Moving Information Technology

8/11/2019 Moving Information Technology

1/20

Advisory/ Moving Information Technology from a Cost to an Investment / January 2014 1

2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network ofindependent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.

Moving Information Technology from a Cost to an Investment

ADVISORY

Moving Information

Technology from

a Cost to an

Investment

The Technology Business

Management Approach

kpmg.com


2/20

2 Advisory/ Moving Information Technology from a Cost to an Investment / January 2014

2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network oindependent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity


Table of ContentsThey say cost. We say value. . . . . . . . . . . . . . . . . . . . . . 4

The TBM Value Optimization Pathway . . . . . . . . . . . . 5

Value is optimized across three domains . . . . . . . . . . 6

The four stages of sustained value optimization . . . . 8

Managing the journey and realizing value . . . . . . . . 11

Optimization making the transition to value . . . . . 14

Creating sustained value over time . . . . . . . . . . . . . . 17

The conversation begins... . . . . . . . . . . . . . . . . . . . . . 19


3/20





4/20




Information Technology (IT) transparency has become the new mantra for many IT organizations as

they struggle to become more relevant and responsive to the business. Publishing a service catalog,

building service cost models, and sharing this information with stakeholders is a significant step

towards running IT as a business, but transparency is not enough. In fact, under certain circumstances

transparency alone can lead to the wrong behaviors if not explained properly.

They say cost. We say value.

After years of cost cutting begun during the financial crisis and subsequent deep

recession, CIOs have managed to capture much of the low-hanging fruit. However,at some point, cost cutting begins to reduce capabilities that can adversely impact

business. Leading IT organizations do not stop with transparency; they continue the

journey so they can change the conversation with the board of directors and business

leadership away from the singular focus on IT as a cost to be reduced and towards IT

as an investment with a focus on enhancing returns and winning in the market.

At KPMG, weve been helping IT organizations apply Technology Business

Management (TBM) disciplines to navigate the journey from technology provider to

value-focused business partner. TBM helps IT organizations manage the business of

IT through an integrated view of technology, cost, performance, supply, and demand

(see figure 1).

Figure 1 | The TBM Framework

Source: Technology Business Management Council 2013


5/20




KPMG has developed the TBM Value Optimization Pathway to help IT organizations

navigate the journey from technology provider to value-focused business partner. The

pathway recognizes that organizations typically pass through four stages of maturity

on their way to sustainable value optimization. Effectively advancing an organizations

maturity calls for effective transparency and management across three inter-related

optimization domains (see figure 2). This report starts out by providing a high level

overview of the framework and moves on to offer recommendations for taking action

based on KPMGs experience helping clients. Simply put, its how we change the

conversation from IT cost to IT value.

Figure 2 | The TBM Journey Pathway to IT Value Optimization

Financial Resources

Technology Portfolio

Business Demand

Value Measurement and Management

Organization and Behavioral Change Management

Program and Risk Management

TBM

Optimization

Domains

Managing the TBM

Journey and

Realizing the Value

STAGE 2:

Transparency

STAGE 1:

TBM Strategy & Roadmap

STAGE 3:

Optimization

STAGE 4:

Sustained Value

The TBM Value Optimization Pathway


6/20




Technology portfolios

IT portfolio management, despite being around for years, is

still an undeveloped competency for many IT organizations.

Over time, many IT portfolios have grown organically from

the demands of the business, such as massive investments

in ERP, CRM, and supply chain automation, and from merger

and acquisition activity. The result is portfolios bloated with

redundancy, excess capacity, and underutilized and/or unused

assets.

Many businesses today are focused on agility and data

exploitation as competitive differentiators. Scale and efficiency

is giving way to smaller and faster.

The technology portfolio is typically divided into four main

areas:

Application portfolio All of the applications currently being

hosted and maintained by IT, which for a large global firm

could easily number in the thousands. Management of this

portfolio focuses on comparing the total cost of ownership

for each application to its relative value to the organization.

Infrastructure portfolio The hardware, software, and

networking assets typically located in data centers, including

servers, storage, and networking hardware and requisite

non-applications-specific software such as middleware,

information management, and security.

Investment (project) portfolio Current and proposed

projects representing new strategic initiatives or major

enhancements of capabilities to existing applications and

services.

