Benchmarking Market Pricing

Benchmarking Market
Pricing

Rawdon Simon - ISG
31st May 2012

Copyright © 2012 Information Services Group, Inc. All Rights Reserved

Benchmarking Market Pricing

Why Benchmark?
Uncover opportunities for improved
efficiency

Determine a sourcing strategy

Sole Sourcing – don’t leave money
on the table!

Ensure you are paying the right
amount for your outsourced services


Types of Benchmark
• Looked at from the perspective of your
costs in providing the IT service
Cost • Addresses all costs, both in-house and
outsourced
Benchmark • Typically used to uncover efficiency
opportunities across in-house operations
• Uses costs data for comparison

• Analyses the price you are paying your
service provider for services received
• Typically used to analyse fees paid for
Price already outsourced services or to
determine fees for proposed outsourced
Benchmark services
• Only looks at outsourced fees for a
specific set of services
• Uses price data for comparison


When are Benchmarking Clauses Appropriate?

More Less
Appropriate for: appropriate for:
Shorter term contracts (3
Longer term contracts (at years or less)
least 3-5 years)
Services not commonly
outsourced
Well-defined, commonly Services where data is not
outsourced services available

Services where benchmark Services with large
data is available or components of
reasonably expected to transformation embedded
become available through the contract life



The Importance of Scope
Application Development & Maintenance
P0/P8 Development Q0/Q6/QW Maintenance ZF Management & Tools
(AD)
Mainframe (MF) Storage (ES) Servers (SP) Desktop (DT) Network (NW) Service Desk (SD)
D1 Mainframe E1 Disk Storage DA Server Processors B8 Common Office A1 LAN Architecture C3 Central Service Desk
Processors E2 Automatic Tape DB Server Function Applications A2 LAN Switching C4 Local Service Desk
Retrieval Systems BA Server Batch BC Email A3 LAN Routing C5 Incident Management
B1 Transaction E3 Manual Tape Storage Processing and Job D6 Personal Computers AA LAN Planning & & Problem
Processing E4 Optical Storage Scheduling D7 Infrastructure Servers Design Management
B2 Interactive M1 Backup and Restore BB Server Transaction D8 Thin Clients AB LAN Changes
Processing Processing F9 Distributed Printers AC LAN Support ZM Service Desk
B3 Batch Processing ZD Storage Management BD Server Databases AD LAN Operations Management and
B4 VM Processing and Tools G5 Server Planning and G1 Desktop Planning and Tools
BF Mainframe Design Design W1 WAN Architecture
Databases K5 Server Hardware MAC K1 Desktop MAC W2 WAN Switching
Central Printing K6 Server Software K2 Desktop Software W3 WAN Routing
G3 Mainframe Planning Distribution Distribution WA WAN Planning & Surveys (SU)
(CP)
L8 Server Support L1 Common Software Design
L5 Production Control L9 Server Hardware Support WB WAN Changes
F1 Laser Printing UA User Profile
L6 Mainframe Maintenance L3 Desktop Hardware WCWAN Support
Operations F2 Impact Printing UB User Problem Solving
F3 COM Production LA Server Monitoring and Maintenance WDWAN Operations UC Support Satisfaction
LB Mainframe Support Supervision M8 Infrastructure Server
M5 Mainframe Change F7 Post Processing UD Office Technology
F8 Enveloping M7 Server System Administration V1 Voice Architecture Satisfaction
Administration N3 Desktop Training V2 Voice PBX/Centrex UE Business Systems
ZA Mainframe V4 VoIP
Management and ZV Central Printing Satisfaction
Management and ZG Server Management ZJ Desktop Management VA Voice Planning & UF Overall Satisfaction
Tools and Tools and Tools Design
Tools UP Employee
VB Voice Changes Questionnaire
VC Voice Support UZ User Population
VD Voice Operations
Management Services (MS) Telecoms (TC) Middleware &
X1 Contact Centre
Applications (MA)
I4 Executive M4 IT Service Continuity S1 Private Circuits T1 International Leased X2 Network Security
Management M6 IT Security S3 Public Frame Relay Circuits X3 Remote Network B6 Middleware
I3 Central N2 Service and Account Virtual Circuits T3 International Public Access B9 Business Applications
Services Management S4 IP VPN Connections Frame Relay Virtual X4 Cabling BE Internet Applications
I7 Outsourcer Z2 Premises S6 Call Volumes and Circuits X5 Internet Connectivity ER SAP Applications
Management ZS Management Services Tools Charges T6 International Call
S8 Access Connections Volumes and Charges YP Network total HW and ZB Middleware and
H1 Budget Analysis S9 Internet Circuits T7 Calling Cards SW costs Applications
General H2 Business Volumes T8 International ATM Circuits Management and
Information Z1 Study Related Information V3 Telecommunications ZP Network Line Tools
Z6 Additional Services Information Management and
(GI)
Z9 Data Quality YT Telecoms total costs Tools


