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Effective Financial Management of Communications and Technology. ITPX 2010. Paul Lapan – Manager of Solutions Engineering PINNACLE Software Solutions. Help | About Paul. Paul Lapan PINNACLE Software Corporation Manager, Solutions Engineering Denver, Colorado 303 870-5368

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effective financial management of communications and technology

Effective Financial Management of Communications and Technology

ITPX 2010

Paul Lapan – Manager of Solutions Engineering

PINNACLE Software Solutions

slide2
Help | About Paul

Paul Lapan

PINNACLE Software Corporation

Manager, Solutions Engineering

Denver, Colorado

303 870-5368

[email protected]

  • Career History
  • Enterprise Software Consultant – PAETEC Software
  • Voice Systems Integration Provider – Switchview / Brooktrout
  • Voice Network Manager – ATT Wireless, GGU
  • IT/Telecom Support Manager – CompUSA
slide3
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
slide4
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

slide5
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

effective financial management of communications and technology1
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?

effective financial management of communications and technology2
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.

effective financial management of communications and technology3
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?

effective financial management of communications and technology4
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

effective financial management of communications and technology5
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

the reality of best practices
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
effective financial management of communications and technology6
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

service catalogs objectives
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

example workflow network service delivery
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
slide16
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

slide17
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

slide18
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
slide19
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.
effective financial management of communications and technology7
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

effective financial management of communications and technology8
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

effective financial management of communications and technology9
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

effective financial management of communications and technology10
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

effective financial management of communications and technology11
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

slide25
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
effective financial management of communications and technology12
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.

effective financial management of communications and technology13
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

slide29
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
transparency in it our observations
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
slide31
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)
slide32
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
slide34
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

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