Service provider or vendor portfolio The current provider

relationships and contracts in place to provide IT-related

products and services including outsourcing, hardware,software, contract labor, system integration, and other

services, which may also include shared services.

To enhance the business value of IT, the IT organization must

develop competencies to effectively manage across three inter-

related domains:

Financial Resources

Technology Portfolios

Business Demand

Within these three domains, some assets are under the directcontrol of IT. Others are under the control of the business and

will undoubtedly require more collaboration. For example, the

infrastructure portfolio is directly controlled by IT whereas the

applications portfolio is controlled by the business.

Financial resources

The IT budget represents a firms investment in IT and includes

running the business by operating, maintaining, and enhancing

existing applications and services, as well as changing the

business or strategic investments. Historically this IT spend

has been treated as a burden the cost of doing business. Asa result, budgeting has been problematic - an annual activity

driven from the bottom up and often capped as a percent of

revenue leading to:

A disconnect between the general ledger view of the IT

budget and the way IT is actually consumed

A lack of understanding about demand and cost drivers

making forecasting a guessing game.

A lack of incentives and accountability

Because of this, the business feels powerless to control its

IT costs and makes no effort to alter its behavior. IT generally

feels frustrated and put upon. Together, this often leads to poorchoices, reactionary decisions, and wasteful spending.

Value is optimized across three domains


7/20




Business demand

Ultimately, all IT spend should serve the needs of the business. Historically, IT has

operated as a supplier handling requests first in/first out. With new demands and cost

cutting measures occurring at the same time, IT is backlogged. Delivery times are

long. The business is frustrated. And the value side is often neglected.

Many IT organizations struggle to achieve sustainable value from their optimization

efforts. Rather than approaching the challenge from a holistic perspective they

typically respond with independent, point projects that deliver value initially but lose

much of this value over time as the project loses momentum and the focus turns tothe next project (figure 3).

Figure 3 | The Typical Cost-Saving Journey

Value to the

Business

Time

Data Center Consolidation

Quick reductions in excesscapacity yields immediate savings

Progress stalls and run-the-

business costs creep back up as

attention shifts away from

maintaining early efficiency gains

Appl icat ion Rational izati on

Slow ramp-up as business is skepticalthat shared applications will be

responsive to their unique needs

While simplifying business processesmay provide significant value, interest

wanes in the face of shifting priorities

Cost Takeout Initiative

Tactical, one-time response totop-down mandate

Emphasis on low-hanging fruit

Rapid savings but not

sustainable as suppressed

demand and old habits re-

emerge

Expected

Actual

ILLUSTRATIVE

Data Center Conso lidation

Appli cat ion Rational izati on

Cost Takeout Initiative


8/20




Making the transition from cost-centric to value-centric doesnt happen with the

installation of tools and a few projects. Its the result of a holistic disciplined journey

that moves through four stages of maturity across each of the domains as depicted in

the following chart.

Figure 4 | The TBM Sustainable Value Journey

Spending for run the business

reduced as a result of efficiency

gains, and funding shifted for

grow the business

Investments optimized for grow

the business

IT portfolio rationalized and well-

aligned with business priorities

Run the business spending is

draining most of IT funding and

resources

Substantial unsatisfied grow the

business demand

Redundant, poorly-aligned &

under-performing IT portfolio

The four stages of sustained value optimization


9/20




Getting started with TBM:

strategy and road map

Our experience helping clients develop

a TBM strategy hasnt yielded any real

shortcuts, but we have developed a solid

methodology and set of activities that

get your organization to value quickly and

with integrity.

Transforming an organization with TBM

is not easy; in fact it represents a major

organization and behavioral change

initiative that includes both IT and the

business. A successful transformation

demands a disciplined approach with

program management, dedicated

resources, and sufficient funding.

It begins with the development of a

TBM strategy that will drive the effort

by articulating the vision, objectives,

expected outcomes, and metrics that

will be used to measure and monitorprogress. A roadmap will provide the

plan to move the organization from its

current state to the desired target state

described in the strategy (see figure 5).

Key success factors include:

Organization readiness Can the

organization change? What is the level

of readiness of data, process, people,

communications, organization, and

metrics?

