Transforming IT to Show Cost of Services: 5 Best Practices

IT has struggled for years to calculate and prove what its own services actually cost to deliver to the business. Consider these five strategies, as shared by CIOs who've already battle-tested them, says Sunny Gupta, CEO of Apptio.

Recently, we brought together 60 CIOs and IT leaders from the Fortune 1000 for our bi-annual "CIO Technology Business Management Council" meeting. The purpose of this event was to provide participants with an opportunity to learn from their peers about how to transform their IT organization into a services oriented organization and run "IT like a business."

Today's IT leaders need real-time intelligence to make fact-based decisions. Think of IT in the context of a classic supply chain. To truly understand your cost of goods sold, you need to also understand the fully burdened costs of all the raw materials that comprise the finished product.

In the supply chain of IT, these raw materials consist of everything from data center facilities and labor costs all the way up through the server and application tier. Taken together, these components make up the IT services that the business units eventually consume. However, getting a handle on what these services actually cost to deliver — and how they're being utilized — has until now been more dark art than science.

And as virtualization and the cloud takes hold, it's become even more challenging as infrastructure resources become increasingly abstracted. Can you imagine a manufacturing floor running at only 10 percent utilization? IT should be no different.

In order for CIOs to effectively run IT like a business, they require a new set of tools that can unify financial metrics (i.e., GL, payroll, etc.) with key utilization metrics (i.e., server usage, ticketing, etc.). Just as a modern manufacturing enterprise could never imagine running their business without an ERP system in place, today's CIO is demanding new performance metrics that provide the same level of cost transparency and accountability from their organization.

Among the featured presenters was Rebecca Jacoby, CIO for Cisco who is currently in the midst of a multi-year services transformation initiative and Charlie McNerney, GM for Microsoft Global Foundation Services, which represents one of the worlds largest IT deployments. Here are the top five best practices identified by our presenters:

1. Define an IT Services/Products Taxonomy: At its most basic, a taxonomy serves to ensure that everyone is talking about same thing using the same language. While time consuming and challenging to complete, taxonomy projects are valuable exercises that are critical in helping different groups in IT communicate the value of services in a framework that's understood both by IT and the business. Once a common taxonomy is defined and ratified, it can be replicated across the entire organization to eliminate ambiguity and redundancy from the IT cost conundrum. This is especially important as the roles of IT professionals are morphing faster than ever, thus taxonomy schemas will vary considerably between functional areas (i.e., services-based vs. financial).

2. Don't Wait for 100 Percent Clean Data: Many IT leaders are reluctant to kick off their transformation initiatives until they feel confident that their data is thoroughly clean and accurate. The rationale being that if you start with bad data you'll end up with a faulty output (i.e., Garbage-In-Garbage-Out).

However, as many companies who have embarked on their own transformation journey will attest, you're actually better off jumping in and letting the "data clean itself." Says Rebecca: "When I worked in supply chain we had a similar issue. We were going with a new tool and had two plant managers. One said he wouldn't use it until the data was 100 percent complete while the other guys said, 'I get it, it's 90 percent accurate now.' The one who was 90 percent accurate was actually 100 percent accurate within a month. The other one took a year. It's amazing how accurate the data becomes once you start using it."

3. Cost Accounting is the New IT Skill: Forget ITIL certifications. One of the most overlooked and essentials skills for tomorrow's IT managers is basic cost accounting. At Cisco, every single person in Rebecca's organization is going to be required to take a basic Web-based class on cost accounting. Without this foundational skill, IT managers are unable to provide meaningful cost analysis back to the business.

For instance, while calculating unit cost information at the server level might be of interest, understanding and communicating the variance in cost is considerably more valuable. As Charlie at Microsoft is fond of saying, "if you make the facts available, eventually rational minds will prevail."

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