There’s no doubting that cost management and increasing efficiencies are at the top of the business agendas today. It’s good to see the IT department is doing its bit by trying to account for all costs and streamlining the data centre.
To do this successfully, some have adopted a ‘recharging’ or charge back model. This means the IT department charge individual business units for the services and infrastructure that they use in a shared service environment.
In theory, this model is an effective way to control and save costs. In practice, however, if it’s not properly implemented, it can impose complexity, inequality and wastage.
Atiek Arian, Senior Consultant at GlassHouse Technologies UK offers his top tips to prevent this from happening.
1. Standardise service definitions and cater for ring-fenced projects
At the heart of any good shared service model should be a consistent service catalogue and associated architecture / solution matrices. Not only do these provide strategic direction and assist architects in providing infrastructure solutions for new projects, they also develop a framework upon which a uniform costing model can be built.
The catalogue and associated cost model should have the scope to cater for projects that require a bespoke set of technologies, or those that require dedicated use of what would normally be shared infrastructure.
If all the elements of these projects are not properly identified and unilaterally recharged, business units could be overcharged in order to compensate for ‘overseen’ outlays, or the IT division may be left with large residual costs.
2. Introduce overhead and funding pools for capacity related growth
One area of contention in developing a costing model for shared service environments is accounting for capacity related infrastructure, which cannot be directly recharged to business units.
An example could be network and storage infrastructure components such as switches and frontend adapters, which provide a supporting role to rechargeable cost items such as switch ports and array disks.
It simply doesn’t work if the IT department assigns these costs to operational budgets because they do not provide the granularity to cater for capacity requirements driven by demand.
Instead, an overhead should be introduced for each rechargeable item that links its cost to the supporting elements of the infrastructure that require expansion when capacity thresholds are reached.
These costs should be broken down and fed into a pool of funds from which the components are procured as and when they are needed.
If the costing correlation between rechargeable items and their support components is accurately maintained, this pool will provide sufficient funds for non-rechargeable capacity related growth.
3. Capitalise operational tasks as rechargeable costs
Expenditure on ‘soft’ items such as training, support and maintenance is often overlooked in creating a service catalogue. If these items are included in the recharging process, businesses can provide training for technology actually required by the business; support for hardware and software can be comprehensively assessed with third party vendors; and the ongoing maintenance of the entire infrastructure is subject to rigorous financial accounting.
4. Align recharging costs with vendor fees
Often the costs charged to business units become unaligned with those paid to vendors for support and maintenance. The IT department’s relationship with vendors needs to be managed tightly.
Fluctuations in capacity costs and fees to vendors for procurement, support and maintenance need to be accurately reflected in the service catalogue. If, over time, this is neglected, IT divisions will incur residual costs they are forced to account for due to undercharging.
5. Ensure visibility between departmental operational budgets
It’s not uncommon to see budgetary activities isolated between business units and the IT division within an organisation. This results in a significant amount of estimation or projection that can lead to waste or degraded service provisioning.
By introducing processes that ensure budgets, and the requirements behind them, are shared with the IT division, forecasting can be more accurately controlled.
Additionally, the IT division can prepare for costs that are now known by focusing on specific areas of the infrastructure as well entering into negotiations with third party vendors to save costs on support and maintenance.
In a world where cost management and cost savings are paramount, the shared service model can offer a route to success.
It need not become a Pandora’s Box if the IT department is diligent and considers all the key ingredients: service standardisation, an intimate understanding of the infrastructure, identifying operational costs and inter-departmental financial visibility.