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3 service strategy
- 1. © 2009 Hewlett-PackardDevelopment Company, L.P. The information contained herein is subject to change without notice Service Strategy
- 2. 2 Continual Service Improvement ITIL v3– Core Publications • ITIL Service Management Practices – Core Guidance − Service Strategy − Service Design − Service Transition − Service Operation − Continual Service Improvement Se rviceService Strategy Service Operation Se rvice De sig n Service Design Service Transition ITIL
- 3. 3 Service Strategy • Keyconcepts − Utility and Warranty − Value Creation − Service Provider − Delivery Model Options − Service Model • Processes − Service Portfolio Management (SPM) − Demand Management − Financial Management
- 4. 4 Utility Warranty • Utilityand Warranty define services and work together to create value for the customer • Utility − What does the service do? − Functional requirements − Features, inputs, outputs… − “fit for purpose” • Warranty − How well does the service do it? − Non-functional requirements − Capacity, performance, availability… − “fit for use”
- 5. 5 Service Provider • Anorganization supplying services to one or more internal customers or external customers • Type 1 − Internal − Embedded in the business unit it serves • Type 2 − Shared − Provide services to multiple business units • Type 3 − External − Provide services to many customers
- 6. 6 Type I –Internal Service Provider
- 7. 7 Type II –Internal Service Provider
- 8. 8 Type III –External Service Provider
- 9. 9 Service Model • Graphicalrepresentation of the components that make up a service • Documents workflow and dependencies • Used to support design, analysis and communication
- 10. © 2009 Hewlett-PackardDevelopment Company, L.P. The information contained herein is subject to change without notice Strategy Generation
- 11. 11 Strategy Generation -Activities • Define the Market − Evaluate the services you could potentially offer, and who you may be able to offer them to • Develop the Offerings − Continue to formulate the services you think it will be worthwhile pursuing − Utility and Warranty are considered at this stage • Develop Strategic Assets − Look for opportunities to exploit your services and capabilities (to allow more services to more customers) − Develop Service Management so that it becomes a strategic asset • Prepare for Execution − Take all the necessary steps to ensure that we are ready to go ahead and it is worthwhile doing so
- 12. © 2009 Hewlett-PackardDevelopment Company, L.P. The information contained herein is subject to change without notice Service Portfolio Management
- 13. 13 Service Portfolio Management- Objectives • Decide what services to offer • Understand − Why should a customers buy these services? − Why should they buy these services from us? • Provide direction to Service Design − So they can manage and fully exploit the services into the future
- 14. 14 Service Portfolio Management– Basic Concepts • Business Service − A service that directly supports a business process • IT Service − A service that the business does not think of in business context or semantics • Business Service Management − Considering service management in terms of business processes and business value
- 15. 15 Business Service vsIT Service
- 16.
- 17. 17 Service Portfolio Management- Activities
- 18. 18 Service Portfolio Management- Roles • Product Manager − Own and manage a set of related services − Evaluate market opportunities and customer needs − Create business cases − Plan new service development programs • Business Relationship Manager − Identify and document customer needs
- 19. © 2009 Hewlett-PackardDevelopment Company, L.P. The information contained herein is subject to change without notice Demand Management
- 20. 20 Demand Management –Objectives and business value • Understand customer requirements for services and how these vary over the business cycle • Ensure the provision of appropriate levels of service − By varying provision or influencing customer demand • Ensure that the Warranty and Utility we offer matches the customer needs
- 21. 21 Demand Management –Basic Concepts • Core Service − An IT Service that delivers outcomes desired by one or more customers • Supporting Service − A service that enables or enhances a core service. For example • A directory service or a backup service
- 22. 22 Demand Management –Basic Concepts • Pattern of Business Activity (PBA) − Workload profile of one or more business activities − Varies over time − Represents changing business demands • User Profile − Pattern of user demand for IT Services − Each user profile includes one or more PBAs
- 23. 23 Demand Management –Basic Concepts • Service Package − Detailed description of a service − Includes a service level package and one or more core services and supporting services • Service Level Package − Defined level of utility and warranty for a particular service package − Designed to meet the needs of a PBA. For example • Gold, Silver or Bronze service
- 24. 24 Demand Management -Roles • Business Relationship Manager − Document PBAs and user profiles − Identify correct service level packages for their customers − Identify unmet customer need − Negotiate with Product Manager for creation of new services
- 25. © 2009 Hewlett-PackardDevelopment Company, L.P. The information contained herein is subject to change without notice Financial Management
- 26. 26 Financial Management –Objectives and business value • Financial visibility and accountability • Financial compliance and control • Enhanced decision making • Operational control • Value capture and creation • Understand the value of IT Services
- 27. 27 Financial Management –Basic Concepts • Services valuation − Cost of providing the service − Value to the customers receiving the service • Service investment analysis − Understand the total lifecycle value and costs of proposed new services or projects • Accounting − Keeping track of what has been spent, assigned to appropriate categories
