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Fixed Costs are costs that cannot be influenced; they will be the same even when services will stop. Examples are: Rent; salaries; insurance; s/w license fees; utility charges; fixed price contracts; mainframes; h/w maintenance contracts; depreciation. Variable Costs follow changes in business activity. E.g. overtime; consumables; telecom charges; fees for contractors; expenses; utility consumption charges; short term lease/hire. Since variable costs follow changes in business activity, there has been a trend in recent years towards converting fixed costs into variable costs. Direct Costs are costs that can be allocated to one specific department or service like some application software; dedicated hardware; dedicated support teams. Indirect Costs are costs that can not be allocated to one specific department or service but that have to be divided among more departments and/or services. Examples are overhead; HQ; systems software; Service Desk; accommodation; networks; depreciation & maintenance; fees for multi-service computers. Correctly identifying whether a cost is a direct or indirect cost is important when defending budgets. It is easy to demonstrate that a cut to direct costs will direct affect the quality of service delivered. Indirect costs lend themselves to being cut on a set percentage of the existing budget and it is hard to demonstrate how such a cut will affect services. Capital Costs are typically costs applying to the physical (substantial) assets of the organization. Traditionally this was the accommodation and machinery necessary to produce the organization’s products. Capital Costs are the purchase or major enhancement of fixed assets, for example computer equipment (building and plant and are often also referred to as ‘one-off’ costs). It is important to remember that it is not usually the actual cost of items purchased during the year that is included in the calculation of the cost of the services but the annualized depreciation for the year. Operational Costs are those resulting from the day-to-day running of the IT, e.g. staff costs, hardware maintenance and electricity, and relate to repeating payments which effects can be measured within a short timeframe, usually less than the 12-month fiscal year.
Poorly managed demand is a source of risk for service providers because of uncertainty in demand. Excess capacity generates cost without creating value that provides a basis for cost-recovery
3 itil v3 service strategy v1.8
De sig n
ITIL V3 Core Framework – Service Strategy
Planning and implementation
of IT Service Management
practices and their alignment
to business needs.
Service Strategies (SS)
SS will appeal to those who have the need to understand strategic
analysis, planning, positioning, and implementation with respect to
service models, strategies and strategic objectives.
It provides guidance on how to leverage service management capabilities
that can effectively deliver value to customers and capture value for service
Decisions about service portfolios, capability development, operational
effectiveness, organizational models and the importance of knowledge
assets are some of what Service Strategies will provide guidance on.
Main Target Audience:
– Senior Leadership of customers and service providers.
– Service Managers and operations managers.
Service Strategy (SS) – Key Terms
Business Case : Justification for a significant item of expenditure
Capability : The ability of an organization, person, process, application, Configuration
Item, or IT services to carry out an activity.
Process Values : A process is a set of coordinated activities combining in order to
produce an outcome, which, directly or indirectly, creates value for an external
customer or stakeholder.
Resource : A generic term that includes infrastructure, people, money or anything else
that might help to deliver an IT service.
Risk : A possible event that could cause harm or loss, or affect the ability of achieved
Service Catalog : A database or structured document with information about all live IT
services, including those available for development.
Service Portfolio : The complete set of services that are managed by a service
Service Strategy (SS) – Key Terms
Utility : Functionality offered by a product or service to meet a particular need.
Warranty : A promise or guarantee that a product or service will meet its agreed
Service Utility : The functionality of an IT service form the customer’s perspective.
Service Warranty : Assurance that an IT service will meet agreed requirements.
Value Chain : A sequence of process that creates a product or service that is of value
to a customer.
Value Network : A complex set of relationships between two to more groups or
“A means of delivering value to customers by facilitating outcomes
customers want to achieve without the ownership of specific costs and risks.
What creates VALUE?
– The value of a service resides in the combined effects of two criteria:
Utility & Warranty
Utility – Fitness for purpose
• Functionality offered by a Product or a
Service to meet a particular need.
•Utility is often summarized as “what it
Warranty- Fitness for use
• A promise or guarantee that a Product or
a Service will meet its agreed requirements
(”how it is done”).
• Characteristics of warranty are defined in
terms of Availability, Capacity, Continuity
Capability & Resources
Service Management is a set of specialized organizational
capabilities for providing value to customers in the form of services.
Capability is the ability of an organization, person, process, application
configuration item or IT services to carry out an activity.
Resources is a generic term that includes IT infrastructure, people,
money or anything else that might help to deliver an IT service.
Service Assets & Stragegic Assets
Service Assets : A Service Asset is anything that could contribute to
the delivery of an IT service.
