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Information Economicsin practice..
Diderik van Wingerden, consultantDecember 8, 2010
Before we start..
Please hand in your assignments.
Introduction You, me and M&I/Partners
IT TCO benchmarking The yearly benchmarks of M&I/Partners
Benchmarking IT benefits Work in progress
Contents
Introduction: you
Introduction: me
Introduction: M&I/Partners Independent consultancy for management & IT 60 consultants Office at Amersfoort Knowledge areas:
Business & IT (e.g. IT Economics, IT Architecture) Information management (e.g. content management) IT-infrastructures (e.g. application integration) & more.. (e.g. IT and law, sourcing, etc.)
Clients: Ministries (e.g. Home Office) Financial (e.g. Delta Lloyd Groep, ABN Amro) Municipalities (e.g. Rotterdam, Amsterdam) Public Order & Safety (e.g. NATO, Defence, Police) Trade and industry (e.g. Havenbedrijf R’dam, Philips, HP) Education (e.g. Saxion, University of Delft, ROC) Cure (e.g. hospitals, EHR)
Website: www.mxi.nl
Introduction You, me and M&I/Partners
IT TCO benchmarking The yearly benchmarks of M&I/Partners
Benchmarking IT benefits Work in progress
Contents
Typical questions of managers How much money do we spend on IT?
Whereof do these IT-expenditures exist?
What is the benefit of the use of IT for me?
How does pricing of IT-services within my organization compare to other organizations?
Cost management activities
Insight into IT costs
TCO assessment Budgeting Investment
evaluationProject cost management
Operational cost management Charging
Cost control
Initial goal
Final goal
Cost management activities
Benchmarking
Source: Van Maanen and Berghout, 2001
IT TCO benchmarking Managers would like insight into their organization’s
IT costs and how this compares to other organizations.
Any ideas on how to do this?
TCO
What is TCO?
Total cost of ownership (TCO) is.. Definition of costs (Van Maanen & Berghout 2001)
‘…the financial representation of the sacrifices an organization makes in order to produce.’
Definition of TCO of an information system (Van Maanen & Berghout 2001)
‘…all costs associated with owning and using the informationsystem throughout its life cycle.’
All costs includes: Onetime investment Implementation costs Annual operational costs during the life cycle
Benchmarking
What is benchmarking?
Benchmarking is.. Taking “snap-shots” Finding “best practices” Some definitions:
“[..] a process that helps agencies to find high performance levels (benchmarks) in other organizations and learn enough about how they are achieving those levels so the practice or process producing the performance can be applied in one’s own agency.” (Keehley in Nelissen and De Goede 1999)
“The core of benchmarking: learning about your own organization through other organizations.” (Van Eekeren 2003)
Identify Measure Compare Analyse Improve!
Benchmarking characteristics, goals and conditions for success
Source: Spendolini in Van Der Zee 2001
Benchmarking variants
1. Internal vs. external organizations2. Within the industry or outside the industry
Look at other industries for competitive advantages3. Standard vs. customization
Adjust starting-points or definitions4. Private parties vs. (semi) public
Competition 5. Anonymous vs. known
Known: maximal learning experience6. Passive vs. active
Support on the process of interpretation & explanationfindings
Source: McGonagle & Fleming, New Options In Benchmarking. Journal for Quality and Participation, 1998
Why should you use TCO / benchmarking?
1. Know your position Test for industry conformity
2. Compare Gives insight in own costs versus other’s costs
3. Improve Learn from each other
4. Insight into organizational aspects Organization of IT-department (centralized, decentralized) Outsourcing
Where does benchmarking fit in?
Full life cycle management for IT (Berghout and Nijland 2002)
IT And now an easy one..
What is IT?
IT is..