- 28. 28 Financial Management –Basic Concepts • Business Case − A decision support and planning tool that predicts outcomes of a proposed action − Used to justify investments • Business Impact Analysis − Understanding the financial cost of service outages
- 29. 29 Financial Management –Roles • All managers have some financial responsibility • Senior IT Management own budgets and are ultimately responsible for decisions • Many organizations appoint a financial controller to oversee day-to-day finances • Accounting department provides governance framework and support
Editor's Notes
- #3 Diagram: Shows the Core ITIL V3 publications/books. Setting the scene (middle) is Service Strategies, laying out guidelines for the IT organization, how to deliver value, which service portfolios to offer, etc. Service Design – translates strategic plans and objectives into designs and specifications ready to be built. Service Transition – takes the IT service design and implements it into the production environment. Service Operation – management of the IT services on a day-to-day basis Continual Service Improvement – ensuring that the IT service meets it’s service level objectives over-time; ensuring that the overall IT Service Management implementation is able to support the needs of the IT services and their customers – and that improvement/corrections are made as required. Each of the life-cycle stages is subject to Continual Service Improvement. Up to this point, we have defined the Core ITIL V3 publications.
- #4 Purpose: Key Message: Additional Information: N/A Transition to Next Slide:
- #5 Purpose: Key Message: From the customer’s perspective, value consists of two primary elements: utility or fitness for purpose and warranty or fitness for use. Utility is perceived by the customer from the attributes of the service that have a positive effect on the performance of tasks associated with desired outcomes. Removal or relaxation of constraints on performance is also perceived as a positive effect. Warranty is derived from the positive effect being available when needed, in sufficient capacity or magnitude, and dependably in terms of continuity and security. Utility is what the customer gets, and warranty is how it is delivered. Customers cannot benefit from something that is fit for purpose but not fit for use, and vice versa. It is useful to separate the logic of utility from the logic of warranty for the purpose of design, development and improvement ( Figure 2.2 ). Considering all the separate controllable inputs allows for a wider range of solutions to the problem of creating, maintaining and increasing value. Additional Information: Transition to Next Slide:
- #6 Purpose: Key Message: It is necessary to distinguish between different types of service providers. While most aspects of service management apply equally to all types of service providers, others such as customers, contracts, competition, market spaces, revenue and strategy take on different meanings depending on the type. There are three archetypes of business models service providers: Type I – internal service provider Type II – shared services unit Type III – external service provider Additional Information: N/A Transition to Next Slide:
- #7 Purpose: Key Message: Type I providers are typically business functions embedded within the business units they serve. The business units themselves may be part of a larger enterprise or parent organization. Business functions such as finance, administration, logistics, human resources, and IT provide services required by various parts of the business. They are funded by overheads and are required to operate strictly within the mandates of the business. Type I providers have the benefit of tight coupling with their owner-customers, avoiding certain costs and risks associated with conducting business with external parties. The primary objectives of Type I providers are to achieve functional excellence and cost-effectiveness for their business units.11 They specialize to serve a relatively narrow set of business needs. Services can be highly customized and resources are dedicated to provide relatively high service levels. The governance and administration of business functions are relatively straightforward. The decision rights are restricted in terms of strategies and operating models. The general managers of business units make all key decisions such as the portfolio of services to offer, the investments in capabilities and resources, and the metrics for measuring performance and outcomes. Type I providers operate within internal market spaces. Their growth is limited by the growth of the business unit they belong to. Each business unit (BU) may have its own Type I provider ( see slide ). The success of Type I providers is not measured in terms of revenues or profits because they tend to operate on a cost-recovery basis with internal funding. All costs are borne by the owning business unit or enterprise. Competition for Type I providers is from providers outside the business unit, such as corporate business functions, who wield advantages such as scale, scope, and autonomy. In general, service providers serving more than one customer face much lower risk of market failure. With multiple sources of demand, peak demand from one source can be offset by low demand from another. There is duplication and waste when Type I providers are replicated within the enterprise. To leverage economies of scale and scope, Type I providers are often consolidated into a corporate business function when there is a high degree of similarity in their capabilities and resources. At this level of aggregation Type I providers balance enterprise needs with those at the business unit level. The trade-offs can be complex and require a significant amount of attention and control by senior executives. As such, consolidated Type I providers are more appropriate where classes of assets such as IT, R&D, marketing or manufacturing are at the core of the organization’s competitive advantage and therefore need careful control. Additional Information: N/A Transition to Next Slide:
