ITaaS And Financial Transparency: Refining The Cost Model Takes Time

Forging an effective financial transparency model for an IT-as-a-Service operation is an ongoing process, extending months and even years after sending out those initial chargeback invoices to IT users sharing the cost and the control of the services they consume.

At EMC IT, we have been steadily refining the process since creating cost transparency around our IT services as part of launching an ITaaS model in late 2011. And as the summer of 2013 wears on, we are already in the thick of analyzing and honing projections to make improvements for 2014.

Summer vacation season notwithstanding, cost transparency takes persistence and time, especially when we are adding new IT offerings to users. That means we are dealing with new services in our catalog, and making sure we are costing and pricing them correctly depending upon what future demand looks like.

But a substantial part of our summer analysis doesn’t involve new services. We are working to provide more granular segregation of some of our longstanding end user services. In certain cases, we are considering moving away from a per-head allocation or consumption metric as a chargeback basis in favor of a metric that more accurately matches that service usage. For example, we are evaluating the benefits of charging for Internet circuit costs based on location.

We are also continuing to evolve our hosting cost analysis, working with the business units and their Business Technology Group (BTG) IT representatives to understand which applications are going live and which will be decommissioned.

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At the same time, we’ve been working on a model with both data center folks and application owners to test different ways of forecasting storage and memory consumption for larger applications. That’s something we hope to roll out during the 2014 planning process.

Our goal is to more accurately charge business units for what they use. If we can better predict storage and memory for large applications, it will help us understand what we need to buy and how that impacts our cost structure and the costs that get passed on to business units.

As with every stage of developing financial transparency, collaborating with the business is crucial. We are having conversations with the business units on how an application should be growing, does it make sense, what do we think the model is telling us, do we agree with it, and are there alternatives to mitigate costs.

A key goal is to get everyone to better understand the impact that application growth has on the data center—not just among the data center folks, but among users as well.

We began this analysis last summer during the 2013 planning process, learned some things and are now further refining that process so we have more meaningful information.

This summer, we’ll be engaged in trying to project out some of our costs for next year. And we’ll get input from our corporate finance counterparts on growth assumptions, which will help us to supply the business units with service price points in time for the 2014 planning cycle. That will start around September or October.

Overall, the focus is to refine our cost model and understand the next layer of that cost model. We want to evolve this and make it as good as it can be. So, at least in EMC IT Finance, we expect yet another busy summer of financial transparency transformation.

About the Author: Paulo Prazeres