Methodology Mainframe (MF) Servers (SP) Storage (ES) Desktop (DT) Service Desk (SD) Telecoms (TC) Network (NW)
D1 Mainframe DA Server Processors E1 Storage Architecture B8 Common Office C3 Central Service S1 Private Circuits A1 LAN Architecture
Processors DB Server Function E2 SAN Infrastructure Applications Desk S3 Public Frame Relay A2 LAN Switching /
B1 Transaction BA Server Batch E3 Tiered Disk BC Email C4 Local Service Desk Virtual Circuits Routing
Processing Processing and Job E4 Virtual Tape Storage D6 Personal Computers C5 Incident & Problem S4 IP VPN Connections A4 Wireless LANs
B2 Interactive Scheduling E5 Automatic Tape D7 Infrastructure Servers Management S6 Call Volumes and AA LAN Planning &
Processing BB Server Transaction Storage & Legacy D8 Thin Clients Charges Design
B3 Batch Processing Processing ATL F9 Distributed Printers ZM Service Desk S8 Access Connections AB LAN Changes
B4 VM Processing BD Server Databases E6 Manual Tape G1 Desktop Planning Management & S9 Internet Circuits AC LAN Support
BF Mainframe G5 Server Planning and Storage and Design Tools T1 International Leased AD LAN Operations
Databases Design E7 Optical Disk Storage K1 Desktop MAC Circuits
G3 Mainframe K5 Server Hardware EA Storage Planning K2 Desktop Software T3 International Public W1 WAN Architecture
Planning MAC and Design Distribution Middleware and Frame Relay Virtual W2 WAN Switching /
L5 Production Control K6 Server Software EB Storage Change L1 Common Software Applications (MA) Circuits Routing
L6 Mainframe Distribution EC Storage Support Support T6 International Call WA WAN Planning &
Operations L8 Server Support EE Storage Operations L3 Desktop Hardware B6 Middleware Volumes and Design
LB Mainframe L9 Server Hardware M1 Backup & Restore Maintenance B9 Business Charges WB WAN Changes

Services Mapping
Support Maintenance M2 Centralised Archive M8 Infrastructure Server Applications T7 Calling Cards WCWAN Support
M5 Mainframe LA Server Monitoring Solutions Administration BE Internet Applications T8 International ATM WDWAN Operations
Change and Supervision M3 Disaster Recovery MB Desktop Backup and ER SAP Applications Circuits
M7 Server System Restore V3 Telecommunications V1 Voice Architecture
ZA Mainframe Administration ZD Storage N3 Desktop Training ZB Middleware and Information V2 Voice PBX / Centrex
Management & Management & Applications YT Telecoms total V4 VoIP / IP Telephony
Tools ZG Server Management Tools ZJ Desktop Management &Tools costs VA Voice Planning &
& Tools Management & Tools Design
VB Voice Changes
Application VC Voice Support
Management Central Printing General Information Surveys
Development and VD Voice Operations
Services (MS) (CP) (GI) (SU)
Maintenance (AD)
X1 Contact Centre
I4 Executive Mgmt P0 Project F1 Laser Printing H1 Budget Analysis UA User Profile X2 Network Perimeter
I3 Central Services Characteristics F2 Impact Printing H2 Business Volumes UB User Problem Control
I7 Outsourcer Mgmt P8 Source Code F3 COM Production Z1 Study Related Solving X3 Remote Network
M4 IT Service Q0 Application F7 Post Processing Information UC Support Satisfaction Access
Continuity Characteristics F8 Enveloping Z6 Additional Services UD Office Technology X4 Cabling
M6 IT Security Q6 Source Code Z9 Data Quality Satisfaction X6 Conferencing /
N2 Service and QWCore Business ZV Central Printing UE Business Systems Telepresence
Account Mgmt Relation Management & Satisfaction
Z2 Premises ZU Development Tools UF Overall Satisfaction YP Network total HW
ZS Management Software UP Employee and SW costs
Services Tools ZF Management & Questionnaire ZP Network Line
Tools UZ User Population Management &
Tools

Service definitions ISG Model
Scope Adjustment

$ Charges Services Model

Analysis ISG Database

Rates


Process Overview
Understand customer
Planning organisation

Collect data and
Fact Finding interview key
stakeholders

Calculate performance
Assurance indicators

Analysis Comparison and analysis
Charter
Document
Reporting Documented findings



Quality Benchmark
• Relationship between cost and quality
• Most organisations achieve a similar level of quality though
• Guaranteed 100% availability is a special case

• Level of Service makes a big difference
• E.g. 24X7 vs. 12X5

• Benchmark Target (contractual) and Achievement (performance)
Abandonment rate for Central Service Desk calls
16.0
14.0
12.0
10.0
%

8.0
6.0
4.0
2.0
0.0 ACME RG min RG mean RG max
Target 7.0 6.0 7.0 8.0
Actual 8.0 2.4 8.2 14.2



Level of Detail
• Tower level
• Rough indication of market price

High Level • Typically used as part of a sourcing
strategy determination
• Determine if a detailed benchmark is
warranted

• Sub Process Level
• Fairly accurate assessment
Intermediate • Can be used to negotiate with suppliers
• Often used to decide on going to the market
or a sole sourcing option