- #8 Purpose: Key Message: Functions such as finance, IT, human resources, and logistics are not always at the core of an organization’s competitive advantage. Hence, they need not be maintained at the corporate level where they demand the attention of the chief executive’s team.11 Instead, the services of such shared functions are consolidated into an autonomous special unit called a shared services unit (SSU) ( see slide ). This model allows a more devolved governing structure under which SSU can focus on serving business units as direct customers. SSU can create, grow, and sustain an internal market for their services and model themselves along the lines of service providers in the open market. Like corporate business functions, they can leverage opportunities across the enterprise and spread their costs and risks across a wider base. Unlike corporate business functions, they have fewer protections under the banner of strategic value and core competence. They are subject to comparisons with external service providers whose business practices, operating models and strategies they must emulate and whose performance they should approximate if not exceed. Performance gaps are justified through benefits received through services within their domain of control. Customers of Type II are business units under a corporate parent, common stakeholders, and an enterprise-level strategy. What may be sub-optimal for a particular business unit may be justified by advantages reaped at the corporate level for which the business unit may be compensated. Type II can offer lower prices compared to external service providers by leveraging corporate advantage, internal agreements and accounting policies. With the autonomy to function like a business unit, Type II providers can make decisions outside the constraints of business unit level policies. They can standardize their service offerings across business units and use market-based pricing to influence demand patterns. While Type II providers benefit from a relatively captive internal market for their services, their customers may still evaluate them in comparison with external service providers. This balance is crucial to the effectiveness of the shared services model. It also means that poorly performing Type II providers face the threat of substitution. This puts pressure on the leadership to adopt industry best practices, cultivate market spaces, formulate business strategies, strive for operational effectiveness, and develop distinctive capabilities. Industry-leading shared services units have successfully been spun off by their parents as independent businesses competing in the external market. They become a source of revenues from the initial charter of simply providing a cost advantage. Additional Information: N/A Transition to Next Slide:
- #9 Purpose: Key Message: The business strategies of customers sometimes require capabilities readily available from a Type III provider. The additional risks that Type III providers assume over Type I and Type II are justified by increased flexibility and freedom to pursue opportunities. Type III providers can offer competitive prices and drive down unit costs by consolidating demand. Certain business strategies are not adequately served by internal service providers such as Type I and Type II. Customers may pursue sourcing strategies requiring services from external providers. The motivation may be access to knowledge, experience, scale, scope, capabilities, and resources that are either beyond the reach of the organization or outside the scope of a carefully considered investment portfolio. Business strategies often require reductions in the asset base, fixed costs, operational risks, or the redeployment of financial assets. Competitive business environments often require customers to have flexible and lean structures. In such cases it is better to buy services rather than own and operate the assets necessary to execute certain business functions and processes. For such customers, Type III is the best choice for a given set of services ( see slide ). The experience of such providers is not limited to any one enterprise or market. The breadth and depth of such experience is often the single most distinctive source of value for customers. The breadth comes from serving multiple types of customers or markets. The depth comes from serving multiples of the same type. From a certain perspective, Type III providers are operating under an extended large-scale shared services model. They assume a greater level of risk from their customers compared to Type I and Type II. But their capabilities and resources are shared by their customers – some of whom may be rivals. This means that rival customers have access to the same bundle of assets, thereby diminishing any competitive advantage those assets bestowed. Security is always an issue in shared services environments. But when the environment is shared with competitors, security becomes a larger concern. This is a driver of additional costs for Type III providers. As a counter-balance, Type III providers mitigate a type of risk inherent to Types I and II: business functions and shared service units are subject to the same system of risks as their business unit or enterprise parent. This sets up a vicious cycle, whereby risks faced by the business units or the enterprise are transferred to the service units and then fed back with amplification through the services utilized. Customers may reduce systemic risks by transferring them to external service providers who spread those risks across a larger value network. Additional Information: N/A Transition to Next Slide:
- #10 Purpose: Key Message: Additional Information: N/A Transition to Next Slide:
- #12 Purpose: Key Message: Additional Information: N/A Transition to Next Slide:
