Information Economicsin practice..

Diderik van Wingerden, consultantDecember 8, 2010

Before we start..

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Introduction You, me and M&I/Partners

IT TCO benchmarking The yearly benchmarks of M&I/Partners

Benchmarking IT benefits Work in progress

Contents

Introduction: you

Introduction: me

Introduction: M&I/Partners Independent consultancy for management & IT 60 consultants Office at Amersfoort Knowledge areas:

Business & IT (e.g. IT Economics, IT Architecture) Information management (e.g. content management) IT-infrastructures (e.g. application integration) & more.. (e.g. IT and law, sourcing, etc.)

Clients: Ministries (e.g. Home Office) Financial (e.g. Delta Lloyd Groep, ABN Amro) Municipalities (e.g. Rotterdam, Amsterdam) Public Order & Safety (e.g. NATO, Defence, Police) Trade and industry (e.g. Havenbedrijf R’dam, Philips, HP) Education (e.g. Saxion, University of Delft, ROC) Cure (e.g. hospitals, EHR)

Website: www.mxi.nl

Introduction You, me and M&I/Partners

IT TCO benchmarking The yearly benchmarks of M&I/Partners

Benchmarking IT benefits Work in progress

Contents

Typical questions of managers How much money do we spend on IT?

Whereof do these IT-expenditures exist?

What is the benefit of the use of IT for me?

How does pricing of IT-services within my organization compare to other organizations?

Cost management activities

Insight into IT costs

TCO assessment Budgeting Investment

evaluationProject cost management

Operational cost management Charging

Cost control

Initial goal

Final goal

Cost management activities

Benchmarking

Source: Van Maanen and Berghout, 2001

IT TCO benchmarking Managers would like insight into their organization’s

IT costs and how this compares to other organizations.

Any ideas on how to do this?

TCO

What is TCO?

Total cost of ownership (TCO) is.. Definition of costs (Van Maanen & Berghout 2001)

‘…the financial representation of the sacrifices an organization makes in order to produce.’

Definition of TCO of an information system (Van Maanen & Berghout 2001)

‘…all costs associated with owning and using the informationsystem throughout its life cycle.’

All costs includes: Onetime investment Implementation costs Annual operational costs during the life cycle

Benchmarking

What is benchmarking?

Benchmarking is.. Taking “snap-shots” Finding “best practices” Some definitions:

“[..] a process that helps agencies to find high performance levels (benchmarks) in other organizations and learn enough about how they are achieving those levels so the practice or process producing the performance can be applied in one’s own agency.” (Keehley in Nelissen and De Goede 1999)

“The core of benchmarking: learning about your own organization through other organizations.” (Van Eekeren 2003)

Identify Measure Compare Analyse Improve!

Benchmarking characteristics, goals and conditions for success

Source: Spendolini in Van Der Zee 2001

Benchmarking variants

1. Internal vs. external organizations2. Within the industry or outside the industry

Look at other industries for competitive advantages3. Standard vs. customization

Adjust starting-points or definitions4. Private parties vs. (semi) public

Competition 5. Anonymous vs. known

Known: maximal learning experience6. Passive vs. active

Support on the process of interpretation & explanationfindings

Source: McGonagle & Fleming, New Options In Benchmarking. Journal for Quality and Participation, 1998

Why should you use TCO / benchmarking?

1. Know your position Test for industry conformity

2. Compare Gives insight in own costs versus other’s costs

3. Improve Learn from each other

4. Insight into organizational aspects Organization of IT-department (centralized, decentralized) Outsourcing

Where does benchmarking fit in?

Full life cycle management for IT (Berghout and Nijland 2002)

IT And now an easy one..

What is IT?

IT is..