Sponsorship Executive-level

sponsorshipShort-term tactical wins

can be attained through finance or

IT-sponsored initiatives, but getting to

true value requires buy-in from the top.

Business case A business case documents the lifecycle cost and quantifies the

benefits. Organizations that have implemented TBM have demonstrated significant

short and long-term value, far in excess of the investment.

Business engagement Commitment from IT, finance, and the business is

imperative. Changing the ways in which business and IT are held accountable

for demand and consumption of IT resources often presents new and potentially

significant cultural hurdles.

These steps are important as TBM changes the way that IT and the business work

together, putting more ownership and accountability onto the business, whilepositioning IT as a trusted, reliable, and eager partner.

Figure 5 | Typical Focus Areas for TBM Strategy and Road Map

Financial Resources


Business Demand

Typical Focus Areas

TBM readiness

assessment, planningand objective setting

Sponsorship

Business case

Businessengagement




TBM

Optimization

Domains

Managing the TBM

Journey and

Realizing the Value

STAGE 2:

Transparency

STAGE 1:


STAGE 3:

Optimization

STAGE 4:

Sustained Value


10/20




Transparency

Many IT organizations have existed as a black box with little to

no visibility into their financials outside of the annual budget.

Remarkably, with IT budgets typically accounting for, often

depending on industry, anywhere from 2 percent to 12 percent

of revenues and more than half of total capital expense, there

is an absence of financial accountability. IT is either funded

as a lump-sum corporate expense or it is charged back to the

business as a levy based on some (often mysterious) allocation

methodology. As the business takes more control of the IT

demand spectrum, pure cost transfer is no longer an option. IT

organizations are expected to provide transparency into their

operations as well as articulate the value of those costs as basic

table stakes.

Transparency is about sharing information with stakeholders

about the cost, purpose, service levels, risks, and consumption

of IT resources in business terms. This enables the business

to make informed, rational decisions about the use of IT and

increase accountability for the outcomes. But transparency

cuts both ways. The business must also become more

transparent about its business volumes and growth projections,

product and marketing plans, and any planned merger and

acquisition activity. Sustainable value optimization is built on

the foundation of transparency and credibility

Value realized

Value is attained by implementing an array of initiatives that

unlock value across the three target domains. The initiatives

are an explicitly designed set of linked programs engineered to

deliver enhanced value along both the technology demand and

supply chains. The focus is on leveraging the information gained

from transparency to increase the effectiveness and efficiency

of both the technology demand and supply chains.

These initiatives are aimed at improving the accuracy and

timeliness of budgets and forecasts, rationalizing portfolios,

managing demand, and improving the allocation of resources.

The objective is to drive better business outcomes such as

optimizing the running the business vs. changing the business

ratio, improving the return on capital, or reducing risk. Some

of the initiatives fall entirely under the control of IT and can

be implemented quickly providing immediate returns. Others

will require a collaborative effort between IT and the relevant

stakeholder to realize enhanced value.

The value optimization initiatives often correct problems that

were created from non-existent or immature processes, lack of

skills and expertise, or automate inefficient manual procedures

Sustainability

Sustainable value is achieved by changing the culture where IT

is a black box cost to be managed to one where IT is embraced

as an investment in technology-enabled value creation as

measured by business outcomes. While optimization initiatives

focus on discrete programs to capture value, sustainability

focuses on embedding value optimization within processes on

an ongoing basis. For example, in a value optimization initiative

we might look to eliminate redundant applications whereas

sustainable value requires a process that prevents redundant

applications from occurring in the future.

Without this focus on sustainability, organizations will miss

significant opportunities for realizing more business value, and

over time all of the hard work and benefits from optimization

initiatives would eventually be undone.


11/20




A transformation like this is a major undertaking and needs to be managed as a

program consisting of IT and business projects. Getting from cost transparency

to value optimization is about organizational and behavioral change management

and requires an enhanced engagement model between IT and the business aimed

at enhancing value and winning in the market, not just on lessening technology

cost. New capabilities and competencies are required for both IT and the business.

Executive management and the business leadership must become much more

engaged in defining the measure of IT value and assume accountability for realizing

the benefits of technology investments while IT must run as a business with mature

management processes and fiscal discipline. Without successfully executing therequired organizational and behavioral change, it will be difficult, if not impossible, to

achieve sustainable value optimization.

