ITFM Pathway to Success: Step 5 – Costing & Benchmarking
ITFM Pathway to Success: Step 5 – Costing & Benchmarking
The ITFM Pathway to Success framework is specifically designed to assist CIOs, CFOs, IT Finance leaders, and their respective teams. To achieve the true benefits of implementing ITFM processes and best practices, a series of planned and measured steps must be executed methodically over time.
Step 1 focused on assessing and planning, reviewing the IT strategic plan, and aligning it with the business strategy. In Step 2, services were defined to ensure transparent IT service charges. Step 3 ensured high-quality service consumption and cost data to achieve cost transparency and implement showback/chargeback to the business. Step 4 emphasised the importance of automating these processes. Now, in Step 5, we focus on service costing and benchmarking.
The Importance of Service Costing
What is Service Costing?
Service costing is the process of determining the cost of each unit of IT service being delivered. These unit service costs are essential for implementing chargeback, where each consumer of IT services is charged based on their consumption and the associated costs.
Key Dependencies for Service Costing
To perform effective service costing, certain dependencies must be met:
- Defined Services: Clear definitions of the services being provided.
- Accurate Consumption Data: Reliable data on service usage.
- Aligned Cost Data: Cost data that aligns with the defined services.
The MagicOrange Service Costing Framework
Analysing and Determining Service Costs
The MagicOrange Service Costing Framework provides a structured approach to analyse and determine service costs. By following this framework, organisations can accurately calculate unit service costs and proceed to the benchmarking step.
The Role of Benchmarking in ITFM
Understanding Benchmarking
Benchmarking involves comparing IT costs to various industry standards to determine whether spending levels are appropriate. This process helps organisations understand if their IT spending is too high, too low, or in line with benchmarks.
Benchmarking Process and Considerations
High-Level Benchmarks: Start with broad benchmarks to get an overall view.
Multiple Benchmarks: Use various benchmarks to create a comprehensive picture of spending levels.
Normalised Data Inputs: Ensure data inputs are normalised to match the correct benchmarks.
Expert Insights From Pete Hidalgo
Pete Hidalgo is a recognised IT Financial Management (ITFM) expert with over 25 years of experience. He developed the ITFM Pathway To Success framework and implemented significant cost-saving processes at a Fortune 100 company. Pete also led ITFM initiatives at Ernst & Young and taught ITFM courses at EY University. He now focuses on enhancing MagicOrange’s presence in the US and educating organisations on ITFM benefits.
Benefits of Benchmarking with MagicOrange
Expert Guidance from MagicOrange
MagicOrange experts provide valuable guidance throughout the benchmarking process. Using experienced practitioners ensures high-quality, unbiased results that can drive meaningful cost optimisation.
Accelerating the Benchmarking Process
MagicOrange experts can complete the benchmarking process quickly and efficiently, ensuring data accuracy and providing actionable insights.
Driving Cost Optimisation with ITFM
Implementing Effective Chargeback
Effective chargeback requires accurate unit service costs. By implementing a chargeback model, organisations can ensure that IT services are fairly charged based on consumption.
Leveraging Benchmarking for Cost Reduction
Benchmarking results guide organisations in identifying areas for cost reduction. By comparing costs to industry standards, businesses can take actionable steps to optimise IT spending.
Next Steps
Organisations are encouraged to contact MagicOrange for expert support in implementing ITFM processes. Service costing and benchmarking are crucial for achieving cost transparency and driving cost optimisation.
By following the MagicOrange ITFM Pathway to Success framework, businesses can systematically and holistically approach savings initiatives, ensuring that both IT supply and business demand are optimised for long-term success.