"the study, design, development, implementation, support or management of computer-based information systems, particularly software applications and computer hardware.“

Source: Wikipedia, Information Technology Association of America (ITAA)

But for today IT in an organization is.. IT-management PC-Workplace LAN (local area network) WAN (wide area network) Applications and data processing Speech facilities

And for each of those: Hardware Software Personnel Other

In practice: the M&I/Partners IT benchmarks

Housing associations, municipalities, hospitals, … Yearly since 2002, following financial control cycle Model is 80% identical over industries Measures:

IT costs (TCO) Functionality IT process maturity (CobiT)

Anonymous reports, non-anonymous meetings Past two years: work on “benefits” side For today: focus on wTCO, housing associations

Benchmarks 35% of industry (measured in rentable units)

What is a housing association? In Dutch: “woningcorporatie” Builds, lets, sells, maintains homes Social housing, public mission Area of Rotterdam:

Woonstad Rotterdam (49.000 Rentable Units, RU’s) Com.wonen (30.000 RU’s) Woningstichting PWS (15.000 RU’s) Woonbron (50.000 RU’s) Vestia (80.000 RU’s)

Example result: IT costs / Rentable Unit

€ -

€ 20,00

€ 40,00

€ 60,00

€ 80,00

€ 100,00

€ 120,00

€ 140,00

€ 160,00

€ 180,00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38

SpraakAppsWANLANWerkplekICT-mgnt

wTCO: benchmarking 40 housing corporations

Scope of the benchmark: ICT costs (90%) Functionality (5%) IT process maturity (5%)

Objects of measurement Categories of IT costs (for each object) Measurement method (for each category of each

object) Way of reporting

Objects of measurement IT-management PC-Workplace LAN (local area network) WAN (wide area network) Applications and data processing Speech facilities

Type of IT costs and measurement IT cost categories per object:

Hardware Software Personnel Other

Measures for each category in each object: Investment Depreciation Exploitation

TCO in a Rubik's Cube

IT Objects:IT Objects:-ICT-managementICT-management-PC-WorkplacePC-Workplace-LANLAN-WANWAN-ApplicationsApplications-Speech facilitiesSpeech facilities

IT cost IT cost categories:categories:-HardwareHardware-SoftwareSoftware-PersonnelPersonnel-OtherOther

Cost Cost measurement:measurement:-InvestmentInvestment-DepreciationDepreciation-ExploitationExploitation

And some additional indicators for calculation..

Number of Rentable Units (RU) (Verhuurbare Eenheden, VHE)

Total revenue Locations FTE total, FTE IT-department Number of PC’s/PC-workplaces

.. give a total of 11 different diagrams

€ -

€ 20,00

€ 40,00

€ 60,00

€ 80,00

€ 100,00

€ 120,00

€ 140,00

€ 160,00

€ 180,00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38

SpraakAppsWANLANWerkplekICT-mgnt

0

20

40

60

80

100

120

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38

VHE/ ICT-werkplekGewogen ge m

€ -

€ 2.000,00

€ 4.000,00

€ 6.000,00

€ 8.000,00

€ 10.000,00

€ 12.000,00

€ 14.000,00

€ 16.000,00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38

SpraakAppsWANLANWe rkplekICT-mgnt

€ -

€ 5.000,00

€ 10.000,00

€ 15.000,00

€ 20.000,00

€ 25.000,00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38

SpraakAppsWANLANWerkplekICT-mgnt

0

0,5

1

1,5

2

2,5

We rkplek/ medewerkerGewogen gem

0,00%

0,50%

1,00%

1,50%

2,00%

2,50%

3,00%

3,50%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38

Kosten/ omzetGewogen gem

0

10

20

30

40

50

60

70

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38

FTE/ ICT-FTEGewogen gem

0

20

40

60

80

100

120

140

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38

5%

11%

13%

7%

52%

12%

ICT-mgntWerkplekLANWANAppsSpraak

15%

34%34%

17%

HardwareSoftwarePersoneelOverig

0%

20%

40%

60%

80%

100%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38

ExploitatieAfschrijv ing

But there’s more.. Measurement of functionality

3 diagrams Measurement of IT process maturity

9 diagrams + individual diagrams for each participant

Now what? What are we going to do with all of this?

IT costs / PC-workplace

€ -

€ 2.000,00

€ 4.000,00

€ 6.000,00

€ 8.000,00

€ 10.000,00

€ 12.000,00

€ 14.000,00

€ 16.000,00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38

SpraakAppsWANLANWerkplekICT-mgnt

Industry average: IT cost per object

5%

11%

13%

7%

52%

12%

ICT-mgntWerkplekLANWANAppsSpraak

Industry average: IT cost per category

15%

34%34%

17%

HardwareSoftwarePersoneelOverig

IT costs as % of revenue

0,00%

0,50%

1,00%

1,50%

2,00%

2,50%

3,00%

3,50%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38

Kosten/ omzetGewogen gem

What does this all mean in practice?1. Get participants2. Send Excel sheet to all participants for data

gathering3. Drive around the Netherlands to interview 40

housing associations4. Create report using MySQL, PHP, Excel and Word5. Interactive sessions with all participants6. Report is used by each participant as they like7. Start over

Excel sheet: contact details

Excel sheet: IT costs of applications

Interactive sessions

Conclusion

Would you participate if you were a manager?