- #14 Purpose: Key Message: A Service Portfolio describes a provider’s services in terms of business value. It articulates business needs and the provider’s response to those needs. By definition, business value terms correspond to marketing terms, providing a means for comparing service competitiveness across alternative providers. By acting as the basis of a decision framework, a Service Portfolio either clarifies or helps to clarify the following strategic questions: Why should a customer buy these services? Why should they buy these services from us? What are the pricing or chargeback models? What are our strengths and weaknesses, priorities and risk? How should our resources and capabilities be allocated? Organizations embarking on a service-orientation journey have a tendency to view it as a series of tactical programmes. Armed with a conceptual understanding of services, organizations frequently rush to industrialize service outcomes. The impulse is to launch initiatives in organizational change or process redesign. While these are important fulfilment elements, there is an order worth noting. While this order is not absolute it does serve two purposes. First, it warns against missteps such as performing organizational design before knowing what services to offer, or performing a tool selection before optimizing processes. Second, it signals the early need for a Service Portfolio, one of the most vital yet often missing constructs for driving service strategies and managing service investments. Additional Information: N/A Transition to Next Slide:
- #15 Purpose: Key Message: Business processes should be considered in comprehensive terms – the endpoints of a value chain. If a process improvement plan focused only on Accounts Payable (AP), for example, it might improve that sub-process, but not improve the overall process, Order-to-Cash (OTC). Worse, one might improve the sub-process at the expense of the overall value chain. For example, if the AP improvements included a service that produced higher quality reports, but took longer to produce, the delay may affect the company’s ability to respond to changes in the marketplace. A business process can be distributed across technologies and applications, span geographies, have many users, and yet still reside in one place: the data centre. To integrate business process, IT frequently employs bottom-up integration, stitching together a patchwork of technology and application components that were never designed to interact at the business process layer. What began as an elegant top-down business design frequently deteriorates into a disjointed and inflexible IT solution, disconnected from the goals of the business. An improved strategy for engaging at the business process layer is focusing on modeled abstractions of business activities. These focal points, called business services, represent business activities with varying degrees of granularity and functionality. A business process, for example, may be represented as a single business service or a collection of business services ( Figure 5.11 ). A business service can represent a composite application or a discrete application function. It may represent a discrete transaction or a collection of supporting fulfillment elements. In all cases, it exists in the domain of the business. Additional Information: Transition to Next Slide:
- #16 Purpose: Key Message: A business service is defined by the business. If IT provides a service to the business, but the business does not think of the service in any business context or semantics, then it is an IT Service. By considering services as a system for creating and capturing value, regardless of sourcing or underpinnings, the line between IT Services and business services begins to blur. Instead, each can be thought of as different perspectives across a spectrum. Again, the decision to adopt a business or IT perspective depends on the context of the customer. Additional Information: Transition to Next Slide:
- #17 Purpose: Key Message: IT priorities must be clearly aligned with other drivers of business value. In order for IT to organize its activities around business objectives, the organization must link to business processes and services – not just observe them. IT leadership must engage in a meaningful dialogue with line-of-business owners and communicate in terms of desired outcomes. The transition from managing infrastructures to managing services is marked by a fundamental difference ( Figure 5.15 ). While managing infrastructure requires a focus on component operational availability, managing services is centered on customer and business needs. Operational information about the infrastructure’s health is a critical foundation but is not enough. IT organizations intuitively recognize the need to link their activities with business objectives but frequently struggle in deciding how far to go in exposing the linkages between business activities and IT execution. Organizations are increasingly less focused on IT infrastructure and applications than on coupling applications internally and with business partners in the quest to automate end-to-end business processes and deliver business services. The challenge is to derive operational objectives from business services and to manage accordingly. Business perspectives, however, often do not easily relate to IT infrastructure. A strategy aimed at this challenge is Business Service Management (BSM). BSM differs from previous strategic methods by offering a holistic top-down approach aimed at aligning the IT infrastructure with the business. “ Business Service Management is the ongoing practice of governing, monitoring and reporting on IT and the business service it impacts.” BSM provides the means by which the service provider manages business services. When the provider focuses its operations on business services it is better able to align investments in infrastructure and operational activities with business objectives. BSM sets forth a model for developing business-focused metrics, enabling adaptation to future needs as driven by the business requirements. The cornerstone to BSM is the ability to link service assets to their higher-level business services. The links are based on causality instead of correlation. The view of IT infrastructure shifts from a topological map to a dependency model ( Figure 5.16 ). This model identifies the asset-to-service linkages, allowing infrastructure events to be tied to corresponding business outcomes. Additional Information: N/A Transition to Next Slide:
- #18 Purpose: Key Message: If we think of SPM as a dynamic and ongoing process set, it should include the following work methods (also shown in Figure 5.17 ): Define : inventory services, ensure business cases and validate portfolio data Analyze : maximize portfolio value, align and prioritize and balance supply and demand Approve : finalize proposed portfolio, authorize services and resources Charter : communicate decisions, allocate resources and charter services. Additional Information: N/A Transition to Next Slide:
- #19 Purpose: Key Message: Product Manager is a key role within Service Portfolio Management (See following slide). The role is responsible for managing services as a product over their entire lifecycle fom concept to retirement through design, transition, and operation. They are instrumental in the development of Service Strategy and its execution through the Service Lifecycle in a high-performing portfolio of services. Product Managers bring coordination and focus to the organization around the Service Catalog of which they maintain ownership. They work closely with Business Relationship Managers (BRM) who bring coordination and focus to the Customer Portfolio. Additional Information: N/A Transition to Next Slide:
- #21 Purpose: Key Message: Business processes are the primary source of demand for services. Patterns of business activity (PBA) influence the demand patterns seen by the service providers ( Figure 5.23 ). It is very important to study the customer’s business to identify, analyse and codify such patterns to provide sufficient basis for Capacity Management. Visualize the customer’s business activity and plans in terms of the demand for supporting services. Additional Information: N/A Transition to Next Slide:
- #22 Purpose: Key Message: Core services deliver the basic outcomes desired by the customer. They represent the value that the customer wants and for which they are willing to pay. Core services anchor the value proposition for the customer and provide the basis for their continued utilization and satisfaction. Supporting services either enable or enhance the value proposition. Enabling services are basic factors and enhancing services are excitement factors. For example, the core service of a bank could be providing financial capital to small and medium enterprises. Value is created for the bank’s customer only when the bank can provide financial capital in a timely manner (after having evaluated all the costs and risks of financing the borrower). The supporting services could include the aid offered by loan officers in assessing working capital needs and collateral, the application processing service, flexible disbursement of loan funds, and the facility of a bank account into which the borrower can electronically transfer funds. The credit-reporting service that the lending department utilizes for evaluating credit-reporting, may be a core service provided to the loan officers by internal or external service providers. It is not a supporting service to borrowers because they are not its users. Supporting services for the loan officers could include a Service Desk that provides technical support for the credit reporting service, email and voice mail. These services support the outcome of approving loans to credit-worthy customers in an efficient and timely manner, compliant with all policies, procedures and regulations. Additional Information: N/A Transition to Next Slide:
- #23 Purpose: Key Message: Business activities drive demand for services. Customer assets such as People, Processes, and Applications generate patterns of business activity (PBA). PBA define dynamics of a business and include interactions with customers, suppliers, partners and other stakeholders. Services often directly support PBA. Since PBA generate revenue, income and costs they account for a large proportion of business outcomes. Patterns of business activity (PBA) are identified, codified, and shared across process for clarity and completeness of detail. One or more attributes such as frequency, volume, location and duration describe business activity. They are associated with requirements such as security, privacy and latency or tolerance for delays. This profile of business activity can change over time with changes and improvements in business processes, people, organization, applications and infrastructure. PBA are placed under change control. Each PBA has to be substantially different from another PBA in order to be coded with a unique reference. Codifying patterns helps multidimensional analysis, using criteria such as likeness and nearness. This provides efficiency and robustness in developing a catalogue of patterns with simplification and standardization to reduce the number of patterns, make analysis easier, and avoid complicated solutions. User profiles (UP) are based on roles and responsibilities within organizations for people, and functions and operations for processes and applications. As suggested earlier, business processes and applications are treated as users in many business contexts. Many processes are not actively executed or controlled by staff or personnel. Process automation allows for processes to consume services on their own. Processes and applications can have user profiles. Whether they should is a matter of judgment. Each UP can be associated with one or more PBA. This allows aggregations and relations between diverse PBS connected by the interactions between their respective UPs. User profiles (UP) are constructed using one ore more predefined PBA. They are also under change control. UPs represent patterns that are persistent and correlated. Pattern matching using PBA and UP ensure a systematic approach to understanding and managing demand from customers. They also require customers to better understand their own business activities and view them as consumers of services and producers of demand. When they are used to communicate demand, service providers have the information necessary to sort and serve the demand with appropriately matched services, service levels, and service assets. This leads to improved value for both customers and service providers by eliminating waste and poor performance. UP communicate information on the roles, responsibilities, interactions, schedules, work environments and social context of related users. Additional Information: N/A Transition to Next Slide:
- #24 Purpose: Key Message: SERVICE PACKAGES The packing of core and supporting services is an essential aspect of market strategy. Service providers should conduct a thorough analysis of the prevailing conditions in their business environment, the needs of the customer segments or types they serve, and the alternatives that are available to those customers. The decisions are strategic because they hold a long-term view for maintaining value for customers even as industry practices, norms, technologies and regulations change. Bundling of supporting services with core services has implications for the design and operation of services. Decisions have to be made whether to standardize on the core or the supporting services. One can arrive at the same level of differentiation in a service offering taking different approaches to bundling. However, the costs and risks involved may be different. Service Transition processes guide such decisions. The costs and risks for supporting services may be overlooked during initial stages of planning and development. Not only that, since supporting services are often shared by several core services, there is often poor visibility and control over the demand for supporting services and their consumption. While service providers must focus on the effective delivery of value from core services, they should also devote enough attention to the supporting services. Satisfaction surveys show that user dissatisfaction is often with supporting services even where the core service is being effectively delivered. Some supporting services, such as help desk or technical support services typically bundled with most service packages can also be offered on their own. This is an important consideration in strategic planning and reviews. Service providers may adopt different strategies for core services and supporting services. For example, they can drive standardization and consolidation for supporting services to leverage economies of scale and to reduce operating costs, while developing core service packages specifically designed for particular customers. Or they may standardize the core service package and use supporting services to differentiate the offerings across customers or market segments. These strategic decisions can have enormous implications for the overall success of a service provider at the portfolio level. This is particularly important for service providers who need to balance the differing needs of, typically, not one but several enterprises or business units while trying to keep costs down across that portfolio to remain competitive. SERVICE LEVEL PACKAGES Services packages come with one or more service level packages (SLP). Each SLP provides a definite level of utility or warranty from the perspective of outcomes, assets and the PBA of customers. Each SLP is capable of fulfilling one or more patterns of demand. SLPs are associated with a set of service levels, pricing policies, and a core service package (CSP). CSPs are service packages that provide a platform of utility and warranty shared by two or more SLPs. Combinations of CSPs and SLPs are used to serve customer segments with differentiated value. Common attributes of SLPs are subsumed into the supporting CSPs. (This is like the popular game of Tetris in which the bottom-most layer of bricks gets subsumed when all its gaps are filled with the falling bricks.) This follows the principle of modularity to reduce complexity, increase asset utilization across SLPs, and to reduce the overall cost of services. CSPs and SLPs are loosely coupled to allow for local optimization while maintaining efficiency over the entire supported Service Catalogue. Improvements made to CSPs are automatically available to all SLPs following the principle of inheritance and encapsulation. Economy of scale and economy of scope are realized at the CSP level and the savings are transmitted to the SLP and to customers as policy permits. In certain contexts, CSPs are infrastructure services offered by a specialized service unit. This allows for greater economy, learning and growth from specialization. This is similar to the arrangements between product marketing groups and manufacturing. Additional Information: N/A Transition to Next Slide:
- #25 Purpose: Key Message: Additional Information: N/A Transition to Next Slide:
- #27 Purpose: Key Message: Additional Information: N/A Transition to Next Slide:
- #28 Purpose: Key Message: SERVICE VALUATION Service Valuation quantifies, in financial terms, the funding sought by the business and IT for services delivered, based on the agreed value of those services. FM calculates and assigns a monetary value to a service or service component so that they may be disseminated across the enterprise once the business customer and IT identify what services are actually desired. The pricing of a service is the cost-to-value translation necessary to achieve clarity and influence the demand and consumption of services. The activity involves identifying the cost baseline for services and then quantifying the perceived value added by a provider’s service assets in order to conclude a final service value. The primary goal of Service Valuation is to produce a value for services that the business perceives as fair, and fulfils the needs of the provider in terms of supporting it as an ongoing