Effective Financial Management of Communications and Technology

1. Effective Financial Management of Communications and Technology ITPX 2010 Paul Lapan – Manager of Solutions Engineering PINNACLE Software Solutions

2. Help | About Paul Paul Lapan PINNACLE Software Corporation Manager, Solutions Engineering Denver, Colorado 303 870-5368 paul.lapan@paetec.com • Career History • Enterprise Software Consultant – PAETEC Software • Voice Systems Integration Provider – Switchview / Brooktrout • Voice Network Manager – ATT Wireless, GGU • IT/Telecom Support Manager – CompUSA

3. About Today’s Discussion • Objectives of Financial Management • Why is this relevant today? • Value of Best Practice Frameworks • Cost Modeling • Business Drivers • Improvement of Process Throughput • Eliminating Bottlenecks

4. Effective Financial Management of Communications and Technology Financial Management - Business Objectives: • Monetary Stewardship • Universal service support and service delivery processes • Planning & execution of budgeting, accounting and charging as it relates to the entire management lifecycle Procurement  Provisioning   Payment   Cost Allocation 9

5. Effective Financial Management of Communications and Technology Budgeting, Accounting, Chargeback Budgeting (Mgt) Accounting (Fin) Charge Back (IT/Ops) Yearly (Planning) Agree on Expenditures Establish Standard Costs Publish price list (Service Catalogs) Monthly (Managing) Review and Manage exceptions Monitor Cost Centers Monitor IT Revenue

6. Effective Financial Management of Communications and Technology Changes… 1. Exponential increase in Data Center located applications 2. Focus on service – business value relationships 3. Changing cost models from physical to virtual resources (big increase in absorbed indirect costs) Why is this so much more important today?

7. Effective Financial Management of Communications and Technology The end result – Visibility and Accountability • Integration to the General Ledger • True chargeback to the responsible account/party • Integration to Accounts Payable • Lifecycle view of what is ‘going out the door vs. what is coming in • Self-Service details for customers • Employee Accountability • 3-5% Savings across the board (per Aberdeen) Transparency is Accountability without the need for a formal punishment system to manage misbehavior.

8. Effective Financial Management of Communications and Technology Focus on the legacy business ‘best practices’ from Telecom that many IT shops didn’t immediately adopt. 1. The business is the customer of Telecom. 2. Managerial Measurements - i.e. ITIL Service Level Agreements, Operational Level Agreements (Underpinning Contracts) - Benchmarking Metrics! How do we start and/or continue to improve what we have?

9. Effective Financial Management of Communications and Technology Measuring associated costs around… Service Hours Service Availability Reliability Customer Support Targets for Incident Resolution (Fix) times Service Performance Functionality (if appropriate) Change Management Procedures Security

10. Effective Financial Management of Communications and Technology What other ‘best practices’ are key to focus on to establish a model for IT/Telecom? Predetermined Acceptable Fixed and Variable Costs Automated Process for Approvals, Payment and Dispute Contract Negotiation and Increased Competition

11. Popular Best-Practice Frameworks 7

12. The Reality of Best Practices Effective Financial Management of Communications and Technology • What they provide: • Common sense of proven concepts and techniques • A method to measure performance • The potential to avoid common pitfalls • The potential to focus on continual improvement • Assessment criteria • Standard language • What they are not: • An “absolute correct” solution • Procedural • Recommendations to buy a system or technology

13. Effective Financial Management of Communications and Technology What value is there in these frameworks to assist us with improving our financial models? Common language to describe the relationships between functional areas (in terms of associated costs) Common repository (CMDB) - Configuration Management Database (service, subscriber, location) Common provisioning model - Configuration Items & Related Vendor Charge Codes Common Container for Costs – Service Catalog

14. Service Catalogs – Objectives Effective Financial Management of Communications and Technology • A service catalog is a list of services that an organization provides, often to its employees or customers. • Each service within the catalog typically includes: • A description of the service • Timeframes or service level agreement for fulfilling the service • Who is entitled to request/view the service • Costs • How to fulfill the service Publish  Accept Request   Review   Deploy   Review

15. Example Workflow – Network Service Delivery • Many parallels to Voice & Video services • Managed as separate business processto provide based on customer needs • Many opportunities exist for streamlining operations • Manual Billing

16. Effective Financial Management of Communications and Technology Measuring IT Cost By Customer Vendor Charges Software Personnel Hardware Real Estate Cost Elements Direct Costs Indirect Costs Customer A Customer B Customer C Absorbed Unabsorbed Cust A B C Cust A B C Total cost of IT Services for Customer A

17. Effective Financial Management of Communications and Technology Measuring Cost by Service Type Vendor Charges Software Personnel Hardware Real Estate Cost Elements Direct Costs Absorbed Indirect Costs Unabsorbed Indirect Costs • Hardware • Software • Personnel • Vendor • Charges • Hardware • Software • Real Estate • Software • Real Estate • Personnel • Vendor • Charges Monthly Recurring Charges Usage Charges One Time Charges Cost of the Service