Transparency is the baseline

Transparency is about sharing information with stakeholders about the cost, purpose,

service levels, risks, and consumption of IT resources in business terms to enable

rational decisions about the use of IT. Following are the actions for transparency for

each of the three domains.

Figure 6 | Typical Focus Areas for Transparency

Financial Resources


Business Demand

Typical Focus Areas




TBM

Optimization

Domains

Managing the TBM

Journey and

Realizing the Value

STAGE 2:

Transparency

STAGE 1:


STAGE 3:

Optimization

STAGE 4:

Sustained Value

TBM readinessassessment, planningand objective setting

Sponsorship

Business case

Businessengagement

Service catalog

Service cost models

Unit cost reporting

Technology resource

and serviceconsumption

Demand forecastingand capture

Managing the journey and realizing value


12/20




Financial resource transparency

The IT budget represents a firms investment in IT and includes

running the business by operating, maintaining, and enhancing

existing applications and services and changing the business or

strategic investments. The budget is typically the only visibility

into the financials of IT. But there is a disconnect between the

general ledger view of the IT budget and the way IT is actually

consumed. Financial resource transparency is achieved by

implementing the following:

Service catalog IT defines what it does not in traditional

terms of technology assets (e.g., servers) and resources

(e.g., people) but as a collection of business services (e.g.,

email) and publishes them in a service catalog. For each

service, the catalog includes a description, the expected

service level or quality, who is authorized to request the

service, the price, and how to order. This enables the

business to procure IT the way it gets used.

Service cost models A cost model is built for each service

that includes both the direct and indirect costs of providing

the service and the cost drivers. Some services may offer

different levels of service or availability (tiered) at differentpricing. Cost models are used to set the price of a service

and to help IT and the business understand how business

demand impacts IT costs and the budget.

Unit costs In the process of building service cost models,

IT must also gain an understanding of its unit costs for

infrastructure components since they often underpin a

business service. Unit costs typically reflect the cost of

commodity assets and can be benchmarked against peers,

leading practices, and external providers. This enables IT to

make improvements to its unit cost structure.

Consumption tracking While the service catalog provides

the supply side information, transparency also requirescapturing consumption (usage) data to provide the demand

side. This supply/demand transparency enables IT finance

to calculate the actual cost of delivering IT services to the

various functions and business units.

Technology portfolio transparency

Technology portfolios consist of the tangible IT assets of the

firm and are used as organizing structures for management and

control. Just like any other investment portfolio, technology

portfolios must be balanced to ensure alignment with business

strategy and the desired trade-off between risk and return.

Technology portfolio transparency provides the information

required to make the right decisions to enhance portfolio value.

Portfolio views The overall technology portfolio iscomprised of many sub-portfolios. Transparency requires

visibility at the sub-portfolio level. The portfolios that

provide the greatest opportunity to create value include

the applications portfolio, infrastructure portfolio, service

portfolio, and vendor portfolio. Decision makers require

access to a single source of truth about each of the

portfolios.

Application TCO In addition to service costs and unit

costs, portfolio transparency requires the total cost of

ownership (TCO) for each application. The TCO of an

application includes the initial implementation costs plus the

ongoing operating costs over its lifecycle these are often amultiple of the implementation costs.

Business demand transparency

With demand soaring and IT budgets undergoing continuous

cost cutting, the demand for IT far exceeds the available supply,

leading to large backlogs, lengthy delivery times, and frustrated

business units. Business demand transparency provides

visibility into the demand chain through the following:

Demand gathering and reporting Demand for IT

comes in many forms and from many sources making it

extremely challenging for IT to efficiently allocate resources.

Most of the time demands are funneled into silos: one formaintenance, one for enhancements, one for projects, etc.

without a holistic picture of the total demand. Transparency

requires a single intake for all demand.

Project requests and approvalsSteering committees

review and approve new investment proposals, prioritize

active projects, and periodically review existing projects

to decide whether to continue, defer, or cancel them.

Publishing minutes from their meetings provides

transparency around the investment decision process.


13/20




Project dashboard Requests that have moved out of

the queue and into the active project list have their status

continuously updated in a dashboard accessible by project

sponsor/owners. The dashboard displays relevant information

about the project scope, schedule, and budget.

