6 Best Practices Communicating Business Value of IT

We were able to get the business operations leaders to agree that they needed to partner with us to help drive down $90 million of cost in the next fiscal year.

Steve AdamsExecutive Director, IT FinanceKaiser Permanente

Executive SummaryAre business unit (BU) stakeholders asking questions like, “Why is IT so expensive?”, “Why are costs increasing?”, and “Shouldn’t we move to the cloud?” Do they see technology expenses as your IT costs – not as investments that empower their business? IT costs are ultimately driven by BU choices regarding consumption of and investment in IT offerings. But when BUs lack visibility into the impacts of their consumption choices on total IT costs, they tend to demand more without sufficient funding, which drives higher fixed run costs that crowd out investment for innovation. When business partners see vague buckets of technology cost instead of the applications and services they rely on and can assign value to, they question the value of IT. Because BUs don’t understand their share of IT costs and what levers they can pull to change them, there is friction instead of prioritization, feeding perceptions that IT is the “department of no.”

It doesn’t have to be this way! IT leaders everywhere follow the principles of Technology Business Management (TBM) to maximize the business value from every IT dollar. Companies like CME Group, AOL, and Dell use TBM to understand and communicate IT’s business value by showing cost, consumption, and choice in business terms. In this brief, we’ll explore the best practices for making this a reality in your organization.

Hint: The Key is to First Understand Your IT Costs

6 Best Practices for Communicating the Business Value of IT

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6 Best Practices for Communicating the the Business Value of IT

ContentsRecognizing the Problem ............................................................................................................................................................................................................................................... 3

Best Practices for Communicating IT Value ............................................................................................................................................................................................................ 3

Benefits .................................................................................................................................................................................................................................................................................. 5

Real-World Outcomes ..................................................................................................................................................................................................................................................... 6

Apptio Can Help ................................................................................................................................................................................................................................................................. 6



Recognizing the ProblemIf your IT organization is like most, you lack the cost and resource visibility that other business leaders take for

granted. Conversations about IT economics are difficult because the necessary data is fragmented across finance

systems, IT operations systems, and spreadsheets. Inventing and maintaining a cost model is labor-intensive, error

prone, and of dubious credibility. The financial data available to leaders of specific IT functional areas or technology

centers lack the granularity or IT context to be actionable.

Even if you had an accurate model of IT infrastructure costs, that wouldn’t be enough to satisfy business unit

stakeholders. For BUs, IT costs are rarely presented in a context they understand or value, and BUs don’t see how

their projects impact IT run costs or what they can do to change them. Infrastructure and operations (I&O) drive

significant IT costs, but they’re not connected to things the business values, such as applications and services that

support business capabilities and drive growth. BUs see the straightforward cost and value of public cloud services

and now want similar transparency from IT.

If you’re in IT finance, you’re probably breaking out in a cold sweat just thinking about this. You struggle with hand-

built cost models in Excel that lack the granularity and pivots needed to be defensible and understood by BU and

I&O leaders. You’re all too familiar with the problem of BUs funding projects without seeing the long tail of operating

expenses (OpEx) and fixed costs they create for IT. You have had more than your fill of painful discussions with the

business about allocations they see as unfair.

Can You Afford to Work This Way?

Because of these challenges, it takes too long to answer financial questions, harms IT’s credibility as business leaders,

and results in rushed decisions and missed opportunities. BUs treat IT as a cost center – one that can’t explain or

defend its budget. As a result, they often leave IT out of key technology decisions, which corners IT into reactivity.

Furthermore, BUs exhibit unchecked demand, over-consuming I&O resources because they

don’t understand the cost impact. In coping with the resulting high run costs, I&O is unfairly

seen as the “department of no” because it can’t keep pace with unfunded demand.

Worse, the choices made by the business lock IT into fixed cost structures that keep costs high

even when business demand declines. When it’s time to restructure, BUs actively or passively

resist efforts to partner on cost optimization. No one wants it to be this way, but BUs lack the

information to be more financially accountable for their consumption and quality choices.

Every day this goes on, it feels like the hole you’re in gets deeper and deeper.

Best Practices for Communicating the Business Value of ITFortunately, there’s a way to change BU behavior and position IT as a trusted business partner. It all starts with IT

getting a grasp of their own business. But how to do this, and where to start? The answer is Technology Business

Management (TBM), a discipline that outlines best practices for managing the business of IT. TBM enables business-

technology leaders to understand and communicate IT’s business value by showing cost, consumption, and choice in

business terms. The standardization and education of TBM is guided by the TBM Council (tbmcouncil.org), a nonprofit

professional organization that is dedicated to advancing the discipline.

A core principle of TBM is the necessity of offering transparency into accurate, detailed costs of IT. In an ideal

world, you could directly measure the value that BUs derive from their use of IT offerings. In reality, this value is

often subjective and difficult to quantify. However, TBM practitioners have learned that IT costs provide a frame of

reference to drive effective conversations about the true value of IT for the business.