"the study, design, development, implementation, support or management of computer-based information systems, particularly software applications and computer hardware.“
Source: Wikipedia, Information Technology Association of America (ITAA)
But for today IT in an organization is.. IT-management PC-Workplace LAN (local area network) WAN (wide area network) Applications and data processing Speech facilities
And for each of those: Hardware Software Personnel Other
In practice: the M&I/Partners IT benchmarks
Housing associations, municipalities, hospitals, … Yearly since 2002, following financial control cycle Model is 80% identical over industries Measures:
IT costs (TCO) Functionality IT process maturity (CobiT)
Anonymous reports, non-anonymous meetings Past two years: work on “benefits” side For today: focus on wTCO, housing associations
Benchmarks 35% of industry (measured in rentable units)
What is a housing association? In Dutch: “woningcorporatie” Builds, lets, sells, maintains homes Social housing, public mission Area of Rotterdam:
Woonstad Rotterdam (49.000 Rentable Units, RU’s) Com.wonen (30.000 RU’s) Woningstichting PWS (15.000 RU’s) Woonbron (50.000 RU’s) Vestia (80.000 RU’s)
Example result: IT costs / Rentable Unit
€ -
€ 20,00
€ 40,00
€ 60,00
€ 80,00
€ 100,00
€ 120,00
€ 140,00
€ 160,00
€ 180,00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38
SpraakAppsWANLANWerkplekICT-mgnt
wTCO: benchmarking 40 housing corporations
Scope of the benchmark: ICT costs (90%) Functionality (5%) IT process maturity (5%)
Objects of measurement Categories of IT costs (for each object) Measurement method (for each category of each
object) Way of reporting
Objects of measurement IT-management PC-Workplace LAN (local area network) WAN (wide area network) Applications and data processing Speech facilities
Type of IT costs and measurement IT cost categories per object:
Hardware Software Personnel Other
Measures for each category in each object: Investment Depreciation Exploitation
TCO in a Rubik's Cube
IT Objects:IT Objects:-ICT-managementICT-management-PC-WorkplacePC-Workplace-LANLAN-WANWAN-ApplicationsApplications-Speech facilitiesSpeech facilities
IT cost IT cost categories:categories:-HardwareHardware-SoftwareSoftware-PersonnelPersonnel-OtherOther
Cost Cost measurement:measurement:-InvestmentInvestment-DepreciationDepreciation-ExploitationExploitation
And some additional indicators for calculation..
Number of Rentable Units (RU) (Verhuurbare Eenheden, VHE)
Total revenue Locations FTE total, FTE IT-department Number of PC’s/PC-workplaces
.. give a total of 11 different diagrams
€ -
€ 20,00
€ 40,00
€ 60,00
€ 80,00
€ 100,00
€ 120,00
€ 140,00
€ 160,00
€ 180,00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38
SpraakAppsWANLANWerkplekICT-mgnt
0
20
40
60
80
100
120
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38
VHE/ ICT-werkplekGewogen ge m
€ -
€ 2.000,00
€ 4.000,00
€ 6.000,00
€ 8.000,00
€ 10.000,00
€ 12.000,00
€ 14.000,00
€ 16.000,00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38
SpraakAppsWANLANWe rkplekICT-mgnt
€ -
€ 5.000,00
€ 10.000,00
€ 15.000,00
€ 20.000,00
€ 25.000,00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38
SpraakAppsWANLANWerkplekICT-mgnt
0
0,5
1
1,5
2
2,5
We rkplek/ medewerkerGewogen gem
0,00%
0,50%
1,00%
1,50%
2,00%
2,50%
3,00%
3,50%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38
Kosten/ omzetGewogen gem
0
10
20
30
40
50
60
70
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38
FTE/ ICT-FTEGewogen gem
0
20
40
60
80
100
120
140
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38
5%
11%
13%
7%
52%
12%
ICT-mgntWerkplekLANWANAppsSpraak
15%
34%34%
17%
HardwareSoftwarePersoneelOverig
0%
20%
40%
60%
80%
100%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38
ExploitatieAfschrijv ing
But there’s more.. Measurement of functionality
3 diagrams Measurement of IT process maturity
9 diagrams + individual diagrams for each participant
Now what? What are we going to do with all of this?
IT costs / PC-workplace
€ -
€ 2.000,00
€ 4.000,00
€ 6.000,00
€ 8.000,00
€ 10.000,00
€ 12.000,00
€ 14.000,00
€ 16.000,00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38
SpraakAppsWANLANWerkplekICT-mgnt
Industry average: IT cost per object
5%
11%
13%
7%
52%
12%
ICT-mgntWerkplekLANWANAppsSpraak
Industry average: IT cost per category
15%
34%34%
17%
HardwareSoftwarePersoneelOverig
IT costs as % of revenue
0,00%
0,50%
1,00%
1,50%
2,00%
2,50%
3,00%
3,50%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38
Kosten/ omzetGewogen gem
What does this all mean in practice?1. Get participants2. Send Excel sheet to all participants for data
gathering3. Drive around the Netherlands to interview 40
housing associations4. Create report using MySQL, PHP, Excel and Word5. Interactive sessions with all participants6. Report is used by each participant as they like7. Start over
Excel sheet: contact details
Excel sheet: IT costs of applications
Interactive sessions
Conclusion
Would you participate if you were a manager?