Conclusions TCO & benchmarking are improvement methods for

an organization They can be used to gain insight in costs and

control Based on the findings you can formulate measures

for improvement for your organization

In order to realize actual effect with benchmarking, you have to know the story behind the numbers! Benchmark results are only a means to start talking to each other!

Let’s have a break

Introduction You, me and M&I/Partners

IT TCO benchmarking The yearly benchmarks of M&I/Partners

Benchmarking IT benefits Work in progress

Contents

Other typical questions of managers (Especially those participating in the IT benchmarks)

What causes the differences in IT cost levels? Now I know the costs, but what are the benefits? How much value do we get from our IT? Does an organization with a lower IT costs level do

better than an organization with a high level? Or is a high level justified when the benefit is also

higher?

The challenge “Develop an instrument to measure and compare IT

benefits between organizations.” an “IT benefit” counterpart of the existing “IT cost” focus

Any ideas on how to do this?

IT benefits

What are IT benefits?

Some benefits of IT..

Provide customers with unique value proposition

Permit new business models

Build barriers to industry

Increased agility Increased productivity

Improved quality at reduced cost

Improved turnaround time

Reduced headcount

Employee self-service Reduction in property costs

Automation Keeping up with competition

Bargaining power

Measuring IT benefits

Why is it difficult to measure IT benefits?

The complexity of IT benefits

Direct Indirect

Non-financial

FinancialMea

sura

bilit

y

Causality

But also.. Lack of data recorded in the organization

Especially non-financial data No baselines

Is dependent of many other factors (gearbox dilemma)

IT value ends up outside of the organization Risk and chance are also involved Experiments and R&D are necessary Project success is in the eye of the beholder

The gearbox dilemma

Some approaches we are working on As mentioned earlier:

Functionality IT process maturity

And some more: Quality in business process (my Master’s thesis) Degree of coverage

What (mistaken) assumptions do we make?

Functionality

IT cost per rentable unit

IS fu

nctio

nalit

y sc

ore

IT process maturity

IT cost per rentable unit

IS m

atur

ity s

core

IT process maturity (2)

0 1 2 3 4 5

Identificatie en allocatie van kosten

Gebruik van Service Levels (SLA's) naar eindgebruikers

Educatie en training van eindgebruikers

Beschikbaarheid van ICT

ICT performance en capaciteitmanagement

Beheersbaarheid van werkzaamheden en project management

Evaluatie van effectiviteit

Gegevensbeheer (kwaliteit van data)

Leverancierbeheer

Verander management (change management)

Beveiliging

Professionalisering werkprocedures

Incident- en probleembeheer

Veiligheidsbeheer en risicobeperking

Configuratiebeheer

ICT management en planning

Hulp voor eindgebruikers (helpdesk)

Quality in business process: Bedell revisited

Do you know the method of Bedell?

The method of BedellOrganizational importance of information systems

vs.Quality of information systems

EIO: effectiveness of IS

IIO: potential of IT

0

Invest selectively

1 2 3 4 5 6 7 8 9 10

1

2

3

4

5

6

7

8

9

10Invest aggressively Invest selectively

Stabilize Disinvest

Association A

Association D

Association C

The quality model

Systems DesignInfo

Needs Design Build Imple-ment

Data Processing

Collect Record Process

Causal

TeleologicalEnvironment

Organization

Business Processes

Subprocesses for each business process

Systems

Organizational Goals

Business Process Targets

User Targets Provider Targets

Personal Interests

Information

Source: Van der Pijl (1994)

