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IT Service Costing - Get the shop in order first
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IT Service Costing - Get the shop in order first by Richard LaRocque


In a recent project I did, I was asked to define the structure needed to establish a service costing practice within an IT organization.  This was interesting work because it highlighted all that needs to be in place to support such an initiative.  At first glance, it seemed simple enough: link IT spend to services delivered; calculate costs; repeat.  If everything in ITSM were that easy! But once the rose-coloured glasses came off, the complexity of the undertaking quickly became obvious.  Although the basic principle remained straightforward, the required underlying components proved elusive. 


There are three major elements that need to come together to achieve service costing:

·       accurate and precise costing information

·       well-defined services

·       effective change and configuration management 

When assessed independently, these 3 components can appear to be fairly sound but when attempts are made to link them together, gaping holes often appear.


Cost Information


Quality cost information may be more uncommon than imagined.  Of course, organizations all have their accounting systems but the needs of corporate accountants are not necessarily well aligned with those of IT service costing.  When assessing the availability and quality of cost details, it will often become apparent the level of granularity required to determine what cost can be associated to what specific service is just not available: invoices are not itemized properly, there is no link between a request, a purchase order and an asset record, work hours are not accurately tracked…  Detailed cost information (including what it relates to) must be captured as close to the source as possible and kept up-to-date throughout its lifecycle.


IT Services


It’s certainly popular for IT organizations to consider themselves service providers.  But, when asked to enumerate the services they provide, IT often responds with a hodgepodge of items covering activities, hardware, software, role descriptions, etc. Of course, defining a service can be challenging; the definition of service is far-reaching and with a bit of creativity you can make anything sound like a one.  That said, most consumers of IT services rarely consider, for example, power cycling servers as an IT service.  So, it’s important for the IT organization to have a well-defined, succinct and client focused list of IT services before embarking on a costing exercise, otherwise costing will be itself meaningless.  The IT services must make sense to those who consume them; clients usually want a service to include the complete gamut of components needed to operate it from analysis, through hardware and software, to training and support. 


Change and Configuration Management


Once good cost information is available and IT services are well understood, the final step is to link the two together.  For that, it’s essential to understand how various IT components come together to produce a specific service. Configuration management is responsible for documenting these components and their relationships, while change management is responsible for ensuring that this information can remain accurate by controlling how and when they change.  With these two processes in place, it’s possible to maintain a Configuration Management Database (CMDB) that provides the details needed to correctly attribute costs to services.  The CMDB does not need to be too extensive, at least not initially, but it should provide the information needed to relate major IT infrastructure components to applications and, ultimately, to services. 


Of course this is but a brief description of the components that need to be in place before embarking on a service costing journey.  Not that it would be impossible otherwise but the results would certainly be far less stellar than hoped. Service costing may seem like a noble goal but it’s essential to understand that to achieve it, the IT shop must be in order.



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