Service Based Costing and Demand Management White Paper
Service Based Costing and Demand Management
Every IT executive needs to be able to answer the key questions that are critical for operating an IT
Who is using what IT services and how much?
How does the performance of my IT organization compare to that of market benchmarks,
industry peers, and outsourcing vendors?
How does IT consumption vary by business unit or geographical location?
How does the actual IT consumption compare against budget estimates?
What are the most optimal demand drivers that I can use to influence my customers' behavior
and to reduce the overall IT spend?
The answers to these questions need to be communicated proactively by the IT organization to its
business customers to build the trust and confidence between the business and IT, and to enable the
customers to plan and manage their IT expenses.
The only way for an IT organization to achieve these goals is by defining and costing the services it
supports in a way that the business customers can understand. Unfortunately, IT organizations often fail
to cost from a service perspective. Instead they cost from a bottom-up infrastructure technology
perspective, in terms of infrastructure components. For example they will cost a set of servers or
components with little regard for how the customers of the services that these servers support actually
consume them. To add to the confusion, the customer bills that IT generates for business executives
usually have no correlation with the service level agreement (SLAs) that IT promised to the business.
It is no wonder, then, that business customers are now demanding better visibility into IT costs from a
perspective they understand. This, in turn, is prompting IT organizations to define the services they
provide to the business. So the question many of them are wrestling with now is: What is the best way to
define these services, map them to the business functions they support, communicate them to IT's
business customers, and make them available for planning, budgeting, and financial management?
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