as those services needed for the profitable operation of the company.

Potentially, if the services fail, the company could fail.

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IT/E-Commerce Outsourcing

Compelling reasons for Outsourcing The IT Dept. is not a core product or service sold

by the company. IT is considered an administrative service. IT operating costs have a negative impact on

financials No volume discounts in purchasing High indirect salaries Staff skills may be difficult to keep current.

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IT/E-Commerce Outsourcing

The base argument then becomes: why divert the companies administrative

resources, energies and funds to something that is not a core product if there are other firms that can do it better for less money.

Outsourcing allows the business to focus

on its fundamentals by letting someone else focus on the services.

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IT/E-Commerce Outsourcing The problem is that your IT Services are

critical to the successful and efficient operation of the firm. Contractor selection is critical.

Consider the following in contractor selection criteria: Are they Experienced?

Have they done this before? IBM, EDS and CSC remain the main players in this market.

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IT/E-Commerce Outsourcing

Can they staff the job? What will they do with the existing IT staff?

Do they have the financial means to manage the cash flow requirements in terms of the payment schedule.

Do they really understand your business? Is their culture sufficient to meld seamlessly into

your operation? This can actually be a critical issue in the selection of

the contractor.

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IT/E-Commerce Outsourcing

What Customers Require From Outsourcing Vendors: Capability to shift risk from customer to vendor Commitment to customer success Flexible terms and conditions (e.g., minimizing extra

charges) Understandable product (scope, service-level agreements

and simple, but flexible, pricing) Demonstrable vendor capabilities (particularly project

management skills and quality benchmarking strength)

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IT/E-Commerce Outsourcing

Some of the key issues now being seen are as follows (CY 2002/2003): Contractors are not accepting risk as the once

were. Competition does tend to force this but there is now

push back where once there was none. There is doubt as to the overall value of these

agreements but if structure correctly for the right company, there are benefits. Mainframe operations are an example of this.

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IT/E-Commerce Outsourcing Outsourcing Keys to Success

Define the rules of the engagement. Let excellent people manage the relationship. Realize that it often takes a year to put the deal

into operation. Control demand, rather than constraining supply

to manage costs. Understand that it might not be a true

partnership, but it is a marriage.

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IT/E-Commerce Outsourcing Outsourcing Keys to Success (Continued)

Let the deal be profitable for the vendor. Understand that a good contract does not

guarantee a good relationship, but a bad contract guarantees a bad relationship.

Maintain a healthy competitive tension among vendors.

Ensure that contractual provisions are capable of being executed.

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IT/E-Commerce Outsourcing Outsourcing Keys to Success (Continued)

Agree on governance structure upfront. Focus on risk mitigation — outsourcing is all

about shifting risk. Avoid ambiguity, inconsistency and lack of

concern for supplier’s costs.

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IT/E-Commerce Outsourcing

E-Commerce Outsourcing Applications Potential elements;

WEB Hosting WEB Site Development Middleware and BackOffice Services (Internet

Managed Asset Provider, IMAP)

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IT/E-Commerce Outsourcing:Specific Examples WEB Hosting Requirements

Minimum of 99.5% uptime (Gartner Group). Quality Hardware: Dual 1GHz homegrown vs. Compaq

Dual Alphas. UPS vs. Backup generators. View rural Eastern Shore

vs. Baltimore Guaranteed high-speed connections outbound to

the Internet. T1, Cable or T3 with redundancy if warranted. Satellite up-links in case the local phone system goes down? How important is your Site?

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IT/E-Commerce Outsourcing:Specific Examples

Service is not cheap. Time to do a make/buy analysis. Could you do it

yourself cheaper? WEB Site Development Requirements

Do they know HTML and some flavor of JAVA? Do they show graphics savvy. (Flash may be great

eye candy but it doesn’t do a lot for content in all cases.) Will they turn over to you copies of all that they produce

in some media format.

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IT/E-Commerce Outsourcing:Specific Examples

Will they Document their work? Will they respond quickly to changes? The initial

rollout is fine. What about all of the changes that will be needed on a weekly basis?

Middleware and BackOffice Services Requirements (Internet Managed Asset Provider, IMAP, Application

Service Provider, ASP) See Subcontractor Considerations. The same begins to apply.