Business volumes and growth projections IT demand

directly correlates with business volumes and growth.

As business volumes increase, so do the number of

transactions and data requiring increased capacity from

servers and storage. Business growth also impacts ITdemand as the business adds people and other resources to

accommodate more customers.

Product and market plans Launching new products and

entering new markets increases demand for IT. At the very

least, existing services will need to be changed and more

likely new services will be required.

Merger/divestiture plans The success of merger and

acquisition transactions is increasingly dependent on IT and

how rapidly and effectively it can integrate IT systems and

organizations. Experience has demonstrated that engaging

IT upfront as part of the due diligence process is a key

success factor.

Standard business cases Investment transparency

requires a level playing field when it comes to evaluating

proposals and making tradeoffs. Using standard business

cases across the organization for all investment proposals

with review by an independent body helps ensure a fare and

credible process.

The kind of transparency described above puts valuable

information into the hands of stakeholders that can be used

to make better decisions about the demand for IT resources.

Defining IT as business services enables the business to link a

service to a capability and a business outcome. The business

can begin to understand the relationship between the price

of a service and its value (or lack thereof). It can also see how

different service levels can impact prices. IT costs cease to

be something not understood and uncontrollable and become

something that can be managed.

Watching out for pitfalls

But transparency is not easy to accomplish, and if not done

correctly it can lead to problems. Potential pitfalls include:

The effort can be expensive and distracting.IT cost data,

when it exists, is stored in many different systems and

formats. Locating, aggregating, and normalizing all of the

data can be time consuming and expensive, requiring a level

of effort that diverts valuable and already overstressed IT

resources to manually capture and report cost information.For example, calculating labor costs requires getting data

from HR systems and IT time tracking systems.

Poor data or sloppy work impacts credibility.

Organizations may be tempted to take shortcuts that use

bad or incomplete data, leading to a loss of credibility. When

moving to cost transparency, it is important to get it right the

first time since there is rarely a second chance.

Business leaders may not understand the costs.IT must

change its engagement model and implement a strong

account management function to work with the business

to help them understand the costs, drivers, and linkages,

otherwise they may make uninformed decisions.

IT costs may not be competitive. Once IT builds its service

cost models it may find that due to internal inefficiencies or

lack of scale, some or all of its costs are more expensive than

comparable services from external providers. This may result

in even more pressure to cut costs or open the door to major

outsourcing.

Without context, cost transparency can lead to wrong

behaviors.Since there are no standards for IT services,

comparing them and their pricing can be complex and

confusing. Requirements for security and/or regulatory

compliance or management overhead can burden an internal

service with additional costs that are not reflected in a similar

service offered by an outsourcer, making its price look more

attractive. It is important to help ensure that you are always

comparing apples to apples.


14/20




Value optimization builds on the information produced by

transparency and opens the door to implement an array of

initiatives to unlock value across the three target domains. The

initiatives are an explicitly designed set of linked programs

engineered to deliver maximum value. The focus is on

leveraging the transparency to increase the effectiveness and

efficiency of both the technology demand and supply chains.

Some of the initiatives fall entirely under the control of IT and

can be implemented quickly providing immediate returns.

For example, optimizing the infrastructure portfolio through

consolidation and virtualization can be done by IT without

involving anyone else. Others will require a collaborative effort

between IT and the relevant stakeholder to realize maximum

value. For example, rationalizing the applications portfolio

will require a joint effort between IT and the users of the

applications.

Value optimization initiatives often correct problems that were

the result of non-existent or immature processes, lack of the

right skills and expertise, or inefficient manual procedures.

Following are specific value optimization initiatives that can be

applied across the three domains to unlock value.

Financial resource initiatives

Preparing and managing the IT budget is challenging at best and

often out of date before it becomes operational. One problem

is the disconnect between the cost pools in the budget (e.g.,

labor, hardware, software, maintenance) and the way that IT is

actually delivered and consumed (e.g., applications, services).

Another is the absence of accurate historical consumption data.

That said, there are proven ways to increase the transparency

and understanding of budgets, costs, and consumption.

