IT Infrastructure Cost Management Solution

A financial services company needed to improve their IT budgeting and cost control processes.

The financial services company engaged SMS to assist them to improve their IT budgeting & cost control processes. The specific issues that needed to be addressed included:

• actual expenses not lining up to re-forecasts – up to 25% variances in some areas (both over and underspends)
• original re-forecasting process was done on a “run rate” basis, which is effective for cricket, but not for IT costs
• no transparency of the budget / forecast amounts ("This is the amount because I say it is the amount”)
• management concern about unjustified upward pressure on costs, characterised by:
  • no clear linkage of anticipated IT spend to business plans
  • lack of confidence in cost centre manager budgets
    

The SMS approach was to provide an activity based model which delivered levels of accuracy that more traditional approaches were unable to provide.

SMS’s approach leveraged industry best practise to develop a model and a supporting set of tools for the financial services company.

The approach: 

• analysed IT infrastructure inventory and cost drivers (activities)
• analysed the inventory cost base and established standard costs
• assessed the alignment of IT assets to IT and business plans
• developed a supporting conceptual model, and
• established a series of operational and reporting tools to effectively manage the IT budgeting and cost control process
  

SMS provided a set of financial models and supporting tools that provided a level of planning and budgeting confidence far in excess of that available previously.

• SMS developed a model that linked budget amounts to documented activities, supported “what if” style modelling of the impact of extra inclusions and exclusions and reported on the managed infrastructure inventory
• one senior executive noted that this work had delivered:
  “...a series of financial models that predict future expenses based on a forward work plan. These models were validated using the actual year to date costs to the end of April and compared to within 5% of these actuals. This gives us the confidence that they will also predict future costs to a similar if not higher degree of accuracy.”
  

With accurate financial models and supporting tools, the financial services company can now budget effectively and transparently.

The financial services company now enjoys: 

• a standardised approach to budgeting wherein the process for arriving at budget figures is ‘shared’ knowledge
• high levels of transparency:
  • infrastructure costs are derived from planned business activities
  • budgets are “activity based”, so performing less activity will reduce budget
• a total budget that can be interrogated to reveal cost factors
• the ability to conduct ‘what-if’ analysis against budgets and forecasts
• the ability to determine Total Cost of Ownership for an inventory item (e.g. server)
• access to essential data for insource/outsource decisions

Additional benefits for the client included:

• improved accuracy of expense forecasts from ± 25% (actual to forecast) to ± 1%
• monthly re-forecasting as standard practice
• straightforward re-forecast - turnaround in two days
• forecasts that accurately reflect changes in business priorities
• high level of transparency
• management now able to have financial information at their fingertips
• cost savings identified in the areas of duplicated software licences, under-utilised platforms to be consolidated, excessive support fees
• cost savings of ≈ 7% identified in first 3 months