Business processes for housing associations

For each: Strategic importance Operational importance

Information systems of housing associations Digitale woningplattegronden Document Informatie Systeem (DIS) Financiële meerjarenplanning Financiële administratie Geografisch Informatie Systeem (GIS) Huuradministratie Inkoopadministratie Kennismanagementsysteem Klanten Informatie Systeem Klein dagelijks onderhoud Management Informatie Systeem (MIS/DWH) Meerjaren onderhoud Nieuwbouwprojecten Planmatig onderhoud Salaris systeem / personeelssysteem Strategisch voorraad beheer (SVB) Treasury VVE-beheer Website, Intranet, Extranet Woningcartotheek Woonruimtebemiddeling en -verdeling Workflow Management (WFM)

For each: Supports which process(es)? 4 quality indicators:

Effectiveness User satisfaction Efficiency Up-to-date

Results: the “IT benefit house”

EIA: effectiveness of IS

Combine with TCO: added IT costs / RU

Kwaliteit informatievoorziening(gewogen naar bedrijfsbelang)

Potentieel van ICT (gewogen naar bedrijfsbelang)

0

Invest selectively

1 2 3 4 5 6 7 8 9 10

1

2

3

4

5

6

7

8

9

10Aggresief investeren Selectief investeren

Stabiliseren Desinvesteren € 70 / VHE€ 80 / VHE€ 90 / VHE

€ 100 / VHE

€ 110 / VHE

€ 120 / VHE

€ 130 / VHE

Woningcorporatie A

Woningcorporatie B

Woningcorporatie C

Zooming in to the business processes

+ 6 more..

Some approaches we are working on As mentioned earlier:

Functionality IT process maturity

And some more: Quality in business process (my Master’s thesis) Degree of coverage

Degree of coverage For general hospitals:

EMR coverage For municipalities:

NUP coverage Citizen service coverage

EMR coverage

Usage (%)

Func

tiona

lity

(%)

NUP coverage

Citizen service coverage

0

1

2

3

4

5

6Ophalen huisvuil

Inzameling grofvuilHeffing rioolrecht (ook voor bedrijven)

Onroerende zaak belasting - OZB (ook voorbedrijven)

Aanvragen bouwvergunning (ook voor bedrijven)

Melding van schade/onderhoud aan wegen/trottoirse.d. (wegenonderhoud)

Aanvragen paspoort

Aankoop/verhuur bouwgrond

Aanvragen rijbewijs

Inzage bestemmingsplannen (ook voor bedrijven)

Aanvragen GBA-uittreksel Aanvraag van een gehandicaptenvoorziening (WMO)

Aanvraag kwijtschelding belastingen en heffingen Aanvraag bijstandsuitkering

Doorgeven verhuizing

Melding schade openbaar groen

Aanvragen kapvergunning

Bezwaarschrift indienen

Aanvraag parkeervergunning (ook voor bedrijven)

Aanvraag evenementenvergunning (ook voorbedrijven)

Inzameling bedrijfsafval (alleen voor bedrijven)

Aanvragen milieuvergunning (alleen voor bedrijven)

Aankoop/verhuur bedrijfsterreinen (alleen voorbedrijven)

Aanvragen in/uitritvergunning (alleen voor bedrijven)

The outcome..

Are these useful additions to the IT TCO benchmarks?

Conclusions Functionality:

End-of-life IT process maturity:

Very useful for internal discussion and goal setting Quality in business process:

Master’s thesis successfully completed Insufficient participants to do 1st round benchmark Why?

Degree of coverage: Pragmatic and easy to understand

Nobody has a definitive answer (yet) Both in academic research and in real-life organizations

Measuring IT benefits is very complex! Work in progress!

Some notions worth mentioning What I learnt from my master’s thesis project:

Just like renovating your house: it’s best not to know in advance what you will be getting into. Deal with it along the way.

Do not worry about the limitations of your research, just be open and fair about them.

Field research will take longer than expected (even if you expect this). Important factor: summer holiday period.

How to plan writing? 1 chapter / month vs. you know best at the end

Pick a topic you like and want to know (a lot) more about. Keep your eyes on the prize. Finishing your thesis while working in a new job is not advised.

Almost done.. This presentation will be available on Blackboard

More information: IT TCO benchmarks: www.mxi.nl/ictbenchmark Master’s thesis: http://www.slideshare.net/diderik

Internship or job as (junior) consultant? www.mxi.nl/werkenbij

Or contact me: Diderik van Wingerden, consultant at M&I/Partners @diderikvw diderik.van.wingerden@mxi.nl http://nl.linkedin.com/in/diderikvanwingerden

If time permits..