Showback/chargeback By combining consumption data

with service pricing a bill of IT can be produced that showsthe allocation of IT costs based on actual usage by each

business unit. With showback, each business unit gets a bill

for IT for informational purposes while with chargeback each

business unit gets a bill that results in a real charge against

their P&L.

Budget and forecast automation Cost transparency

provides the lever to solve the budget and forecasting

problems by mapping the general ledger accounts to the

service portfolio, and cost models, enabling the business

to budget by the services they consume and understand.

Furthermore, historical results may be viewed by month, by

line item.

Scenario based planning Because of its ubiquity and

ability to generate significant returns, there is almost

always more demand for IT than available resources andongoing budget constraints can supply. At the same time,

organizations are faced with alternatives they can pursue,

such as whether to enter a new market, lower prices to

increase volumes, etc. These decisions have implications

for IT. Building on the automated budgeting and forecasting

capability, organizations can model the impact of alternative

strategies or growth rates on IT costs and demand.

Technology portfolio initiatives

Over the years weak or non-existent governance, absence

of architecture, decentralized IT decision making, mergers

and acquisitions, and poor asset management, to name the

biggest culprits, have contributed to technology portfolios that

represent fertile opportunities for optimization. Transparency

provides the necessary information to unlock value with the

following actions:

Application portfolio rationalization IT implements new

applications in response to business demand, but rarely,

if ever, retires older systems. It goes without saying that

merger and acquisition activities agitate the situation. An

ongoing effort to retire low value applications can result in

savings as much as 30 percent.

Infrastructure consolidation and virtualization

Infrastructure represents a significant chunk of the IT budgetyet often avoids detailed scrutiny. While new investments are

subject to governance processes requiring business cases,

steering committee oversight, and stage gate reviews,

infrastructure costs are assumed to be non-discretionary and

a cost of doing business. Over the years, just as the number

of applications and services has grown, so has the number

of platforms, operating systems, middleware, and other

infrastructure components. The result is that asset capacity

utilization is low and the diversity of both hardware- and

Optimization making the transition to value


15/20




software-based platforms increases complexity, which drives

high support costs.

Recent technology advance in virtualization enable one of

the more significant cost saving opportunities by shifting

workloads from dedicated to virtual devices. Virtualizing

servers can drive effective utilization rates to 80 percent

or greater and result in server reductions from 20 percent

to 60 percent. Infrastructure as a Service (IaaS), Platform

as a Service (PaaS), and Software as a Service (SaaS) havehad the biggest impact on the economics of computing.

Shifting workloads from internal servers to public cloud

infrastructure and using SaaS solutions where possible

can provide significant cost savings, especially in up-front

capital expense.

Vendor rationalization Just as the applications and

infrastructure portfolios have grown over the years, so has

the number of vendor contracts. There is an opportunity to

review all vendor relationships and rank them according to

the level of spend and performance. Consolidating business

with a smaller number of strategic partners can result in

leverage to gain better pricing deals while strengthening

relationships.

Investment (project) portfolio optimization The program

investment portfolio, sometimes called the change the

business portfolio, typically accounts for 25 percent to 35

percent of the total IT budget. Value is gained by improving

strategic alignment, ensuring the most strategically

important initiatives are the priority.

Business demand initiatives

Demand management IT demand manifests in many

ways ranging from large, multi-year projects to help desk

tickets and everything in between. Current practices tend to

build separate demand queues for each type of demand with

only project demand subject to any governance process.

Informed demand management starts with the business

having a better understanding of how its demand impacts

IT costs and the accompanying value proposition. This often

results in the business modifying its demand to eliminate

wasteful or low-value requests.

Resource management Implementing demand

management creates the opportunity to improve resource

management due to the visibility it provides into future

needs. Trying to satisfy unplanned and uncontrolled demand

often leads to disruption caused by resource constraints.

Progress is stopped until the required resource becomes

available. The resource could be a person with a specific skill

or the availability of a server platform.


16/20




Demand management coupled with resource management creates a more efficient

demand/supply chain and helps ensure that resources are aligned with the highest

priority demand.

The chart below summarizes some of the typical actions that comprise stage three of

the TBM journey: value optimization.

Figure 7 | Typical Focus Areas for Value Optimization

Financial Resources


Business Demand

Typical Focus Areas




TBM

Optimization

Domains

Managing the TBM

Journey and

Realizing the Value

STAGE 2:

Transparency

STAGE 1:


STAGE 3:

Optimization

STAGE 4:

Sustained Value

TBM readinessassessment, planning

and objective setting

Sponsorship

Business case

Business

engagement

Service catalog

Service cost models

Unit cost reporting

Technology resource



Chargeback/showback

Budget/forecastautomation

Scenario-based

planning

Application/infrastructure portfoliooptimization

Vendor rationalization

Demandmanagement

Resourcemanagement


17/20




While optimization initiatives focus on executing a designed set

of programs engineered to capture maximum value, sustaining

value is the result of embedding value optimization into the

culture and core processes. For example, during stage three

as part of an application portfolio rationalization initiative we

might eliminate redundant applications. But without changing

the process that led to this situation, it would only be a matter

of time before redundant applications found their way back into

the portfolio. To sustain value there has to be a process in place

that prevents redundant applications from occurring.

Without this focus on continuous improvement, organizations

will miss significant opportunities for increasing value, and

worse, over time much of the captured value will decay.

Financial resource continuous

optimization

Transparency and value optimization create additional

opportunities for organizations to sustain value from financial

resources. IT cost transparency and chargeback provide

opportunities to use pricing strategies to change behaviors.Automated budgeting and forecasting open the door to move

away from the annual budget cycle to rolling budgets that

more accurately reflect the dynamics of the business. And

benchmarking can be used to measure and improve overall

performance as described in more detail below:

Financial engineering and pricing strategies Cost

transparency requires IT organizations to build a cost model

for each service that accounts for all of the direct and indirect

costs of providing that service and identifies the demand

driver(s) for the service. As IT develops new services,

it must adopt a financial engineering competency that

incorporates cost and pricing strategies as part of the initialdesign process just as their business counterparts do when

developing a new product.

The cost of providing a service does not necessarily

equal its price.IT can use pricing strategies to influence

behaviors. For example, pricing can be used to drive demand

to different time periods, to different platforms, or to different

service levels. Cost plus margin pricing can be used to fund

research and development, support a prototyping lab, or

purchase extra capacity.

Creating sustained value over time Rolling budgets and forecasts Most IT projects do not run

on annual cycles and demand for IT resources cannot always

be planned or anticipated at budget time. Consequently most

IT budgets become obsolete by the end of the first quarter.

TBMs budgeting and forecasting capabilities support a

move to rolling budgets. This allows an organization to better

foresee risks and opportunities, revisit strategy in the event

of business changes, and align resources for competitive

advantage.

Benchmarking Calculating IT unit costs, developingservice cost models, and establishing a baseline for costs

is a good first step. Setting targets for cost reduction

and measuring progress against those targets is a good

second step. But at some point, in order to determine how

competitive your costs are, you will need to benchmark them

against peers and leading organizations.

Technology portfolio continuous

optimization

Transparency and portfolio management help optimize the

various technology portfolios, but sustaining value requires

implementing processes that prevent a reoccurrence of the

original problems. Improving the governance of IT improves

decision-making and oversight.

Architecture governance Optimizing the applications and

infrastructure portfolios will eliminate the waste, duplication,

and low-value assets from the past but it will not prevent

the same issues from happening again. Implementing

strong architectural governance will provide continuous

optimization over the technology portfolio by initially defining

a target architecture and then by implementing a system of

controls over the creation and monitoring of all architectural

components and activities. For example, when a new

program is proposed as part of the governance process, it

will undergo an architecture review. If there is an existing

service or application that provides the same capability it will

be flagged.


18/20




Investment governance Without

a strong firm-wide governance

process, investment decisions and

project priorities become highly

politicized and inconsistent and are

driven by immediate needs rather

than by strategic importance. Strong

investment governance results in:

Improved strategy alignment In

the absence of strong governanceand effective IT/business

collaboration, the IT agenda is

driven by the undirected orders

from the business, leaving IT to

prioritize the demand and balance

resources. Cost transparency data

can be used to drive discussions

with business leaders about

cost and value, mandatory or

discretionary, critical or nice to

have, etc. Out of these discussions

can come an ordered and holistic

demand agenda based more

closely on the strategic objectives

of the enterprise rather than an

individual business unit.