• Highly detailed forensic review
• High degree of accuracy
Detailed • Used to effect a price change as per the
benchmarking clauses in a contract
• Will stand up to scrutiny

Midrange Server - Type A  The total annual expenditure analysed for the Type A
$,000 $ application servers is $x.xx million . It includes annual
$,000 hardware, software, support costs (internal and outsourced).
$,000 It also includes an allocation of management services ($xxxK),
Annual per Server ($)

$ $
$,000 Premises costs ($xxxK) and FTE related overheads ($xxxK).
$,000
 x.xx FTEs have been allocated to the Type A server service
$,000 $
tower.
$,000
$,000  xxx physical servers, xxx logical servers reported for Client.
$,000
$,000  Infrastructure availability of 336 hours, 99.99%.
$-
 Comparison Group profile:
Client Market Min Market Avg Market Max

− Number of physical servers, xxx – xxx severs

− Number of logical servers, xxx – xxx logical servers
SAMPLE ONLY
− Availability 168 hours, 98.4 – 99.9%.

 Client’s annual cost per logical server is within the market range and is in-line
with the market average.

 This result indicates that this is an area where Client has an opportunity to
potentially save costs through a competitive bidding and negotiation process.



Sample Results
Client Minimum Savings Maximum Savings
Service Tower
Expenditure ($000's) $(000's) Opportunity $(000's)

Server – Type A $ x,xxx $ -$ x,xxx

Server – Type B $ x,xxx $ - $ -

Server – Type C $ x,xxx $ -$ xxx

Desktop $ x,xxx $ xxx $ x,xxx
High Level
E-Mail $ xxx $ -$ x

Infrastructure Servers $ x,xxx $ -$ xxx

Storage $ x,xxx $ -$ xxx

Network - LAN $ x,xxx $ -$ xxx

Network - Voice $ xxx $ -$ xxx

Network - Contact Centre $ x,xxx $ - $ -

Total Savings Opportunity $ xx,xxx $ xxx $ x,xxx



Sample Results
ACME Peer Group
Tower
Monthly Total Monthly Total
Unix Servers $2,015,971 $1,938,900
Wintel Servers $2,055,425 $2,002,300
Linux Servers $133,103 $130,900
HP Non Stop Servers $265,210 $300,000
Teradata $6,647 -
Intermediate
Batch $217,668 $200,118
Migration $24,617 -
Middleware $364,021 $344,200
Midrange Hardware $1,169,690 $1,096,795
Out of Scope – Adjustments not applied to
Resource Units
Total $6,252,353 $6,013,213
ACME total as a percentage of Peer Group total 103.98%
Percentage Delta for Monthly Total 3.82%


The Role of Contractual Benchmarking

…to the
Traditional view is
Transformational
changing…
view
An accepted …but also a
management strategic tool for
tool for clients to clients and
gauge the cost- service providers
and quality- to mutually
competitiveness enhance the
of service sourcing
delivery… relationship



Win-win situations occur when all parties work together
transparently and coherently.
Must demonstrate to their client
the full value of their services
and quantify opportunities Must ensure they obtain a
where changes to technology, holistic view of the services
processes or business they receive, and
requirements would understand the root
enhance the value they causes of any gaps
deliver, or allow the identified
service provider to
deliver more
profitably

Need to have a detailed methodology, broad reference data
and experience to analyse complex environments and handle
unique features


Using Benchmarks to Drive Change

Efficiency
improvements Effectiveness
improvements

Efficiency and
effectiveness savings

► A standard services-based transformation model is characterised by “pay-as-you-go” utility
computing, transparency into billing and consumption, and effective demand management.

► Service providers leverage the ability to deliver economies of scale.

Building a Benchmark Price
Remaining opportunity with
unidentified cause
Benchmark Each constraint which cannot be identified in
Uncontracted
Price the contract but which is accepted as a cause
Constraints
for an increase in delivery cost
Historic
Investment
Any charges still to be paid for services already
Contracted delivered by the service provider
Constraints
Total Spend Client Specific Each constraint identified in the contract which
Services causes an increase in the cost of delivery
CLIENT
Any service not commonly found in other
Standard Service organisations, and therefore no comparator
prices exist. Valued through discussion of the
(normalised for costs with the service provider and client.
scope, size,
complexity & The most efficient and effective environments
service level) in the market relating to the scope that is being
benchmarked – described purely in output
terms.



Setup + do it
In Summary
Right ► Negotiate benchmark clauses where it makes sense
► Contract benchmarking can be a positive experience if the client,
service provider and bench-marker all work together transparently
and coherently.

No one is
► Change initiatives based on standard service delivery models can
deliver significant client savings and allow service providers to improve
Left Out margins by leveraging economies of scale.
► Clients can reinvest savings with service provider on other initiatives

► Use of well classified, and detailed benchmark data
Get the data uncovers the source of performance issues and defines the
Right potential scope of the improvement opportunity.


Discussion


Questions?


Benchmarking Market Pricing

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