In a period of budget tightening, the TBM team at Cox Enterprises was asked to put something together to demonstrate the value of our IT spend. Sounds simple, right?
Few things in life (or at work) are simple. Pulling this analysis together never used to be. But we’ve taken steps to create a closed-loop planning system that allows us to show where spend is coming and going and today, it works remarkably well.
From planning to actuals and back
One of the most important steps we took was to implement a new IT planning solution, because building our budget was a nightmare every year. It took us way too long and we had to access too many spreadsheets. It really was not manageable and it often took more than three months to create the budget.
Today, that three months is down to three weeks. Now, when we open up our budget at the end of the year, we send notifications to all IT budget owners letting them know they can jump into their budgets to review their line items and forecast for their teams. They are able to hold peer reviews with managers and VPs to approve spend and enter their numbers.
The process is quick for everyone now. Managers and directors can easily pull up and approve the plan from one view. We’re using the Apptio suite of TBM applications for IT planning and cost transparency, so when we get their data back, we’re able to merge IT planning data into an overall view of IT costs.
Once a budget is pushed to Apptio Cost Transparency, the TBM team can work on building a budget model and work with IT budget, tower, and service owners to help us map spend properly to align 100% with the ATUM model. (This also allows us to map to towers to benchmark ourselves.)
We have a total cost of ownership for applications, and we can roll that up to service cost of ownership. And then we use consumption to allocate to our businesses and drive those conversations.
Building an operational cost model
We’ve also addressed the operational cost model, starting with the actuals coming from our financial system. Those actuals come with lots of detail (thousands of rows). But once in Apptio, those thousands of actuals line items flow through our preset rules to align with IT budget lines.
When we are sure that we have good alignment with the actuals, we work with the IT finance, accounting, and service owners to map or create new lines for unplanned items. When that is all set and everybody's comfortable, with the click of a button we send the data back to the IT planning module.
Back in Apptio IT Planning, we can open a very well-aligned forecast and compare actuals to budget and build next month's forecast. We do that monthly now. Once the forecast is updated and reviewed by everybody, submitted and approved, we push a button to send that forecast back into the cost transparency app, which allows us to build the actuals model.
We then have a budget model with actuals from the bottom to the top, so we can show service owners what they planned for, what the actual spend is, and what the costs of services are. This allows them to make some adjustments to their consumption, the team, or the budget for the following year, as well as to forecast data for the following month.
The benefit is that we have a budget versus actuals view of the full year each month. For example, in July, we have the budget model, plus six months of actuals and a six-month forecast view, so the service owner can see budget versus actual for the whole year.
I can tell you, the success that we have right now—in terms of being able to explain spend—is because we have created that closed loop.
Our original goal for implementing TBM was chargeback, because we needed better cost transparency to achieve a chargeback of 100% of IT costs. But the problem we were actually able to solve by taking this approach was around demonstrating value to all IT stakeholders and customizing the view of IT spend based on the audience; all in a reliable and timely manner. In addition, this process allowed IT service owners to take full control of their service cost.
Historically, we billed other Cox divisions monthly for IT services they consume based on fixed negotiated rates. Then at the end of the year, we built the budget chargeback model to show the difference between what we charged the divisions monthly and what the true cost was to support them.
We were very successful with this version of chargeback because we were able to show the total cost of ownership of service with every detail needed and we allocated them based on consumption. However, it took us over six months to prepare and deliver the annual budget chargeback and the last two months of the process meant long days and weekend work for the TBM team.
Eventually, for strategic reasons, we stopped the annual budget chargeback process and continued with the monthly fixed and negotiated direct charges for two years until we received an interesting request from the leadership team in Q4 of 2017. The request was to understand what was in the 70% of IT spend that we weren’t directly charging to other Cox divisions.
This request was not strange; we simply thought we would go back to the old annual budget chargeback again. We had been through this before and we could do it again. However, we did not have six months or two months to do this—we only had two weeks. We could have answered with an educated guess, but we really needed the data to speak for us.
Luckily, we now had our budget in a format mapped through the ATUM taxonomy. With a click of a button, we pushed the budget into Apptio Cost Transparency to start working on the model. In less than two weeks, we were able to complete the Application and Service TCO as well as allocation to business units.
As a result of this exercise, we were able to recover additional money from other Cox divisions for services they were underpaying us for. Our monthly actuals model is now allowing us to compare what we thought the cost of services would be during budget to what they actually are. I can say that this wouldn’t have been possible without the closed-loop process we created.
Better transparency builds a better perception of IT
We didn’t start building our actual model until we implemented Apptio’s IT planning solution, because the forecasting process was tedious and we didn't really have time to map each GL line. Now we are able to align all the GL lines to budget lines and perform better monthly forecasts in a collaborative tool. In addition, we are able to show a different view of full-year budget versus actual IT spend each month to different stakeholders.
For instance, someone in the server engineering team can now see the trend of their server unit cost while an executive can see the monthly cost to support the payroll system.
The benefits of a closed loop system
Today, there are clear benefits we can point to:
- The IT budget owners have taken ownership of the budget. They're close to the numbers now, and instead of IT Finance doing all the manipulations, they can now manage that for themselves. Before our finance review meeting, they've already been in the IT Planning application, assessing their budget and forecast.
- We’ve also automated almost everything to reduce the manual work and thus, the likelihood of error that came from exchanging spreadsheets.
- We now have the ability to provide more accurate service costs because we are able to compare budget to forecast with multiple view (financial, towers, applications, and business unit allocations).
In the end, all of this has worked remarkably well to help us demonstrate the value of our IT spend.
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