A Service provider’s capabilities & resources
People, Processes, Knowledge and Infrastructure
Service Assets that support strategic objectives
Service Management is a strategic asset
An IT organization owns 9 types of assets:
– Financial Capital
Service Provider Types
There are many different strategies and service providers within the
There are 3 main types of service providers which are:
– Internal Service Provider
– Shared Services Unit
– External Service Provider
Type I - Internal Service Provider
Internal Service Provider is normally part of the enterprise that is
This type of service provider exists or can exist within an
organization solely in order to deliver service to one specific business
Typically it is funded as an overhead allocation against the Business
Units it supports.
Its objective is to provide cost-optimized services in support of
technology-enabled business processes.
Type II - Shared Service Unit
Shared Services Provider is typically grouped with other functions
shared across the enterprise.
Dedicated to service multiple business units in the same
While providing its services to the enterprise it is in a position of being
forced to compete directly for its customers
Often Shared Services are not considered strategic to the enterprise
so do not enjoy many of the same protections as an Internal Service
Type III - External Services Unit
External Service Provider is not part of the enterprise
This service provider is the wider one and operates as an external
service provider serving multiple external customers
It provides IT services to the business for a fee
It is able to lower costs through the aggregations of demand for it
service by a number of different customers. While this allows it to drive
down costs, it limits its flexibility in situations that require flexibility in
the functionality of its services
– Vertical Integration & Coordination of Dedicated Assets
– Relationships That Generate Value
Two or More Organizations
Service Strategy Fundamentals
Deal With Complexity, Uncertainty & Conflict
Discern Patterns & Project Trends
Consider All factors & Their Relationships
Understand Underlying Principles & Basic Theory
Processes - Service Strategy
Service Portfolio Management
Strategy Generation delivers guidance on formulating a Service
Strategy in terms of all life cycle phases
To ensure the four main activities of the Strategy Generation process
are performed to ensure long term success for the customer.
The 4 Ps of Strategy
All key concepts to Service
management strategy can be
allocated to one of four strategy
The four P's of Strategy are :
– Have a clear vision & focus
– Take a clearly defined stance
– Form a precise notion on how the
organization should develop itself
– Maintain consistency in decisions &
The 4 Ps of Strategy
Perspective: where the service strategy is articulated as a mission
statement or vision statement.
Position: where the service strategy is expressed in a specific way
that allows comparison between competitors.
Plan: where the service strategy is asked as a question.
Pattern: where the service strategy is defined as a consistent set of
activities to be performed in a defined period of time.
Strategy Generation – Main activities
Four main activities of the Service Strategy process are:
– Define the Market
– Develop the offerings
– Develop Strategic Assets
– Prepare for Execution
Define the Market
Customers and Opportunities
– To understand the customers and opportunities in terms of services.
Understand the Customer
– How to provide value?
– Enable / enhance the performance of business assets better
Understand the opportunities
– Are there poorly-supported outcomes? Which outcome could be
– Establish relationships : service assets and customer outcomes
Classify & Visualize the Services
– Classify and visualize the services offered by the IT organization based on how they
provide value for a specific Customer asset.
Develop the offerings
– A Market space is a set of opportunities for service providers to deliver value( by
enabling or facilitating the outcomes)
Definition of Services
– A clear service definition should specify:
The context in which the resources apply
The business outcomes that justify the expenses from a customer perspective.
Breakdown the service components
– Breakdown the service components into discrete elements
Actionable tasks that can be assigned to different groups within the IT organization.
Develop Strategic Assets
– Set of distinct capabilities that provide superior value to customers through services
– Distinctive performance, core competence and durable available of an IT
Service Provider depends on its Strategic Assets to succeed
Prepare for Execution
The aim of this activity is to formulate a Service Strategy in terms of:
– Service Portfolio
– Service Design requirements
– Service Transition requirements
– Service Operation requirements
Service strategies are executed by delivering and supporting the Service Portfolio.
– The aim of the Service Portfolio is to fulfill the present and future needs of the business and therefore contains
all the present and future commitments made to customers with respect to specific services.
The Service Portfolio represents the commitments & investments made by
a service provider across all customers and market spaces and may
include third-party services.
The Service Portfolio includes the service catalogue and the service
Elements of the Service Portfolio:
– Value proposition
– Business Case
– Costing and pricing
Service pipeline Service Catalogue Retired Service
Service Portfolio Methods
The Service Portfolio should answer the following questions:
– Why should a customer buy these services?
– Why should they buy these services from us?
– What are the pricing or chargeback models?
– What are our strengths and weakness, priorities and risk?
– How should our resources and capabilities be allocated?
The Service Portfolio represents a complete list of the services
managed by the service provider.