concern. A secondary objective is the improved management of demand and consumption behavior. ACCOUNTING Accounting within Financial Management differs from traditional accounting in that additional category and characteristics must be defined that enable the identification and tracking of service-oriented expense or capital items. Financial Management plays a translational role between corporate financial systems and service management. The result of a service-oriented accounting function is that far greater detail and understanding is achieved regarding service provisioning and consumption, and the generation of data that feeds directly into the planning process. The functions and accounting characteristics that come into play are discussed below: Service recording – the assignment of a cost entry to the appropriate service. Depending on how services are defined, and the granularity of the definitions, there may be additional sub-service components. Cost Types – these are higher level expenses categories such as hardware, software, labour, administration, etc. These attributes assist with reporting and analysing demand and usage of services and their components in commonly used financial terms. Cost classifications – there are also classifications within services that designate the end purpose of the cost. These include classifications such as: Capital/operational – this classification addresses different accounting methodologies that are required by the business and regulatory agencies. Direct/indirect – this designation determines whether a cost will be assigned directly or indirectly to a consumer or service. Direct costs are charged directly to a service since it is the only consumer of the expense. Indirect or ‘shared’ costs are allocated across multiple services since each service may consume a portion of the expense. Fixed/variable – this segregation of costs is based on contractual commitments of time or price. The strategic issue around this classification is that the business should seek to optimize fixed service costs and minimize the variable in order to maximize predictability and stability. Cost Units – A Cost Unit is the identified unit of consumption that is accounted for a particular service or service asset. As accounting processes and practices mature toward a service orientation, more evidence is created that substantiates the existence and performance of the IT organization. The information available by translating cost account data into service account information dramatically changes the dynamics and visibility of service management, enabling a higher level of service strategy development and execution. SERVICE INVESTMENT ANALYSIS Financial Management provides the shared analytical models and knowledge used throughout an enterprise in order to assess the expected value and/or return of a given initiative, solution, program or project in a standardized fashion. It sets the thresholds that guide the organization in determining what level of analytical sophistication is to be applied to various projects based on size, scope, resources, cost and related parameters. The objective of service investment analysis is to derive a value indication for the total lifecycle of a service based on 1) the value received, and 2) costs incurred during the lifecycle of the service. Section 5.1.3, on ‘Methods, models, activities and techniques’, discusses a number of concepts and methods for exploiting IT investment analysis to improve capital expenditure and IT operations processes. Assumptions about the service are a key component of analyzing investments. The granularity of assumptions used in investment analysis can have significant impact on the outcome of the analysis. For example, a service obtained via an instantly self-deployable packaged software solution residing on a single desktop and requiring little user support will have a different investment profile than a service obtained through custom development, global customer interaction and other resources that go into creating, deploying and supporting an enterprise solution with multiple language users. In Service Investment Analysis, it is best to lean toward the use of an exhaustive inventory of assumptions rather than a limited set of high-level inputs, in order to generate a more realistic and accurate view of the investment being made. Additional Information: N/A Transition to Next Slide:
- #29 Purpose: Key Message: A business case is a decision support and planning tool that projects the likely consequences of a business action. The consequences can take on qualitative and quantitative dimensions. A financial analysis, for example, is frequently central to a good business case. A BIA seeks to identify a company’s most critical business services through analysis of outage severity translated into a financial value, coupled with operational risk. This information can help shape and enhance operational performance by enabling better decision making regarding prioritization of incident handling, problem management focus, change and release management operations, project priority, and so on. It is a beneficial tool for identifying the cost of service outage to a company, and the relative worth of a service. These two concepts are not identical. The cost of service outage is a financial value placed on a specific service, and is meant to reflect the value of lost productivity and revenue over a specific period of time. The worth of a service relative to other services in a portfolio may not result exclusively from financial characteristics. Service Value, as discussed earlier, is derived from characteristics that may go beyond Financial Management, and represent aspects such as the ability to complete work or communicate with clients that may not be directly related to revenue generation. Both of these elements can be identified to a very adequate degree by the use of a BIA. Additional Information: N/A Transition to Next Slide:
- #30 Purpose: Key Message: Additional Information: N/A Transition to Next Slide: