REDUCING BASELINE IT COSTS THROUGH BETTER DEMAND MANAGEMENT

Results that make a difference

 

I previously noted in my newsletter, Balancing Between a Focus on Innovation versus Sustainment , CIO's are challenged to balance a focus on innovation versus sustainment.  This newsletter describes an approach to optimize baseline IT costs for potential reinvestment in innovation. I will talk about an approach to managing the demand-side, whereas many popular approaches are to manage the supply-side. This approach identifies activities with minimal value contribution and enables a reduction of resources dedicated to sustainment.   That alone, however, may not be sufficient to reach the desired level of optimization if growing business demand perpetuates a disproportionate investment in enhancement / sustenance activities.  The fact of the matter is that the cost of “keeping the lights on” can take up to 70% of your total IT budget.


To capitalize on the opportunity to shift investment to innovation, CIOs must evaluate the demand-side, specifically around maintenance and enhancement of existing applications that support specific business operations.  A targeted reduction in sustainment and reallocation to support business growth and transformation initiatives not only makes financial sense, it also raises the perception of IT as a strategic partner rather than just a cost center.


The Problem

IT organizations are faced with ongoing business demands for basic services which consume a majority of IT resources.  In the environment of budget constraints that many CIOs face today, allocating resources to support innovation is a challenge.


Specific to application maintenance, small requests and unplanned projects, often coming through the “back door”, compete with major strategic business development initiatives.  These requests are predominantly generated by middle to lower level management in order to meet their mandate to deliver a specific, and often narrow, business outcome.  By definition, these changes meet the parochial interests of a business, but when aggregated with all business demand, become a major consumer of IT resources.


The value of IT is lessened in the eyes of business leadership when they observe a large majority of resources supporting baseline services rather than innovative, revenue-generating strategy.  To illustrate this point, the chart below shows how a typical IT budget is allocated.


While illustrative, this graphically describes the reality that a vast majority of IT resources are supporting “business as usual”.   Even more focal is that only 15% is allocated to new activities such as projects supporting business growth and innovation.  The remaining 15%, which is assumed as new activity is, many times, enhancement activity targeting legacy systems that offer limited value to the business.


The Solution

Establishing an effective demand management process provides management with high-level discretion over what maintenance work gets done based on the importance of the change to the functionality and performance of the application balanced against the derived value and strategic importance of the application itself.   The keys to this success are:

  • Good record keeping and reporting of requests and resource time
  • Partnership with the business to jointly plan IT’s workload, with decision-rights residing primarily with the business rather than IT
  • Developing approval processes that route enhancement requests to a corporate oversight group that can be objective in prioritizing decisions based on potential revenue and corporate strategic priorities
  • Establishing and deploying an exception framework for unplanned requests that reduces arm-twisting and escalation that is characteristic of informal environments
  • Managing IT staff empowerment to avoid inappropriate prioritization, loss of productivity and stress from uncertainty


Implementing the Solution

The following steps should be considered.  These steps are an outline of activities required.  Detailed plans will be necessary for each step, which is outside the scope of this newsletter.


Step 1: Complete a current state assessment of maintenance and enhancement request activity for applications within scope

  • Through interviews with IT managers and staff, identify all sources of requests, whether recorded through a tool or informally (e.g., an individual keeps their own log of requests on an Excel spreadsheet).  It is possible there are several tools used to collect request data, some more robust (like Remedy) than others
  • Collect and aggregate request data into one repository by application.  Minimize the effort by porting data in a consistent manner from its source.  For example, the Remedy tool data can be transferred to an Excel spreadsheet
  • Perform data analysis to identify maintenance requests from enhancements.  Criteria are established in Step 2 (some steps can be done concurrently).  The criteria should be clear and understandable in business terms
  • If time tracking data is available, or some other means to estimate resource utilization related to the requests, align that data with the request volumes by application.  In addition, assign a cost to the resources either as a direct association (such as specific vendor spend or compensation), or average estimates
  • Collect information from IT/business management regarding application criticality.  This data can be available from DR plans
  • Validate your findings with the IT manager and staff.  It may be necessary to validate with business requesters as well.  It is important to be fair in the evaluation, but if the request criteria are clear, there should be little room for judgment.  If resource estimating is required, validate your assumptions with the IT manager and staff
  • Once validation occurs, final analysis and reporting is completed for management.  The final report should include bar charts comparing break/fix and enhancements, by severity (emergency, high, medium, low) if available, and by application sorted by business criticality.  Also include observations and a high level analysis of potential resource/cost reductions if there is an opportunity to reduce the number of requests based on the ticket criteria and severity, and business criticality of the application.  This is why it is important to have a resource estimate so the opportunity can be associated to costs.  In addition, include a high level plan with the steps outlined in this newsletter
  • A validation of the final analysis should be done with the IT manager and staff.  If there is disagreement over the analysis, it is best to note that and present the issues to your project sponsor.  Be flexible with gaps in thinking if changes to the report would not effect your final analysis
  • Prepare a presentation for review with IT senior staff and other impacted parties like the business


Step 2: Develop a demand management model and governance framework that includes criteria for request categories and severities

