Cost of each service

[CA]

Is there any model or better way to calculate cost of each service we provided. We identify all the services but the challenge is to determine the cost of each service. Any help in calculating cost for each service is greatly apprecited

[LizGallacher]

The Financial management chapter ov the V2 books gives guidance on this - the cost model includes
Hardware
Software
Accommodation (of people and equipmant)
People
External and
Transfer (internal cross - charging)
Don't forget the mix of Direct costs, indirect costs and unabsorbed overheads.
_________________
Liz Gallacher,
ITIL EXPERT
Accredited ITIL and ISO/IEC20000 Trainer and Consultant - Freelance

[Guerino1]

Hello CA,

To make it even more fun, there are two ways to look at your costs...

1: The cost to get in
2: The cost to stay in

The first is all about your up-front costs and what it takes to put your service/solution in place.

The second is all about what your year-over-year costs will be to keep that service/solution running in your enterprise.

Once you have these two dimensions, then you need a way to allocate your costs across the customers that are paying for them. This is not always easy because some organizations/customers are bigger or smaller than others and allocating things equally doesn't always make sense.

Costs of Getting In Include:

• Planning Costs
  
• Design Costs
  
• Implementation Costs
  
• Deployment/Distribution Costs
  
• Installation/Instantiation Costs
  
• Execution Costs
  
• Verification Costs
  
• Logistical Costs
  
• Buying new SW
  
• Cost to customize new SW
  
• Buying new HW/Infrastructure
  
• Cost to customize new HW/Infrastructure
  
• Buying new Services/Utilities (like data feeds, internet service, phone, etc.
  
• Cost to customize new Services
  
• Cost to acquire resources/labor
  
• Cost to organize resources/labor
  
• Cost to train labor
  
• Etc.
  

Costs of Staying In Include:

• Average yearly logistical costs (cost allocations due to overhead such as facilities, furniture, supplies, etc.)
  
• Average yearly license renewal costs
  
• Average yearly HW/Infrastructure refresh costs
  
• Average yearly cost of dedicated resources
  
• Average yearly cost of training
  
• Average yearly external Service/Utility costs
  
• Average yearly SW refresh costs (patches & upgrades)
  
• Average yearly management costs (planning, design, etc.)
  
• Average yearly development costs
  
• Average yearly integration costs (since you'll always be integrating to other systems)
  
• Average yearly cost to acquire labor, due to planned turnover
  
• Etc.
  

Technically, you can really get very detailed with each cost category. I've always found that the more detailed you get, the more effectively you can manage your enterprise.

I hope this helps.

My Best,

Frank Guerino, CEO
TraverseIT
On-Demand ITIL

[CA]

Thank you LIZ and Gureino1. This information will really give us good start.

Should we calculate all the cost through accounting system or should we create a seperate repository for calculating cost for each service and extract key cost information from accounting system. I am little bit confuse here in managing services and cost particularly in term of collecting all the data. Data management is my problem here. Any help is really appreciated

[Guerino1]

Hi CA,

I have yet to see a good accounting system that will properly address all the costs and their allocations, properly.

I highly recommend you do it separately (although I don't know what others' opinions might be on this). We are actually in the process of building exactly what was described to you, into our own product for public offering as part of the Service Catalog, with a full integration of costs to the CMDB and all entities tracked, within it. The reason why is that we can't find a solid solution that we can use, even for ourselves. So, why not build it into the product that we offer commercially and use it ourselves?

Anyhow, a spreadsheet with pivot tables should work for you, up front. Over time, you'll outgrow it. However, I always recommend that people crawl before they walk or run.

My Best,

Frank Guerino, CEO
TraverseIT
On-Demand ITIL

[UKVIKING]

There are several costs involved in providing a service

Some of the costs can be express in £ or $ or what ever is your currency

Others have to expressed in ManHours (not to be sexist)

For example,

You have 10 people working 24x7 in the SD, you are 1 of 6 services.

Then you have 240 Manhours per day so if all services are equal then you have 40 Manhours per day allocated to you for the cost of the Service Desk

This will actually be indirect cost (unless the company uses cross charging etc)

Also, if your ticket system is capable of tracking time spent on incidents/problems/ etc per service; then yu can calculate the actual time spent on your service by the SD and the variance between the allocated and the actual....

This would involve the arcane arts of statistics, financial & budget accounting and other arcane numeracy skills.

