Neven Zitek Every now and then, I get that ultimate ITSM question: “Why should my organization implement ITIL principles?” And while there are many non-financial benefits to implementing ITIL (such as service quality or transition readiness), for any organization the most compelling are the financial benefits, which we’ll be discussing within this week’s article.
Before we start, I’d suggest reading our other blog posts, most notably: ITIL & Accounting in IT organizations, in which you may find out how costs are categorized according to ITIL framework, and ITIL Service Provider types – Type 2 or Shared Services Unit – because they both contain relevant information.
Cost shared is cost reduced
Figure 1 – Service provisioning with Type I service providers
Let’s say you have a company or organization with a smaller number of employees, and you need e-mail accounts for them in order to perform your daily business. In order to set up a functioning e-mail system, the organization will have to spend some (finite) amount of money. The typical e-mail system is capable of running hundreds if not thousands of mailboxes at the same time, and if your head count is less than that value, you are paying for 100% of service cost, but consuming only a portion of it.
This is a common problem among organizations that run Internal Service Providers (ITIL Service Provider types – Type I: Internal service provider), which tend to become a source of great overhead, as shown in Figure 1 – as each Business Unit is responsible for providing its own common services such as HR, IT, Finance, or Legal.
Figure 2 – Shared services model
As a complete opposite to the earlier mentioned practices, the Shared services model targets the provisioning of multiple services to one or more business units through use of shared infrastructure and resources.
As shown in Figure 2, within our imaginary organization, we still have three Business Units (BUs), each consuming 20%, 30%, and 50% of available resources, but this time they share a pool of resources, instead of each having its own dedicated resource. Consequently, Business Units will proportionally share service costs – effectively reducing them compared to the previous mode of operation.
This practice alone represents a significant cost savings and may even be the greatest argument against the Managed Service model (outsourcing).
Provisioning based on utilization
In our example, by consolidating available resources into a single shared platform, each Business Unit is still consuming the same amount of resources as before – but with only a fraction of the original cost. This concept can be pushed even further if you understand who is using what resource at any given time.
By using modern technologies, such as virtualization and cloud, resources can be dynamically allocated in order to fit current demand, but such approach requires a deeper understanding of technology, the nature of demand itself, and customer needs. Many IT organizations lack this level of understanding, and even if they don’t – they usually think they can’t influence business processes enough in order to produce the desired effect.
Figure 3 – Resource demand over time
As an IT service provider, once you understand who your customers are, and how are they consuming the services you provide, there is a sea of new optimization opportunities; for example, you may have a Finance and Accounting department (Figure 3: BU 1) whose workload and resources demand grows as the month comes to a close, and Legal (Figure 3: BU 2), which has pretty much constant demand throughout the month. However, within this company reports are generated towards the end of the month, which increases demand on available IT infrastructure. This combined demand causes bottlenecks and customers will be reporting degraded performance, which will lead to unsatisfied customers.
A common solution that IT might turn to would be to install new equipment in order to cope with increasing demand. This solution will increase overall capacity, but it will be utilized only during peaks.
There is another, more cost-effective solution: by shifting reporting workload from the second half of the month to the first half of the month, available IT infrastructure is capable of fulfilling the demand without any need for costly upgrades. This information can only be relayed to the business from IT, so the underlying problem may not be in IT not having enough influence, but rather that IT is not able to illustrate true costs and business benefits from proposed solutions.
You have to understand before you can know
Whenever you have to pay for something, you can only hope that overhead is minimal within the final price, but when your job is to manage costs of operation, than you must know that is true. In order to know that your organization is using the best possible IT services for the lowest possible cost, there are many, many details that require deeper understanding of what is going on at any given point in time, and how are you reacting to all of them.
While this statement is quite logical and easy to understand, I’ll go back to the original question from the beginning of this blog post: “Why should my organization implement ITIL principles?” because I can give you the same answer: you will hear things that will be a confirmation of your own way of doing things, and/or you’ll learn new things that will enable your organization to use the best possible IT services for the lowest possible cost.
So, if you found this reason compelling enough, I’d suggest that you start with: Ready, steady… go – Starting ITIL implementation.
You can also check free whitepapers and other downloads to get familiar with benefits of ITIL as well as documents that can ease your ITIL implementation.