18. Effective Financial Management of Communications and Technology Definitions • Cost Model: Based on calculating the costs for each Customer by service, location, or other allocation method. • Cost Types include: • Hardware • Software • People • Vendor Services • Space/Accommodations • Cost Elements provide detail on cost type • Specific asset assignment (Hardware, Software, Office Space) • Resource Utilization (Bandwidth, CDR, Kilowatt Hour, Number of Copies

19. Effective Financial Management of Communications and Technology Definitions - Cost Categories • Capital or Operational Costs are typically associated with the physical assets that are required to run day-to day operations such as maintenance and support staff costs. • Direct Costs are costs that are attributable to a single customer or such as software used for a research project or PDA’s for sales personnel. • Indirect Costs are costs shared on behalf of many such as shared bandwidth or technical resources. • Absorbed Indirect Costs can be metered. Examples include: power, network utilization, and phone calls • Unabsorbed Indirect Costs can not be metered. These are shared services such as a network pipe, IT Salaries, or share facilities.

20. Effective Financial Management of Communications and Technology What are the drivers for today’s business requirements? 1. Cost Justification (technology refresh) 2. Cost Allocation (alignment w/business value) 3. Capacity Planning (SLA, QoS) 4. Cost Containment and Transparency

21. Effective Financial Management of Communications and Technology What is the ‘real’ situation for many today? • Managing to stay in good graces of vendor accounts. • Quarterly audits and spot checking after the fact • In-house and homegrown chargeback systems • Flexible and equitable financial chargeback processes that use; 1. Clear standard charging increments 2. Easily measured sources – metered, buffered, event-based, time-based 3. Well defined and easily explained cost models – not subject to interpretation 4. Costs unlinked to direct business processes – not transitory 5. Simple and inflexible pricing mechanisms

22. Effective Financial Management of Communications and Technology How can we all improve? • Increase throughput of our organizations* All organizations can be measured by 3 financial things; 1. Inventory 2. Operating Expense 3. Throughput *Theory of constraints model - Dr. Eliyahu M. Goldratt -The Goal

23. Effective Financial Management of Communications and Technology How can we all improve? • Increase throughput of our organizations* All organizations can be measured by 3 financial things; 1. Inventory Money invested in communications technology 2. Operating Expense Money spent in converting Inventory into business enablers 3. Throughput The SPEED of converting Inventory into business enablers *Theory of constraints model - Dr. Eliyahu M. Goldratt -The Goal

24. Effective Financial Management of Communications and Technology Inventory • Communications inventories are not ASSETS to your organization Operating Expenses • All costs associated with procuring, provisioning and enabling the use of inventory by the business. Throughput • The speed at which Inventory items are converted to use by the business

25. Example Workflow – Voice Service Delivery Inputs & Outputs: • Email with attachments • Hardcopy & Faxes Challenges: • No complete view • Manual intervention • Tracking status • Multiple copies of same Data record • Synchronization • Data Integrity • Manual Billing

26. Effective Financial Management of Communications and Technology How can we all improve throughput? • Eliminate bottlenecks What creates bottlenecks? Leadership Skill Tools Resources Behavioral Change Deployment issues People Process Technology Financial tools that enable visibility of costs will increase your business throughput if you take care not to create a model that fails.

27. Effective Financial Management of Communications and Technology Why do efforts to improve financial chargeback models often fail? 1. System development and maintenance issues 2. Pushback on management metrics 3. Usage Misunderstood 4. Changes over time - lack of flexibility

28. Financial Management – Our Observations

29. Cost vs. Profit Centers – Our Observations • IT as a Cost Center • Silos and stovepipes within IT • Subject to cost cutting initiatives • Lack of common processes, language, job titles, skills, and tools • Lack of transparency into IT costs • Reactive to government regulation • New technology – because it’s new • IT as a Profit Center • IT management sees IT as a key to winning • Deploys IT strategically to empower the business • Seeks innovative IT solutions to stay ahead of the competition

30. Transparency in IT – Our Observations • Business Requirements: • Implement sound stewardship of the monetary resources for the organization. • Planning & execution of budgeting, accounting and chargeback to the organization responsible for the cost. • Common Observations: • Lack of visibility • Challenges with Audit Compliance (Sarbanes Oxley, OMB) • Budgeting is based on last year +/- 3% • C-Level Management can not determine why/where there are cost fluctuations • No way to correlate cost to revenue • No SLA’s in place to account for high-maintenance customers

31. The end result – Visibility and Accountability • Integration to the General Ledger • True chargeback to the responsible account/party • Integration to Accounts Payable • Lifecycle view of what is ‘going out the door vs. what is coming in • Self-Service details for customers • Employee Accountability • 3-5% Savings across the board (per Aberdeen)

32. About Today’s Discussion • Objectives of Financial Management • Why is this relevant today? • Value of Best Practice Frameworks • Cost Modeling • Business Drivers • Improvement of Process Throughput • Eliminating Bottlenecks

33. Questions?

34. Service Management Manage access, distribution, configuration and financial ownership Operations Management Streamline workflow, service delivery and service support operations Financial Management Track usage, automate invoice processing, charge back and optimization activities Integration Management Automate the exchange of data with other systems