If you can’t articulate your “what” and your “how,” you probably shouldn’t be in IT leadership, and so this tool allowed us to have that conversation in a really meaningful way.

— Bradd Busick Sr. Mgr. Planning, Analysis, & Program Mgmt., IT Bill & Melinda Gates Foundation

http://www.tbmcouncil.org



Consequently, leading adopters of TBM make it a priority to understand and show IT cost, consumption, and choice in

relevant language that BUs can immediately use to make critical business decisions. Here are six best practices that

leading TBM practitioners rely on to understand and communicate the business value of IT.

1. Establish a Continuous Understanding of Your IT Economics

Most IT organizations have a rough sense of their finances because they’ve done one-off calculations to support

specific decisions or initiatives, but those point-in-time views quickly get stale and leave IT leaders blind to current

circumstances. Leading TBM practitioners develop a detailed, ongoing financial analysis of their IT business. In this

approach, IT leaders regularly scrutinize IT spend on resources, labor, vendors, and projects. With an up-to-date view

of spend, they can quickly identify and answer questions about budget variance or provide guidance on priorities. They

confidently demystify IT cost drivers when asked and keep a close eye on the balance between run-the-business spend

and investments in innovation to boost productivity or fuel growth.

u Outcome: demonstrate a command of your IT business

2. Use Actual Costs for an Accurate, Complete, & Defensible View

History has shown that it’s not enough to base IT financial analysis on estimates or rate

cards. These methods miss important costs and rely on outdated inputs. When stakeholders

start probing, they quickly find weaknesses and lose confidence. Instead, leading TBM

practitioners rely on a feed from the corporate general ledger, which records the actual

expenditures incurred by the organization. There’s no substitute that provides the coverage

and defensibility to create confidence in your analysis.

u Outcome: trust that your analysis is grounded in truth

3. Frame IT Costs in Business-Friendly Language

BUs understand and assign value to IT through the lens of the applications and services

they rely on. As mentioned above, the general ledger is the best source of “truth” about IT

spend, but there’s a problem: its cost records don’t align with the way BUs perceive IT value.

Furthermore, the general ledger lacks granularity needed by IT leaders for informed decisions

about technology. Leading TBM practitioners in IT finance address these challenges by

adopting a cost model that maps general ledger entries into detailed IT structures such as compute, network, storage,

and end user. The model then uses IT operational data (HR data, CMDB, helpdesk records) to accurately route and

apportion costs through IT resources to applications and services, and on to BUs. This sophisticated approach weights

costs according to usage and consumption so that the resulting spend metrics accurately reflect real-world value in

terms that make sense to the business.

u Outcome: emotions and cost replaced with facts and value in BU conversations

4. Show BUs How Their Consumption Drives Costs

Most BU stakeholders want to be good consumers of IT, using technology efficiently and

appropriately, but they often don’t know what that looks like. Leading TBM practitioners

take a proactive approach and engage their BU partners in conversations about the cost and

value of IT. They show each BU what applications and services they consume, how much they

consume, and the complete cost implications of their consumption choices. BUs can see total

costs alongside their fair share of the costs. They can see how those costs break down into IT

resources (compute, network, storage, etc.) and how those resource costs are composed from

cost pools (internal labor/contractors/outside services, hardware/software, etc.).

u Outcome: BUs treat IT costs as their business costs

The TBM methodology itself has changed how we communicate. We are able to talk about some of the levers that actually drive IT cost, how they fit into other allocation models, and how that drives demand.

— Richard Rogers Head of Business Management Group Services Nationwide Building Society

For the first time, we can give our field workers, plant workers, and hands-on craftsmen technology that has only existed for knowledge workers. That’s going to be enormous for our industry. But in order to make those huge investments, we needed to understand where the money’s going, what it’s going to cost, and how to prioritize. We’ve done that through TBM.

— Phil Zeringue Director of Enterprise Architecture & Programs Tennessee Valley Authority



5. Provide BUs with Choices to Impact Their IT Costs

As soon as BUs understand their fair share of IT costs and their composition, the natural response is to look for

ways to adjust their consumption behavior to match the value they perceive from delivered services. Leading TBM

practitioners embrace this by offering specific levers of choice that BUs can manipulate to influence IT spend. These

include reducing consumption, retiring lightly used applications (that were claimed to be indispensable before costs

were understood), or shifting to lower cost alternatives (e.g., lower storage tiers). When BUs understand how their

decisions translate into long-term costs, they become better consumers of IT. They partner with IT and finance on

tough decisions to free up run costs, and they better steward innovation budget for maximum value.

u Outcome: BUs adjust behavior when they understand the long tail of consumption decisions