Conclusions TCO & benchmarking are improvement methods for
an organization They can be used to gain insight in costs and
control Based on the findings you can formulate measures
for improvement for your organization
In order to realize actual effect with benchmarking, you have to know the story behind the numbers! Benchmark results are only a means to start talking to each other!
Let’s have a break
Introduction You, me and M&I/Partners
IT TCO benchmarking The yearly benchmarks of M&I/Partners
Benchmarking IT benefits Work in progress
Contents
Other typical questions of managers (Especially those participating in the IT benchmarks)
What causes the differences in IT cost levels? Now I know the costs, but what are the benefits? How much value do we get from our IT? Does an organization with a lower IT costs level do
better than an organization with a high level? Or is a high level justified when the benefit is also
higher?
The challenge “Develop an instrument to measure and compare IT
benefits between organizations.” an “IT benefit” counterpart of the existing “IT cost” focus
Any ideas on how to do this?
IT benefits
What are IT benefits?
Some benefits of IT..
Provide customers with unique value proposition
Permit new business models
Build barriers to industry
Increased agility Increased productivity
Improved quality at reduced cost
Improved turnaround time
Reduced headcount
Employee self-service Reduction in property costs
Automation Keeping up with competition
Bargaining power
Measuring IT benefits
Why is it difficult to measure IT benefits?
The complexity of IT benefits
Direct Indirect
Non-financial
FinancialMea
sura
bilit
y
Causality
But also.. Lack of data recorded in the organization
Especially non-financial data No baselines
Is dependent of many other factors (gearbox dilemma)
IT value ends up outside of the organization Risk and chance are also involved Experiments and R&D are necessary Project success is in the eye of the beholder
The gearbox dilemma
Some approaches we are working on As mentioned earlier:
Functionality IT process maturity
And some more: Quality in business process (my Master’s thesis) Degree of coverage
What (mistaken) assumptions do we make?
Functionality
IT cost per rentable unit
IS fu
nctio
nalit
y sc
ore
IT process maturity
IT cost per rentable unit
IS m
atur
ity s
core
IT process maturity (2)
0 1 2 3 4 5
Identificatie en allocatie van kosten
Gebruik van Service Levels (SLA's) naar eindgebruikers
Educatie en training van eindgebruikers
Beschikbaarheid van ICT
ICT performance en capaciteitmanagement
Beheersbaarheid van werkzaamheden en project management
Evaluatie van effectiviteit
Gegevensbeheer (kwaliteit van data)
Leverancierbeheer
Verander management (change management)
Beveiliging
Professionalisering werkprocedures
Incident- en probleembeheer
Veiligheidsbeheer en risicobeperking
Configuratiebeheer
ICT management en planning
Hulp voor eindgebruikers (helpdesk)
Quality in business process: Bedell revisited
Do you know the method of Bedell?
