Establish a Service-Based Costing Model
Not knowing your costs is an expense you can’t afford.
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Not establishing a service-based costing model will lead to:
- Difficulty demonstrating that IT service costs are competitive when compared to cloud-based alternatives and outsourcing.
- Excessive consumption of IT services by business units because they perceive them as “free.”
- Inability to project service costs for budgeting due to a limited understanding of service costs.
- Obscured cost of delivering IT services due to inconsistent service definitions.
- Inability to map expenses in the general ledger to services.
- Difficulty managing the complexity of cost allocation.
- Expensive and time consuming collection and analysis of data to accurately allocate costs.
Establishing a service-based costing model will:
- Improve Transparency: Expenditures on IT resources can be directly linked to IT service delivery and business value, and IT investments can be targeted at specific service enhancements.
- Increase Comparability: Cost to deliver services via internal resources is directly comparable to, and can be benchmarked against, service delivery via alternative sourcing options, such as outsourcing or cloud services.
- Account for Consumption: Business units recognize the impact of their consumption and can adjust their usage patterns to make more efficient use of IT services.
- Make Budgets Credible: Forecasting budget is closely tied to expected service demand and known service costs.
- Improve Clarity: CFOs are able to identify how IT expenditures in the general ledger map to IT services delivered.
- Optimize Costs: Costs are decreased through reducing cost drivers and improving service processes.
- Fairly Attribute Costs: IT service costs can be fairly distributed among IT users, supporting chargeback or showback.
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Book NowModule 1: Make the Case
The Purpose
- Recognize the flaws in traditional costing methods.
- Define the opportunities service-based costing can afford.
- Explain the challenges of service-based costing.
Key Benefits Achieved
- Understanding of service-based costing.
- Knowing the benefits and risks of service-based costing.
| Activities: | Outputs: | |
|---|---|---|
| 1.1 | Define service-based costing. |
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| 1.2 | Identify benefits and risks. |
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| 1.3 | Discuss the state of IT cost transparency in your organization. |
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Module 2: Assess Maturity and Need
The Purpose
- Clarity regarding the Info-Tech Service-Based Costing Maturity Model and the capabilities required to achieve each level.
- Certainty regarding your current service-based costing capability.
- A decision regarding your target level of service-based costing maturity.
Key Benefits Achieved
- Current level of maturity identified.
- Target level of maturity identified.
- Metrics to track success selected.
- Defined metrics to track your progress.
| Activities: | Outputs: | |
|---|---|---|
| 2.1 | Identify target maturity. |
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| 2.2 | Identify current maturity level. |
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| 2.3 | Being practical in deciding attainable benefits. |
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Module 3: Target Service Category and Service
The Purpose
- Determine the service and service category that service-based costing analysis should focus on.
- Ensure that the service category and service are clearly defined.
Key Benefits Achieved
- Targeted service category.
- Defined service.
| Activities: | Outputs: | |
|---|---|---|
| 3.1 | Identify service category. |
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| 3.2 | Define service category. |
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| 3.3 | Identify service. |
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| 3.4 | Define service. |
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Module 4: Develop an Allocation Methodology
The Purpose
- Develop an allocation methodology that fairly allocates general ledger line items to service categories.
- Develop an allocation methodology that fairly allocates general ledger line items to services.
- Document allocation methodology.
Key Benefits Achieved
- A fair allocation methodology.
- Identified cost drivers.
- A documented allocation methodology.
| Activities: | Outputs: | |
|---|---|---|
| 4.1 | Develop your allocation methodology. |
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| 4.2 | Document your allocation methodology. |
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Module 5: Determine Costs
The Purpose
- Determine your service-based costs at the service category and service levels.
- Ensure the cost model is able to meet your needs in terms of accuracy and ease of use.
Key Benefits Achieved
- Determined service category costs
- Determined service costs
- Cost model meets your needs.
| Activities: | Outputs: | |
|---|---|---|
| 5.1 | Identify service category costs. |
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| 5.2 | Identify service costs. |
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| 5.3 | Ensure your cost model can meet your needs. |
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Module 6: Use Service-Based Costing to Drive Business Value
The Purpose
- Use service-based costing to establish business unit accountability.
- Use service-based costing to make better decisions.
- Use service-based costing for budgeting.
Key Benefits Achieved
- Business unit accountability established using service-based costing.
- Benchmarks obtained and validated.
- Business decision making using service-based costing.
- Best practices for budgeting with service-based costing.
| Activities: | Outputs: | |
|---|---|---|
| 6.1 | Use service-based costing for decision making |
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