More accurate business

cases Business cases have

become the tool of choice for

evaluating IT investment decisions,

but their accuracy is often suspect.

A major flaw occurs when the focus

is on the capital or implementation

costs. History demonstrates

that the ongoing operating costsare at least equal to (and often

significantly more than) the initial

costs, yet they are often ignored or

underestimated in business cases.

Cost transparency data treats

new investments as services and

can be used to more accurately

estimate the full costs of operating

the service over its lifetime.

More accurate business cases help ensure that investments are made in the

programs with the highest value.

Continuous monitoring and adjustment Armed with more accurate

business cases and applying pro-active management, investment programs

can be continuously monitored. As changes arise, as they almost always do, the

impact of the change on the costs and benefits is incorporated into the business

case, which is then re-evaluated and a decision made to continue to invest,

defer, or even terminate the program and re-allocate the resources to a higher-

value alternative.

Business demand

Demand shaping Informed demand management results in the business making

better decisions about their use of IT based on trade-offs they make between

cost, quality (service levels), and value. Demand shaping goes beyond demand

management by influencing demand to match planned supply. At any given point

in time, IT has fixed capacity (cloud computing is slowly changing this for certain

resources) that may constrain its ability to meet demand. In response, IT can try to

shape demand by offering incentives. For example, to avoid costly server capacity

upgrades IT could use price incentives to shift large computer workloads to the

evening or weekends by offering discounted prices (positive) for off-hours use or

charge a premium (negative) for peak usage.

Figure 8 | Typical Focus Areas for Sustained Value

Financial Resources


Business Demand

Typical Focus Areas




TBM

Optimization

Domains

Managing the TBM

Journey and

Realizing the Value

STAGE 2:

Transparency

STAGE 1:


STAGE 3:

Optimization

STAGE 4:

Sustained Value

TBM readinessassessment, planningand objective setting

Sponsorship

Business case

Businessengagement

Service catalog

Service cost models

Unit cost reporting

Technology resource



Chargeback/showback

Budget/forecastautomation

Scenario-based

planning

Application/

infrastructure portfoliooptimization

Vendor rationalization

Demandmanagement

Resource

management

Financial engineeringand strategic pricing

Rolling budgets andforecasts

Benchmarking

Architecturalgovernance

Demand shaping

Investment

governance


19/20




So now we have the content and context in hand from an IT value perspective. Its

time to have the conversation. It is of utmost importance to remember your audience.

To help them gain an understanding of value, it is important to tie it to the culture,

strategy and goals.

How does ITs value fit into the overall culture of the organization? Is it innovative

enough? Is it solidly trusted? Is it a change agent?

What about strategy? Have you positioned your conversation to tie IT value directly

and integrally to the corporate strategy? Has the IT organization been involved in

planning and strategizing the future?

And goalshow has IT made goals possible in the past, and how can it do a better

job of meeting business goals in the future? Can it help create better/faster product

launches, for example?

As with any conversation, the ability to get down to the nitty gritty details is essential.

But more often than not, the value-oriented conversation is about things bigger than

IT alone. Thats what KPMGs TBM is all about.

The conversation begins...


20/20

KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member

firm of KPMG International Cooperative (KPMG International). KPMG Internationals

member firms have 145,000 professionals, including more than 8,000 partners, in 152

countries.

2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of

the KPMG network of independent member firms affiliated with KPMG International

Cooperative (KPMG International), a Swiss entity. The KPMG name, logo and the

phrase cutting through complexity are registered trademarks or trademarks of KPMG

International.

The information contained herein is of a general nature and is not intended to address the

circumstances of any particular individual or entity. Although we endeavour to provide

accurate and timely information, there can be no guarantee that such information is

accurate as of the date it is received or that it will continue to be accurate in the future.

No one should act on such information without appropriate professional advice after a

thorough examination of the particular situation

Contact us

Marc E. Snyder

KPMG LLP, CIO Advisory

Managing Director

T:978-807-0522

E:[email protected]

Steve Bates


Principal

T:832-493-1814

E:[email protected]

Denis Berry


Principal

T:312-665-2866

E:[email protected]

Contributions by Craig S. Symons.Broad River Partners LLC

www kpmg com/us/tbm

Documents

Moving Information Technology