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Measure Twice, Cut Once:

Optimize IT Asset Costs

Stewart Buchanan
Spending is not Cost

• Budgeted
Spending
• Costs (TCO)
some unbudgeted

Costs sink businesses,


not capital expenditure
but cash flow…
Findings From Inquiries: IT Spending Cuts Don't Always Reduce Cost
Key Issues
1. Where do IT Finance, Asset Management and
Procurement intersect?
2. How does IT Asset Management help and how
can I make it cash positive?
3. Why can’t I freeze spending to cut cost and why
can’t I plan to spend nothing?
The Disconnect Between IT and Customers:
Business users believe IT Believes:
that IT is like a:
Saa
S
We
b 2. 0
Money
E-C
om

Clo
ud

ERP

IT is becoming a business in its own right…


Are you flying without instruments?
• Budgets are spending plans
not costs

• Costs are long term IT


service or vendor contract
commitments

• Can you level-out IT spending?

• Historical trends…

Cost Optimization: Classify Costs to Achieve Sustainable Savings


What do IT Staff Think of Financial Asset
Management and Procurement?
• I don’t like it. IT's Financial
Report Card
• You can't make me do it.
• I will obfuscate using the
language of bits and bytes.
• Technology selection
is a technology issue:
- Procurement place orders
- Finance pay for them

The world is changing…


Welcome to the Virtual ITAM Team
Deploy or
Change
Plan Develop
Budgets Metrics
Design
Architectures
Gather
Operational
Data
Define
Strategies
Manage
Vendors

Everyone in IT is responsible for


the assets you acquire and operate
The IT Asset Manager Role
Manages Financial Responsibilities
Compliance of IT • Manages the life cycle of assets
assets
Accountable for financial • Recommends
Recommends an an action
action plan
plan for
for
planning, analysis and asset efficiency and effectiveness
measurement of the IT • Measures financial compliance
compliance
organization with budgetary targets
• Develops
Develops service
service pricing
pricing or
or
chargeback models
(value-based, cost-plus)
• Financial modeling and
technology what-if analyses
Differentiators
• Budgeting and capital planning Communicates With:
• Cost analysis • CIO and Senior IT
IT management
management
• Financial modeling • CFO
CFO and
and Finance
Finance
One version of the truth! • IT
IT Product
Product Managers
Key Issues
1. Where do IT Finance, Asset Management and
Procurement intersect?
2. How does IT Asset Management help and how
can I make it cash positive?
3. Why can’t I freeze spending to cut cost and why
can’t I plan to spend nothing?
Four Levels Of Cost Optimization
Enable Innovation & Business Restructuring
Implement
Implement process
process improvement,
improvement, business
business restructuring
restructuring and
and
innovation
innovation

Joint Business and IT Cost Savings


Implement
Implement cost-saving
cost-saving technologies
technologies in
in conjunction
conjunction with
with the
the
Difficulty

Value
business
business

Cost Savings within IT


Identify
Identify opportunities
opportunities to
to reduce
reduce IT
IT costs
costs

IT Procurement
Get
Get the
the best
best pricing
pricing and
and terms
terms for
for your
your IT
IT purchases
purchases

Execution of various types of cost optimization will involve different


parts of the organization and varying levels of control by IT alone.

1. Plan Life Cycles, Schedule Payments


2. Manage Supply Costs, Contracts, Vendors
3. Manage Demand
4. Restructure the Cost Base
1. Reschedule Payments, Extend Lifecycles
Review All Assets by Vendor and by Category:
• Increase competition wherever possible
• Tier support – no “one size fits all”
• Maximize remote support
• Minimize on-site and end-user support
• Use hot spares and on-site parts to cut cost
• Don't overpay for skill sets or utilization rates
• Re-assess technology refresh policies
Application Software: Maintenance and Support Guidelines
Questions Manufacturers Should Ask to Address Increasing
Software Maintenance Costs
Toolkit: Checking Oracle Invoices for Maintenance and Support
2. Manage the Cost of Supply

Level 0 1 2 3 4 5

Nonexistent Initial Developing Defined Managed Optimizing

People and Individuals buy Authorized Procurement Multiskilled Stakeholder Sourcing team
Organization to meet need individuals office team virtual team or office

