Service Financial Management is the focus of Domain 6 in Cisco Services‘ DomainTenSM Model for Data Center and Cloud Transformation. Closely related to the User Portal (Domain 4) and Service Catalog and Management (Domain 5), service financial management is one of those organizationally challenging topics for the data center management team -- although with the advent of cloud services, is becoming more widely appreciated and in many cases (e.g. a service provider offering cloud services to businesses, a public sector organization offering services to other regional public service organizations), a mandatory part of your offer. So let’s discuss this area and I’ll point you to a technical white paper from Cisco Services experts on this topic.
First then, what do we mean by “Service Financial Management”? Here I define this as a mechanism to understand, communicate and where appropriate, bill the end user of your IT service(s) for their usage. There are 2 terms invariably used with this topic in IT: chargeback and showback. “Chargeback” is a mechanism to bill (or cross-charge) your end user/client/stakeholder/customer for the costs of the IT services they are using. “Showback“, on the other hand, is a mechanism to communicate of show these costs to your client base -- without actually billing them.
When discussing these topics with customers, consistent with the Wikipedia discussion on these topics, we too find chargeback to (still!) be a controversial topic in business and IT. Often this is due to the fact that the monetary measurement of what constitutes an IT service is neither well defined by the IT organization nor well understood by the client. For example, your stakeholder/customer may “rent” what they know is a $10,000 (say, for example) compute server to run a business application. You as the IT function may charge them $20,000 (again for example) annually to run the service. Why the disparity, your client asks? The key is in the difference between “an out-of-the-box server” and “run the service“. Your client in this case has not realised that the server requires facilities to host it, power to run it, and IT operations expertise to ensure the service works perfectly.
And what if the client retorts “aha -- but I can rent an equivalent server in the ‘cloud’ for a year for less than you charge”. However when you as the IT expert finds out when you investigate this option, this particular option doesn’t come with disaster recovery, has limited SLA, and proposes to host the data in a foreign country -- against the regulations of your local government for this type of service. Clearly all things are not equal here and “like” is not being compared with “like”! And therein lies some of the background to the challenges of chargeback and showback in practice, and why implementing true chargeback is at best not popular in many IT organizations!
One way of course to deal with this kind of issue is to compare the two different scenarios (use of internal versus external cloud), via two cost models, one for each scenario, and show your stakeholders how they compare. There are various approaches to defining an IT service cost model, and our consultants in the Cisco Data Center Services team can help you build an appropriate cost model for your IT and cloud services. They’ll help you identify all the factors -- from facilities to SLAs -- that could impact your pricing model, and help you factor these into an atomic cost model.
You can read more on the topic of service financial management, on how to built cost models, and gain an appreciate of the expertise we can bring to bear to help your projects, in our free white paper entitled “Managing the Real Cost of On-Demand Enterprise Cloud Services with Chargeback Models“. And if you need help and guidance on your strategy for service financial management, please get in touch!