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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Member Rating

9.7/10
Overall Impact

$2,519
Average $ Saved

10
Average Days Saved

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Module 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.
  • Set a common foundation for why service-based costing can help your organization.
1.2 Identify benefits and risks.
1.3 Discuss the state of IT cost transparency in your organization.

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.
  • Gap analysis of current and target state to identify service-based costing process.
2.2 Identify current maturity level.
2.3 Being practical in deciding attainable benefits.

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.
  • Targeted service category definition.
3.2 Define service category.
  • Targeted service definition.
3.3 Identify service.
3.4 Define service.

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.
  • Cost model with allocation methodology defined.
4.2 Document your allocation methodology.
  • Documentation template with allocation methodology documented.

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.
  • Breakdown of service category costs.
5.2 Identify service costs.
  • Breakdown of service costs.
5.3 Ensure your cost model can meet your needs.
  • Report summary to measure accuracy and ease-of-use of the cost model.

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
  • “What-if” scenario modelled using the Service-Based Cost Model Tool.
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