Procurement Annual Corporate Category IT asset IT asset Project portfolio


Process budgetary standards management management portfolio management

Financial Management Business Project Requirements Demand Spend


Controls initiative case business plan management management management

Procurement Nothing Basic cost- Cost Service Process Business


Metrics consistent tracking reduction improvement efficiency return

Technology Any technology, Approved Approved Contractual Service Business


Selection any supplier products sources performance performance performance

The Gartner Maturity Model For IT Procurement


Manage Value for Money

Plan Longer For Shorter Software Contract Negotiations

Technology Enterprise Enterprise


• Analyze Supply Chain Costs Provider IT Services Users

Systems Service
IT Procurement Best Practice: Optimize Your Integrator Provider
Supply Chain as Part of Vendor Consolidation
3. Manage Demand
Reduce consumption-driven spending
• Forecast and plan demand
• Pass on costs transparently
• Renegotiate Service Levels to lower costs
4. Restructure Costs
Make the Most of Existing Assets
• Reduce
- Stop Maintaining Unused Items Used
- Reduce Power Consumption Bought
• Reuse
- Licenses – Software Asset Management Program
- Hardware – Repurpose Underutilized Assets
• Replace
- Modernize IT to make it more Cost Efficient
• Recycle
- Watch out for Disposal Costs
Q&A: When and How to Dispose of IT Assets Before They Become Liabilities
Will Virtualization Save Money?
• Compare the cost of virtual with non-virtual
Toolkit: How to Calculate TCO for Server Virtualization
- Server and Storage Acquisition Costs
- Software Licenses, Support and Maintenance
- Datacenter Space and Power
- Administration Labor Savings

Costs
ings
Sa v
Key Issues
1. Where do IT Finance, Asset Management and
Procurement intersect?
2. How does IT Asset Management help and how
can I make it cash positive?
3. Why can’t I freeze spending to cut cost and why
can’t I plan to spend nothing?
Perpetual Licenses have Limited Lifecycles
• A defined depreciation period
2. Integrate
Or Until:
• Support Ends
5. Migrate
- Or becomes too expensive
• Technically obsolete:
1. Select
- Virtualization
- Cloud / Grid
• Commercially obsolete 4. Renew
- Acquisition/Divestment Update
- Outsourcing 3. Operate
Fixed or Discretionary Costs?

It costs money to keep the lights on,


But can you switch them off?

• Service Level Commitments


- expectations to deliver

• Asset Commitments
- Depreciation
- Maintenance
- Disposal

Toolkit Sample Template - Manage the Software Investment Life Cycle


Every Server Refresh Can Cost You More
Impact of Different Licensing Models 2 CPU
120%
% Shipped
Revenue Multiplier 4 Cores
5
100% 2 Cores
Per Core
4.5
1 Core
80%4
3.5
60%3
2.5
1CPU
40%
2 Per2Core
CPU
1.5
20% 1Core
1 Per Server
0%
0.5
0 2005 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 2008
2005Q22005Q3 2005Q4 2006
Q1 2006
Q2 2006
Q3 2006
Q4 2007
Q1 2007
Q2 2007
Q3 2007
Q4 2008
Q1
Q2 Q3 Q4 Q1 Q2 Q3 Quarter
Q4 Q1 Q2 Q3 Q4 Q1
Source: Gartner (July 2008) Quarter

Optimize Your Software License for Multi-core x86 Systems


Software License Non-compliance
Guilty, unless you prove yourself innocent!
• ISO 19770-1 is a standard.
- Do you understand the rules?
- User licenses can be
non-human devices

• Vendor audits are


now commonplace
- Can you afford to prove
your innocence?

• Avoid expensive mistakes!


Toolkit Best Practices: Preparing for a Software Compliance Audit
Manage Software Assets and Contracts

Inputs Repositories Outputs

Orders and Allocations


Asset Report
Proofs of Purchase

ion
Terms and Conditions Known Posit

IT Strategy
Data Quality
Access Controls

Inventory

First 100 Days as a Software Asset Manager


Assign Software Licenses to Cut Unbudgeted Costs:
SAM Best Practice
Software Cost Optimization through SAM
Software Cost Optimization Maturity Model
Level 0 1 2 3 4 5
Nonexistent Initial Developing Defined Managed Optimizing
Diffused SAM Category Project Budget
People Stakeholders
responsibility manager managers managers holders
Only good Procurement User Budget-holder Business Vendor
Policy
intentions only accountability accountability accountability accountability
Project Contract Entitlements Vendor Strategic
Process None
procurement management management management vendor mgmt.
Nothing Basic IT asset Licensing Automated Portfolio
Technology
consistent discovery repositories rule base allocation analysis
Project Licenses, Version Product Total cost of Support IP
Finance
budget maintenance life cycles life cycles ownership management
Only % product % terms % life cycles % costs % licenses
Metrics
spending coverage complied with planned budgeted driving value
Unfocused License Unmanaged Unbudgeted Misaligned
Risk Managed None
spending noncompliance life cycles costs spending
Source: Gartner (January 2009

Optimize Software Licensing Costs With Software Asset Management


Next Steps
• Review the accuracy and completeness
of your spending and asset records
- You know how much you spend but what on and why?

• Identify and manage unbudgeted costs and risks


- How much contingency can you afford?

• Start planning lifecycles and lifecycle TCO


- Are costs sustainable or do they need restructuring?