Lean IT... here's how we use activity based costing, total quality and process re engineering to drive quality up, cost down and redirect IT spend from support to strategic investments

1. Managing the 80% Problem Combating the ‘ongoing support’ issue cannibalizing IT budgets 4/29/2010 Copyright: Crocus Hill Associates, All rights reserved

2. The 80% problem what is it? Why talk about it? Where are these costs hiding (show me the coffin and a stake …)? What are the common approaches – do they work? A different approach – Alphabet soup: ABC, TQC, Re Getting started Institutionalizing continuous improvement 4/29/2010 Copyright: Crocus Hill Associates, All rights reserved 2 Contents

4. Hardware budgets still consume > 50% of total costs

5. Even though Moore’s law continues we can’t beat the total cost burden

7. The expanding infrastructure footprint increases the support / patch / maintenance burden in the data center

8. Ongoing environmental support for old data centers takes people and capital to keep up with new infrastructure demandsAt the end of the day, it’s the ‘Golden Apple’, where everything good we do today, inhibits our ability to do more in the future 4/29/2010 Copyright: Crocus Hill Associates, All rights reserved 3 The 80% problem what is it?

9. It was second among InfoWeek’s survey of CIO’s for 2010 The Cloud Imperative. The 80/20 Spending Trap. CIO-Led Revenue Growth And Customer Engagement. Mastering End-to-End Business Processes. Business Analytics and Predictive Analytics. External Information vs. Internal Information. CIO Priorities, CIO Compensation, CIO Evaluation. Vendor Consolidation, With Radical Exceptions The Mobile Enterprise and The Mobile Mindset. The Transformation Quotient. 4/29/2010 Copyright: Crocus Hill Associates, All rights reserved 4 Why talk about it? As has been the case for the last 20 years - "the new normal" for CIOs in 2010 will be to accomplish a whole lot more with a whole lot less

11. Sandbagged revenue estimates and escalating uncontrollable expense costs (raw matl. , energy …) subtract from available cash.

13. Free cash flow and debt covenants further constrain our ability to ‘grow the pie’ from creative accounting.

14. Conservative auditors and CFO’s seek to stop capitalization at the earliest point in the implementation cycle.We are left in ‘the do more with less environment’ just when competitive pressures and IT’s value proposition are increasing 4/29/2010 Copyright: Crocus Hill Associates, All rights reserved 5 Why talk about it (continued)?

15. 4/29/2010 Copyright: Crocus Hill Associates, All rights reserved 6 Where are these costs hiding? We all know where the costs are – Legacy, Legacy, Legacy

16. 4/29/2010 Copyright: Crocus Hill Associates, All rights reserved 7 Where are these costs hiding?

17. Embrace a ‘religion’ – e.g. ITIL While service level control may manage demand, overall costs rarely go down and often go up when formalisms are installed. However, the good news is that the discipline of formal processes and databases provide the basis to measure work and potentially to manage it better. Give the problem to someone else – outsource Overall, the outsourcing equation may transfer responsibility to more efficient organizations. However, it is still true that over 50% fail outright and more than that go ‘upside down’ on costs in less than three years. Benchmark – see who might be doing it better Comparisons in this area are risky, however, at a high level they do provide a view into areas where there are opportunities to improve practice. The bad news is that they don’t help in ‘root cause’ analysis. They only identify areas of opportunity What are the common approaches – do they work? 4/29/2010 Copyright: Crocus Hill Associates, All rights reserved 8

18. A different approach 4/29/2010 Copyright: Crocus Hill Associates, All rights reserved 9

19. Activity Based Costing to baseline work and standard costs Identify core deliverables and activities for each group Identify work at a low enough level to be actionable – activities that can be eliminated, automated, restructured, or reorganized Understand the cross functional (IT group) costs Total Quality Methods for priorities and root cause Pareto (Frequency) charting of incidents and activity volume Ishikawa (Fishbone) to outline drivers and root cause Plan-do-check-act cycle for change implementation Use Reengineering principles to drive performance and efficiency Eliminate unnecessary work / Restructure processes /Apply automation only after optimization Alphabet soup- Drive change through ABC, AVA, TQC and Reengineering 4/29/2010 Copyright: Crocus Hill Associates, All rights reserved 10

20. Break down high level costs into standard work units At enough granularity to be able to establish standards Unix password reset… Identify cross functional (IT group) involvement in activities Identify who the participants are, their place in the workflow and their estimate for their tasks Estimate standard work effort estimates for each activity Focus both on labor / effort as well as “$” costs Develop workload model summarizing standard activity costs into major accounting groups Break Fix Support / upgrade Enhancement New development etc. Use Activity Based Cost to develop standard costs and linkage 4/29/2010 Copyright: Crocus Hill Associates, All rights reserved 11

21. Develop Pareto charts from tickets, service requests or other estimating techniques to analyze frequency of activities May have to break ticket categories down to match with ABC Ultimately workload categorization standards must synchronize across all accounting and work management systems Combine with the data from the ABC analysis to understand the total cost impact of the activity Model the total costs by matching the frequency of activities to the standard cost for the work Reconcile the cost with budget and headcount and redo standards and volumes until budget, headcount and total cost are close In first pass the model should be within 5-10% of explaining all work and budget Use TQC to prioritize and analyze activities 4/29/2010 Copyright: Crocus Hill Associates, All rights reserved 12

22. Understand Impact and Set Change Agenda 4/29/2010 Copyright: Crocus Hill Associates, All rights reserved 13 ABC analysis Analyze and Reconcile Pareto Analysis Prioritize and Focus $ Activity Cost This effort will identify and prioritize a portfolio of improvement initiatives Activity Volume

23. Each targeted initiative should work on both reducing its frequency and cost 4/29/2010 Copyright: Crocus Hill Associates, All rights reserved 14 Drive down activity frequency with TQC and root cause analysis $ Activity Cost Drive down activity cost with process redesign Activity Volume

24. Use Root cause analysis to find drivers of activities 4/29/2010 Copyright: Crocus Hill Associates, All rights reserved 15 Pareto Analysis Evaluating the root cause or drivers of efforts identifies changes to reduce frequency of support efforts Improvement efforts Training Technology Policy Procedure

26. Identifying activities that add no value for the customer,

27. Organize around outcomes, not tasks

28. Have those who use the output of the process do the process

29. Subsume Information work into the real work that produces the information

30. Treat geographically dispersed operations as if they were centralized

31. Link parallel activities instead of integrating their results

32. Put the decision point where the work is performed