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Health Check Review Upon completion of a VFM and the

subsequent analysis of collected data, a Health Check Review can be conducted. This type of study usually overlays on top of the VFM

study data in that it addresses the: overall integration of the IT department into the

corporation and attempts to determine how it is used.

It can review the data both from a predictive and historical perspective (ex-ante and ex-post)

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Health Check Review HCR studies were initially developed by

PWC according to the text. They identify three general areas of

subsequent review. These are: IT Policy IT Contribution IT Delivery

Each of these elements includes the following:

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Health Check Review IT Policy – Consists of Corporate IT

Strategy, planning and management; Investment and budgeting.

IT Contribution – Consists of Customer Relations, supply of IT services and Evaluation of existing Services.

IT Delivery – Consists of Technology Strategy, Development Planning, Operations Planning, HR Strategies as applied to IT and TQM type initiatives.

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Health Check Reviews

The policy aspect of the rating of MIS’s contributions is associated with: overall corporate strategy. Examples would

include: the implementation of an ERP system will increase

earnings x% or further growth is dependent on the CRM deployment.

The effectiveness of IT Planning, Management, Investment and Budgeting. Almost 50% of all IT projects overrun by about

189%

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Health Check Reviews

The Contribution to Operations from a functional perspective refers to the ability of the MIS department to deliver solutions that enhance operations. This would run the range from deployment of solutions

to meet specific department needs to complete, integrated solutions.

The key for this criteria is that the solutions designed or selected by the MIS department must meet the needs of the department being supported.

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Health Check Reviews

The delivery of services is probably the most visible of the three, though not necessarily the most important. These elements would include desktop

refresh. SLA compliance. System availability. Helpdesk service call response time. System service maintenance (avoiding

downtime).

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Health Check Reviews

As is the case with Value for Money reviews, the results can be extensive and result in the redirection of MIS activities.

Participation AND buy in by the MIS department is critical for success of the assessments.

Planning is a key component in the initiation of this activity.

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Assessments

VFM analysis is an internal review of IT operations. They attempt to gather quantitative metrics on specifics

of IT operations and determines if the services being delivered are being delivered at a fair price.

Health checks are an external review of the value of the IT organization to the rest of the corporation. They attempt to identify value of the services being

delivered to other organizations.

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Comparative Valuations

As is the case of both of these processes, the data derived is only available from one perspective. You cannot compare it to itself.

Additional data sources can be obtained from consultants and research organizations. Make sure that external comparisons are valid. Use firm size in terms of employees and IT services as

a base line, not market position or revenues. Normalize comparison points. The more valid reference points, the more accurate the

comparison.

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VFM and HCR Review

Value for Money (VFM) Studies focus on the effectiveness of the IT department and focuses on Micro-valuation of the services rendered.

Health Check Review (HCR) is categorized by the text is periodic monitoring of various aspects of the IT departments integration into the rest of the organization and leans towards Macro-studies. It addresses how the individual elements from the VFM

study tie together.

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VFM and HCR Review

VFM studies take an analytical look at the different services offered by the IT department. The object is to determine if: the department is providing a value at a level consistent

with the funding, the requirements being placed on the department are

reasonable, there are areas where efficiencies and savings are possible

and What the department does well and by extension, what

areas can be improved.

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VFM and HCR Review Once VFM data gathering and analysis is

complete, a Health Check Review can be conducted. addresses the overall integration of the IT department

into the corporation and attempts to determine how it is used.

They identify three general areas of subsequent review. These are: IT Policy IT Contribution IT Delivery

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VFM and HCR Review These components are measured, more

from an impartial perspective, such as by a consultant. Methodologies are again developed and assessed against an industry and/or a competitive basis.

The results of this analysis are often used to address the use of the IT department from an organizational perspective.

Intangible Data collection remains problematic.

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Summary

VFM looks at all internal aspects of IT department operations.

HCR looks at all external aspects of an IT departments impact on the corporation,

Both require IT management buy in and commitment to the process.

The results of these types of analysis will identify numerous items that can be “optimized” Range from staffing changes to outsourcing.

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Homework