– Some of these services are visible to the customers (Business Services, defined by
SLAs), while others are not (Infrastructure Services, defined by OLAs or UCs).
Service Portfolio Management
Objective: To decide on a strategy to serve customers, and to develop
the service provider's offerings and capabilities.
Service Portfolio Management consists of four activities
Deals with collecting information from all existing services as well as every proposed
Every existing (or future) service in the portfolio should include a business case.
– A business case is a model of what a service is expected to achieve.
The information gathered during “Define” process step is revised to maximize the portfolio
value, to align and prioritize and to balance supply and demand.
proposals/plans of this future state/development path per service are authorized or rejected.
Start with a list of decisions and actions items. After communicating them clearly the
organization, these are then correlated to budgetary decisions and financial plans.
KPIs - Service Portfolio Management
Key Performance Indicator (KPI) Definition
Number of Planned New Services
Percentage of new services which are
developed, being triggered by Service Portfolio
Number of Unplanned New Services
Percentage of new services which are
developed without being triggered by Service
Number of Strategic Initiatives
Number of strategic initiatives launched from
the Service Portfolio Management process
Number of New Customers Number of newly won customers
Number of Lost Customers
Number of customers which were lost to
competing service providers
Financial Management – Objectives & Scope
Objectives of Financial Management
– To account for running IT
– To facilitate accurate budgeting
– As a basis for business decisions
– Balancing cost, capacity and SLRs
– To recover costs where required (Charging)
Scope of Financial Management
– Budgeting (mandatory)
Forecasting, control and monitoring of expenditure
– IT Accounting (mandatory)
Enables IT to account for where money is spent on running the department and providing
– Charging (optional)
– Billing customers for services
Budgeting & IT Accounting
– The process of predicting and controlling the spending of money within the enterprise -
consists of a periodic negotiation cycle to set budgets, usually annual, and the day-to-day
monitoring of the current budgets.
– The set of processes that enable the IT organization to fully account for the way its money is
spent, particularly the ability to identify costs by customer, by service or by activity.
It usually involves ledgers and should be overseen by someone trained in accountancy.
– The set of processes required to bill a customer for the services supplied to them. To achieve
this requires good IT Accounting, to a level of detail determined by the requirements of the
analysis, billing and reporting processes.
– Bills must be:
Different Cost Elements
ITIL distinguishes several major Cost Types.
These Cost Types are in a way the categories where an organization
can spend money on.
The following Cost Types are identified:
– External Services
Major type Cost Elements
Hardware Servers, storage, workstations, laptops,
PDAs, printers, networks
Software Operating systems, applications software, utilities
People Recruitment, employment costs, benefits, cars, relocation
costs, expenses, training
Accommodation Offices, power, lighting, water, storage, secure areas
External Services Internal charges from other cost centres within the
Transfer Security services, IT Service Continuity services,
The IT Accounting System — Cost Models
– Fixed and variable
– Direct and Indirect (absorbed and unabsorbed overheads)
– Capital and Operational (Revenue expenditure)
Classification of Cost Elements
– Costs that cannot be influenced; they will be the same even when services will stop
– Variable Costs follow changes in business activity. E.g. overtime; consumables; telecom charges; fees for
– Costs that can be allocated to one specific department or service like some application software; dedicated
– Costs that can not be allocated to one specific department or service but that have to be divided among more
departments and/or services
– Costs applying to the physical (substantial) assets of the organization.
– Costs resulting from the day-to-day running of the IT, e.g. staff costs, hardware maintenance and electricity
– A noncash expense that reduces the value of an asset as a result of wear and tear or age
A cost unit is the basic unit of service that a customer will use or be charged
Cost units need to be items that can easily be measured or seen by the
customer. The different types of cost will be calculated and allocated or
apportioned to cost units.
A simple calculation will include the following steps:
– Identify the direct costs of the service
– Apportion the indirect costs
– Add the two figures together
– Divide by the projected number times that service will be used (e.g. number of
– Add any variable cost
There are 3 types of accounting organization in ITIL:
– This type of organization simply identifies the costs of providing service, and may do some
budgeting. The focus is on measuring performance and conducting investment assessment.
– This is where the organization analyses its full expenditure and investments so that they can be
recovered from the customers – usually in some form of charging. The main focus is on making
customers aware of the true costs of using services.
– This is where the IT department acts as a business in its own right, although its objectives are
set by the organization as a whole. This does not always imply that the department has to make
– Minimize uncertainty in demand
– Provide reliable planning data for Capacity Management
– Avoid unused excess capacity and insufficient capacity
Business Activity Patterns & Users
– Core & Supporting Services
– Differential Offerings
– Service Level Packages