Which involves more than 1 and 0

Not my field
_________________
John Hardesty
ITSM Manager's Certificate (Red Badge)

Change Management is POWER & CONTROL. /....evil laughter

[LizGallacher]

Working out proportionate indirect costs such as the SD, as John describes, is all explained in the V2 chapter, as I said. Frank talks about set-up and ongoing costs, and these are covered under the budgeting part. You can go to a very detailed level, or not, dependent on your requirements.
And John - rather than using a gender-specific word such as man-hours (especially as so many women work on the SD), why not just say working hours or staff hours, and avoid the risk of sexism completely?
_________________
Liz Gallacher,
ITIL EXPERT
Accredited ITIL and ISO/IEC20000 Trainer and Consultant - Freelance

[UKVIKING]

Liz,

In keeping with the current social economic barriers that are associated with women statistically and financial, I had thought to use

ManHours and WomanHours

and show the calculus equations that would match the fact that women are statistically paid 60% of what we men earn yet do the same work

but the calculations hurt my brain and I dont think the integrals and other calucation would have fit on 1 screen..

I should have used FTE Hours (Full Time Employee) Hours or just Hours Worked.

......

BTW: I will stop now before I dig my hole so deep, my only alternative is to continue digging

:lol:
_________________
John Hardesty
ITSM Manager's Certificate (Red Badge)

Change Management is POWER & CONTROL. /....evil laughter

[CA]

Thank you all of you. Good start for us and as we are also working on CMDB data base where all CI and there important relationship will be defined. Can someone also give us some hint how cost will define for each CI in CMDB or better way to associate cost with services in CMDB. Thank for everyone one more time for all the knowledge shared by you all.

[UKVIKING]

Cost per CI ?

Did you buy the kit... how much plus the tax
That would be the cost

Check with your accounting dept about depreciation values.. etc

As to cost within the CMDB, this would be important if the cmdb is used to cross charge with in a company and to allocate costs between team/ etc
_________________
John Hardesty
ITSM Manager's Certificate (Red Badge)

Change Management is POWER & CONTROL. /....evil laughter

[CA]

Hi UKVIKING - this only cost us 9.99 plus tax 10.45 but over head is 1000000.

I did not mean cost per CI. As Guerino explained in his posting "with a full integration of costs to the CMDB and all entities tracked, within it" that make me think, I can manage all my service cost through CMDB. If you can help me and explain a little bit more how it can be done with one simple example that will be great.

Currently in CMDB we currently defined all the people information, all services, hardwares, network, softwares, environment and some important relationships bewteen them. But after seeing Guerino1 replied i think we can also put cost here. But not able to grab the whole thing how it can be done.

[jpgilles]

Hi,

If your company use a financial or cost accounting system and already I would let that tool do part of the job . IN fact I would even try to "outsource" the IT cost management to somebody in the accounting deperttment as, frankly speaking, it's very hard to turn any IT person into accounting and the level of expertise required to fully implement Financial management.
Also it may well be that your company does already use internal recharges for other functions, and IT should be integrated into that scheme rather than being handled differently.

br
JP
_________________
JP Gilles

[UKVIKING]

CA

I was talking about the cost, salvage value of a CI such as the server.

If you provide a service to a customer such as web hosting

The server costs £#.##
The maintenance contract for the h/w costs £#.## per year(month)
The O/S and application has a fixed and a variable cost
Purchase price and seat license

The staff have a fixed cost and a variable cost

If the Service total fixed costs is £Y and the variable cost is £Z

The total cost per month is £(Y+Z)/12 = £X

If the service is sold at £A per month for a 12 month contract; then £A has to be higher than £X by the profit margin % plus whatever tax arcana is attached

If the service is low balled to get a customer and the customer basically uses the system/support people very heavily and the SLA/.cotnract does not have minimum hours of support etc, then the business loses money and the business crashes / goe s under gets bought out etc


And yes I worked for one of those.....
_________________
John Hardesty
ITSM Manager's Certificate (Red Badge)

Change Management is POWER & CONTROL. /....evil laughter

[CA]

Thanks AP and UK. One last opion required in term of using all this information from one single tool.

What do you thing about using HYPERION to manage cost of IT service. I like to get all service information from CMDB and cost information from Cost accouting system and manage all the data from HYPERION.

If any one have done such thing please share their experience in term of challenges or any other suggestion to look into.