6. Leverage Automation to Incorporate TBM into Your Review Cadence

By now, you’ve probably guessed that a one-time effort to execute these best practices

may lead to a momentary gain, but for a sustainable shift in behavior, you need a consistent

ongoing cadence of IT cost analytics. Of course, this level of cost modeling and reporting

is extremely difficult to maintain using manual methods. Your IT finance staff will struggle

to keep up, and their availability for analysis and guidance will all but vanish. Leading TBM

practitioners address this by using software to automate collection of finance and operations

data, restructure that data into IT context, and model costs and analytics for the resulting

spend metrics. By using TBM software, IT leaders can embed TBM best practices into their

operational processes and cultivate a data-driven culture. This frees IT finance to engage IT

leaders and BU partners in deeper analysis and professional guidance.

u Outcome: IT finance freed up for more effective analysis and guidance

BenefitsWhat does this all mean for various constituents? By adopting TBM principles to understand and communicate IT

value, IT leaders realize these benefits:

For the Office of the CIO:

• IT demonstrates command of its business with fast answers to finance and resource questions

• Emotional cost conversations become fact-based value conversations

• BUs treat IT costs as their business costs, working with IT on where to cut back, shift, or invest more to maximize value and innovation

For Infrastructure & Operations:

• BU and application teams make more cost-efficient choices for higher return on assets

• Stop “unfunded mandates” on I&O by helping the business understand the ongoing cost impact applications have on the company’s bottom line

• I&O leaders secure funding from the business to meet new demand and fund modernization and automation

For IT Finance:

• BUs make more judicious use of IT resources, and fund additional capacity where needed

• Business leaders collaborate to make significant changes in cost structure

• IT and business leaders turn to IT finance for analysis and guidance on where to get more business return on IT investment

In order to change behavior, we have to be transparent. TBM enabled us to have a story. We built up all the costs and then we aligned the costs in a way that made sense to the business. Based on that, the business could see how their activities would change the cost picture.

— Carl Stumpf Managing Director, IT Controller CME Group



Real-World Outcomes

Apptio® Can HelpCompanies like Kaiser Permanente, First American, and Nationwide Building Society use Apptio to communicate and

improve IT’s value by showing cost, consumption, and choice in business terms. With Apptio, IT leaders demonstrate

command of their IT business with fast access to financial and resource data through multiple lenses – from project

and vendor, to servers and storage, to service desk and security. These foundational IT costs are then translated

into business costs as applications and services with the slices, dices, and detail about supporting resources to drive

confidence and action. Finally, shared project, application, and service costs are mapped to each BU, along with

levers they can pull such as consumption volumes, service quality, and variable costs. By replacing emotion about IT

costs with facts in business language, Apptio helps IT organizations transform their relationship with the rest of the

business, from reactive cost center to proactive service provider.

Key Capabilities with Apptio

Get Started Today

Apptio is the pioneer of TBM, and the leading provider of SaaS applications for managing the business of IT. Hundreds

of customers, including more than a third of the Fortune 100, choose Apptio as their business system of record for

IT. With pre-defined IT domain knowledge, dozens of built-in reports, and pre-packaged service offerings that deliver

concrete results in a predictable time, Apptio can help you launch your TBM journey and gain value within a matter of

weeks. Get started today by contacting us at apptio.com/get-started.

First American • First American IT secured a budget increase after the CEO saw cost of internal- vs. external-facing application portfolios, and business application teams selected lower tiers of infrastructure to fund hiring of more developers once they saw total costs of server and storage by tier.

Nationwide Building Society

• After developing a clear view of unit cost, cost composition, and demand volumes, Nationwide Building Society expects to reduce IT unit costs by 6-7%, yielding anticipated savings of $10-13 million.

Amerisource-Bergen

• When AmerisourceBergen provided service managers with visibility into the actual cost of services and underlying infrastructure, they used this information to identify and decommission 75 servers.

Apptio Cost Transparency

Foundation

• Understand and track trends in IT resource cost and consumption including projects, cloud services, vendors, labor, technologies like servers and storage, and functions like service desk and security

• Use a standard cost model to translate financial and IT data into detailed building blocks for application and service total cost

Apptio Cost Transparency Applications

& Services

• Explain and defend application and service costs with granular visibility into foundational elements, plus individual server and storage assets

• Provide cost/performance choices by showing the cost of different quality offerings within a service • Demonstrate the total development and run cost of applications to gain BU cooperation in application

rationalization and investment decisions

Apptio Cost Transparency for

Business Units

• Show each BU its fair share of project, application, and service costs using a mix of consumption and traditional costing methods matched to your data

• Expose levers that enable each BU to impact its share of costs by seeing which are driven by consumption and which are variable

• Continuously improve BU costing with a defensible, actionable approach, and a flexible data management and cost modeling

Apptio is the leading provider of cloud-based Technology Business Management (TBM) software that helps CIOs manage the business of IT. For

more information, visit the Apptio website or the Apptio blog at www.apptio.com. Apptio, ATUM, Apptio TBM Unified Model, and the circle logo

are trademarks of Apptio, Inc. All other trademarks are the properties of their respective owners.

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6 Best Practices Communicating Business Value of IT