Many organisations struggle to provide transparency to cost of IT. Even though it sounds simple, there is a number of challenges like:
- What is the border of IT? – Now that most of IT is used across the entire organisation and within services and products, then what is the IT budget?
- Where does the IT spend stop? – Now that most investments go across IT and business operations?
- What does “cost” mean – if we pay upfront and depreciate, versus lease or annual subscriptions?
- When digitalisation and digital transformation change the way we work, what is then the “reduction” in the IT spend?
These questions are all relevant and easily solved when properly addressed. We advise to adopt the main principles from the TBM Framework (Technology Business Model) to allow tracking of cost year on year, month by month and to support a common taxonomy to allow also cross-company comparisons. The TBM concept is not new; Large accounting companies have worked with the practice years before the TBM Council started, but the standardisation, the scale and the maturity of digital platforms offering the bill of IT is ramping up.
The TBM suggests three perspectives of the cost and it offers a taxonomy that helps for IT to in the IT perspective to track unit cost and cost drivers. The main objective of TBM is the increased transparency, the ability to track year-on-year and month-by-month, and finally to cross-companies, e.g. if you are a number of companies that do the same type of business, then the TBM offers the comparison option.
Over the last years TBM has become almost a cross-standard to the taxonomy of how to deal with this. There are hundreds of organisations that now move into the three-layered structure of the TBM to get a comparable measure of the bill of IT. What is the process of the TBM when implemented?
We can guide you through the implementation. If you are interested in getting a clear view of the Bill of IT, this is something that is hard to solve without technology and advice. Try to outline the future processes, then start with the information management to establish the digital governance. We have seen too many project implementations that suffer from not aligning the governance early enough, creating poor data and too restrictive assumptions. This typically happens when financial tools are introduced without focus on digital governance and data quality. So to succeed you need to form a project charter with enterprise architecture and financial managers involved. It typically follow a three-steps approach:
- The TBM model should be implemented as a single service across finance and architecture, as most of the IT-related information should be managed and updated in the EA repository. This is where tools like Next-Insight is useful as it offers the full TBM support and the EA support all as one solution. However, the implementation os such a tool needs to follow also the process perspective of what comparisons should be done, what processes should be supported, to allow the customer solution to add value to the organisation. Our recommendation is not to buy another point-tool, but simply start analysing the future processes and then rely on EA technology.
- Once the processes are agreed, reconfigure Next-Insight tot he way numbers should be crunched to support the EA-stack to be connected with the financial system. This will require a design and implementation to get the chart of account setup up correctly to master the relationships. The best option is typically to formulate a project, and allow finance people and enterprise architects to work together. The integrations between an information management and a financial system like SAP or similar is required. The information management will manage the collaboration with end-users, IT managers, service managers helping to get meta-data correct. Then the SAP or similar financial system will provide the cost centers, the daily bookings. The rule book is carefully designed.
- Finally, the EA tool like Next-Insight is adjusted to provide the user screens for the intended processes. Once the solution is configured and set alive, the budget cycle will start as an ongoing process, relying on the master data from the information management system, typically, it is based on last year’s consumption providing input to the budgets and forecast numbers. The TBM is the model or taxonomy of this data crunching.
What is the basic concept of TBM? Irrespective of the digital platform, the bill of IT is simply structured into three layers, like almost three different architecture layers:
- Service layer: To describe the business processes and assets of the technology supported. This should provide an enterprise perspective of the business and future cost perspective. The logical grouping and allocation of cost should be mapped to business applications or business initiatives – using the language of the business.
- IT layer: To describe IT towers and subtowers which is technology groupings of units and unit cost within functions. As evolving the solution, then also IT Dev as part of the layer.
- Financial layer: Describing services procured in some currency, by terms, depreciations, cost, to understand cash versus cost perspectives of the agreed bills.
The benefit of the TBM model is that it translates between the layers. Solutions typically can provide the what-drives-what view between the different perspectives, typically build on some degree of allocations or apportions, handshakes and cost agreement splits. However, without the assumptions and structures of TBM, no-one will be able to communicate clearly what the cost of a project or a service really is.
If you are interested in knowing more about TBM and cost models, please seek advice on how to implement this on a modern digital platform. You may contact us for our solution and services to read more. We help to align long-term planning with short-term planning, which is an ongoing architectural process – and a digital process of information management.
We power your digital mood!