The method of BedellOrganizational importance of information systems
vs.Quality of information systems
EIO: effectiveness of IS
IIO: potential of IT
0
Invest selectively
1 2 3 4 5 6 7 8 9 10
1
2
3
4
5
6
7
8
9
10Invest aggressively Invest selectively
Stabilize Disinvest
Association A
Association D
Association C
The quality model
Systems DesignInfo
Needs Design Build Imple-ment
Data Processing
Collect Record Process
Causal
TeleologicalEnvironment
Organization
Business Processes
Subprocesses for each business process
Systems
Organizational Goals
Business Process Targets
User Targets Provider Targets
Personal Interests
Information
Source: Van der Pijl (1994)
Business processes for housing associations
For each: Strategic importance Operational importance
Information systems of housing associations Digitale woningplattegronden Document Informatie Systeem (DIS) Financiële meerjarenplanning Financiële administratie Geografisch Informatie Systeem (GIS) Huuradministratie Inkoopadministratie Kennismanagementsysteem Klanten Informatie Systeem Klein dagelijks onderhoud Management Informatie Systeem (MIS/DWH) Meerjaren onderhoud Nieuwbouwprojecten Planmatig onderhoud Salaris systeem / personeelssysteem Strategisch voorraad beheer (SVB) Treasury VVE-beheer Website, Intranet, Extranet Woningcartotheek Woonruimtebemiddeling en -verdeling Workflow Management (WFM)
For each: Supports which process(es)? 4 quality indicators:
Effectiveness User satisfaction Efficiency Up-to-date
Results: the “IT benefit house”
EIA: effectiveness of IS
Combine with TCO: added IT costs / RU
Kwaliteit informatievoorziening(gewogen naar bedrijfsbelang)
Potentieel van ICT (gewogen naar bedrijfsbelang)
0
Invest selectively
1 2 3 4 5 6 7 8 9 10
1
2
3
4
5
6
7
8
9
10Aggresief investeren Selectief investeren
Stabiliseren Desinvesteren € 70 / VHE€ 80 / VHE€ 90 / VHE
€ 100 / VHE
€ 110 / VHE
€ 120 / VHE
€ 130 / VHE
Woningcorporatie A
Woningcorporatie B
Woningcorporatie C
Zooming in to the business processes
+ 6 more..
Some approaches we are working on As mentioned earlier:
Functionality IT process maturity
And some more: Quality in business process (my Master’s thesis) Degree of coverage
Degree of coverage For general hospitals:
EMR coverage For municipalities:
NUP coverage Citizen service coverage
EMR coverage
Usage (%)
Func
tiona
lity
(%)
NUP coverage
Citizen service coverage
0
1
2
3
4
5
6Ophalen huisvuil
Inzameling grofvuilHeffing rioolrecht (ook voor bedrijven)
Onroerende zaak belasting - OZB (ook voorbedrijven)
Aanvragen bouwvergunning (ook voor bedrijven)
Melding van schade/onderhoud aan wegen/trottoirse.d. (wegenonderhoud)
Aanvragen paspoort
Aankoop/verhuur bouwgrond
Aanvragen rijbewijs
Inzage bestemmingsplannen (ook voor bedrijven)
Aanvragen GBA-uittreksel Aanvraag van een gehandicaptenvoorziening (WMO)
Aanvraag kwijtschelding belastingen en heffingen Aanvraag bijstandsuitkering
Doorgeven verhuizing
Melding schade openbaar groen
Aanvragen kapvergunning
Bezwaarschrift indienen
Aanvraag parkeervergunning (ook voor bedrijven)
Aanvraag evenementenvergunning (ook voorbedrijven)
Inzameling bedrijfsafval (alleen voor bedrijven)
Aanvragen milieuvergunning (alleen voor bedrijven)
Aankoop/verhuur bedrijfsterreinen (alleen voorbedrijven)
Aanvragen in/uitritvergunning (alleen voor bedrijven)
The outcome..
Are these useful additions to the IT TCO benchmarks?
Conclusions Functionality:
End-of-life IT process maturity:
Very useful for internal discussion and goal setting Quality in business process:
Master’s thesis successfully completed Insufficient participants to do 1st round benchmark Why?
Degree of coverage: Pragmatic and easy to understand
Nobody has a definitive answer (yet) Both in academic research and in real-life organizations
Measuring IT benefits is very complex! Work in progress!
Some notions worth mentioning What I learnt from my master’s thesis project:
Just like renovating your house: it’s best not to know in advance what you will be getting into. Deal with it along the way.
Do not worry about the limitations of your research, just be open and fair about them.
Field research will take longer than expected (even if you expect this). Important factor: summer holiday period.
How to plan writing? 1 chapter / month vs. you know best at the end
Pick a topic you like and want to know (a lot) more about. Keep your eyes on the prize. Finishing your thesis while working in a new job is not advised.
Almost done.. This presentation will be available on Blackboard
More information: IT TCO benchmarks: www.mxi.nl/ictbenchmark Master’s thesis: http://www.slideshare.net/diderik
Internship or job as (junior) consultant? www.mxi.nl/werkenbij
Or contact me: Diderik van Wingerden, consultant at M&I/Partners @diderikvw diderik.van.wingerden@mxi.nl http://nl.linkedin.com/in/diderikvanwingerden
If time permits..
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