  • These categories will assist in classifying demand into “must-have” vs. “nice-to-have” categories and assist in the governance of maintenance demand.  The model should be simple and easily define the categories to limit judgment over the categorization.  Following is an example framework for categorizations and severities:
  • Develop a roles and responsibilities matrix and descriptions
  • Assign roles to existing or new staff
  • Develop policies and procedures, including exception policy and processes
  • Determine actions for non-compliance
  • Obtain approval and buy-in from senior leadership
  • Working with your finance department, develop a costing model based on resource cost estimates and changes in actual and projected ticket volume.  Actual or projected reductions to resources should lead to actions against the budget
  • Establish weekly/monthly reporting requirements
  • Once controls are in place, establish SLAs for requests with the business.  This will be easier when demand and resource management disciplines are adopted


Step 3: Assess existing tools and data sources and deploy a single ticketing tool

  • A current state tool assessment will be an outcome of the ticketing data capture in Step 1- Current State Assessment

  • Ideally a single automated tool should be deployed.  If not, develop an aggregation tool, which could be an Excel spreadsheet.  The number of data sources into an aggregated tool should be kept to a minimum

  • Consider the cost/benefit of the labor involved in maintaining multiple tools and databases vs. deploying a single tool

  • Configure the tool with the set of established categories and severities

  • Transition existing request records into the new tool, or if multiple tools, establish interfaces to the aggregated tool

  • Develop and communicate a policy that all application support requests be captured in the tool


Step 4: Establish ticket workflows for maintenance and enhancement requests

  • Approval workflows can be different by business unit, depending on who is assigned the oversight role in the business.  It could be the PMO, or in some cases where cost management is a priority, within the CFO organization

  • Maintenance requests do not require business approval

  1. For normal maintenance like patching and OS upgrades, a pre-determined plan should be established between IT and the business to manage overall maintenance activities and spending.  A separate assessment can be done to determine the risk of not doing some maintenance, based on the risk to the business, as another optimization opportunity for cost savings

  2. For emergency fixes required from a failed system or bug, the first priority is for IT to resolve the issue, then submit a ticket as a request for break/fix after the fact

  • All enhancements and service requests require business approval.  This is critical to the success of managing enhancement requests, where decisions are made by the business, not IT

  1. An opportunity to reduce the number of enhancements is to deploy a rigorous approval workflow, which discourages business requesters from submitting what might be considered of low value.  Although, be cautious that a request of higher value is not submitted for that reason

  • Develop material and communicate workflows to all impacted parties, including IT and business staff

See Application Maintenance Ticket Workflow and Application Enhancement Ticket Workflow for examples.


Step 5: Assess time tracking processes and tools and determine if resource data is available to align with ticketing data to determine resource utilization for break/fix and enhancement requests on an ongoing basis

  • A current state assessment will be an outcome of the resource data capture in Step 1- Current State Assessment

  • If no time tracking process and tool exists, develop and deploy one

  • Keep the configuration of the tool simple, as more complexity requires more administration and raises the risk of deployment success, especially if deployment is done in a short timeframe

  • Establish categorizations for time capture.  For purposes of tracking maintenance request resource time, maintenance and enhancement categories are required

  • Develop reporting for time by categories and by application

Step 6: Develop and deploy a communications plan

  • Develop communication material and deliver to:

  1. Executive and business leadership 

  2. IT and business management

  3. IT and business staff

  • Develop and deliver training to IT and business staff

  1. It is most effective to deliver training through live and recorded webinars, and online self help material


Other Considerations

  • To gain immediate impact on the opportunities from demand management, implementation of the above recommendations can be made effective immediately with a policy that all work stops except truly break/fix and planned maintenance unless re-justified by the business and approved by business leadership.  This is an effective way to reduce costs if the company has initiated an austerity program

  • Following is a suggested prioritization for application support requests and resultant resource requirements:

  1. Break/fix and planned maintenance work receive top priority

  2. Enhancements having direct revenue impact to receive next priority                                                                         

  3. Enhancements targeting to fix known problems based on root cause analysis (RCA)

  4. All other approved enhancements to receive lower priority                                                                                                                            

When evaluating opportunities for resource/cost reduction, a line can be drawn below a priority rank and any enhancements below the line would be on hold

  • The requester often overstates ticket priorities.  Even though the criteria are clear, understanding the actual situation sometimes requires judgment.  Completing weekly/monthly reports will highlight trends if the categorization comes into question

  • It is important to bridge the gap of communication and understanding of request volume and effort between senior leadership and IT/business management.  Demand Management reporting often has limited visibility at the senior executive level.  Reporting should be shared with all lines of management within IT and the business.  In addition, an oversight role should be established outside the business manager’s organization to produce the communications

  • This newsletter does not spend time on how to dollarize the opportunities from ticket and resource reductions.  The savings will not be realized until there is an impact from lower ticket volume that reduces resource requirements and resultant costs.  There are many methods to associate costs from resource estimates which are not within the scope of this newsletter

  • Lack of strong governance and compliance measures is a high risk for success

  • The demand management function should be constantly monitoring tickets in the queue.  Aging reports should be produced to assess if work can drop off the list.  If a ticket is aged at 6 months or more, it could be an easy decision to take the work out of the queue assuming there has been no impact of the change not being made

  • In situations that applications maintenance is highly outsourced, there is an opportunity to re-negotiate contract commitments with vendors and increase controls over vendor utilization for time and material contracts based on the results of your analysis.  Your vendor management and finance leadership will appreciate the opportunity to do so

  • The business will be threatened when policies are established that potentially limit the changes they want.  Offsetting, though, is establishing SLAs so the work that is done, is done timely and with quality 

  • This assessment can also spawn other activities around application rationalization.  If an application is deemed non-critical, yet drives a high volume of tickets, there should be a cost/benefit analysis completed to assess whether the application should be sun-setted, and/or replaced