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The Application TCO Journey
1. Application Total Cost of
Ownership (TCO) Journey
ITFMA – Atlanta
July 15, 2015
Pete Hidalgo, Shashank Aggarwal
2. Page 2
Agenda
► Current challenges faced by clients
► EY’s ITFM Journey
► The Applications Challenge – “App TCO” Journey
► App TCO model
► Benefits
► Sample outputs
3. Page 3
Current challenges faced by clients
We often find that there are multiple executive level stakeholders with varying needs
and priorities for their IT organizations that must be understood and addressed.
► Increase the value received from IT
► Make sure IT is supporting the business strategy
► Measure and manage IT appropriately
► Use IT to improve the business
► Have a common language for communicating with IT
► Make IT a part of the team
► Demonstrate the value IT provides to the business
► Secure the resources IT needs to deliver results
► Have a place at the executive table
► A common language for communicating with business leaders
CEO/CFO
Senior Business
Leaders
CIO/
Senior IT Leaders
Stakeholders Stakeholder priorities for IT
To overcome many of these challenges, EY has developed
the ITFM journey
4. Page 4
The EY IT Financial Management (ITFM)
Journey
EY’s ITFM journey provides a clear and easy to follow path to enable the delivery of cost
effective services to the business, improve transparency and increase satisfaction.
Step 1
Current state
assessment
Step 2
Service definition
Step 3
Unit service
costing
Step 4
Metrics and
reporting
Step 5
Chargeback model
Step 6
Bill of IT
Transparency
Cost efficiency
Customer
satisfaction
Step1ofyourITFMjourney
istounderstandwhere
youareandwhereyou
needtogo
5. Page 5
The Applications Challenge
Based on our experiences, we have identified that Applications comprise ~50% of total
IT Budgets and close to 60-65% of simply Run-the-Business type spend. With such
significant spend in a single portfolio, it is critical for management to understand the
customer use, drivers and costs for individual application sub-portfolios.
Staffing
Enablement, 9%
Application
Delivery & Support,
46%
Site & Business
Enablement, 9%
Enterprise Support,
8%
New Initiatives
(Grow), 13%
New Initiatives
(Transform), 16%
Service Portfolio View
To assist with
the Applications
challenge, EY
has developed
an App TCO
Journey
6. Page 6
The EY Application TCO Journey
EY’s Application TCO journey enables visibility and transparency into applications
portfolio costs, key customers & drivers and potential areas for rationalization.
Step 1
Current state
assessment
Step 2
Application Inventory
Step 3
Application & Unit
Service Costing
Step 4
Chargeback
Step 5
Application
Rationalization
Visibility
Transparency
Cost Reduction
potential
7. Page 7
Step 1 – Current State Assessment
Need to know where you are at before taking next step
Focus on this initial phase is to determine availability and quality of current
application data to build a robust application inventory. Some of the key activities
during this initial phase include:
• Collection of existing application data
• Identify application owners
• Collect application usage and cost data
• Identify service owners
• Collect service usage and cost data
• Interview key stakeholder and owners to identify gaps
• Determine format for collecting and maintaining application and service data
• Build an application inventory (refer to Step 2 for fields considered necessary)
Key Point to note:
1. There is no one way of creating an inventory however Asset Management tools, stakeholder
discussions with individual Application owners, “company veterans” all play key roles in pulling
together a complete inventory
8. Page 8
Step 2 – Application Inventory
It is essential to capture certain data in order to do TCO
Sample fields that are considered necessary for a true inventory:
• Application Name
• Description / Purpose
• Application Type (internally hosted, externally hosted, SAAS etc.)
• Owners (IT and Business)
• Utilized By (covering location, business departments and # of users)
• Infrastructure components (covering Compute, Storage, Data Center, Database,
Middleware, Cloud etc)
Both Type and Usage Quantity (2 Virtual servers, or CPU seconds for Mainframe)
• Application Development & Maintenance components (covering Labor, Contractors, 3rd
party or Managed Services type, Software Licensing & Maintenance agreements etc
Focus on annual run costs, likely termination costs and licensing model
Key Point to note:
1. Initially define all applications at lowest level possible, then look to group these individual
applications based on business usage
9. Page 9
Step 3 – Application and Unit Service Costing
Standard rate cards promote consistency & reliability
Application TCO approach leverages a rate card for the infrastructure components
plus any direct cost attributable such as Software Licensing, Dep’n and any 3rd Party
Labor. A sample basis is shown below.
Key Points to note:
1. Application TCO leverages principles of Activity Based Costing (Direct Cost assignment and
Indirect Cost allocation based on a driver best suited to capture usage)
2. Critical to identify fixed vs. variable spend %’s
Cost Components Calculation Methodology Unit of Measure
Compute:
Mainframes
CPU sec cost * # of CPU sec # of CPU sec
Compute: Servers Server cost * Proportion of total App servers # of Servers
Storage & Back-up Storage Cost * Proportion of total storage capacity # of GB
Database DB cost * Proportion of total DB systems # DB Systems
Data Network Proportion of DC Network Costs * Proportion of total App servers # Servers
Data Center Total DC cost * Proportion of total App servers # Servers
Integration Direct cost of integration for each application Direct cost
Labor Average cost of employees (FTE/Agency) * Total Effort # FTE (Effort)
Software License cost Direct cost
Depreciation Direct cost of depreciation for the application Direct cost
M’ged Services Contract Employee + License Cost (for 3rd party services / SAAS) Direct cost
Infrastructure unit
rates driven from
Global costs (all
cost categories) and
unit volume
supported
Typically, Direct Cost
10. Page 10
Step 4 – Chargeback model
Primarily for Corporate internal re-charge purposes
Chargeback to users can be based on a number of drivers and is primarily driven by
data availability and cost of the Application. Some of the key drivers are shown below.
Key Point to note:
1. Consumption based chargeback is ideal to provide transparency to business users and drive the
right behaviors
Role-based / By Users
Business Value (e.g.
Revenue $,
Cost $)
Direct to Customer
(such as Line of
Business Software)
Generic (By PC’s or
Headcount)
11. Page 11
Step 5 – Application Rationalization
Evaluates process alignment, app criticality & value
Focus is on understanding the business function and supporting processes that each
application provides. An enterprise-wide business process framework enables alignment
and promote consistency. An example of 2 level business process framework is shown
below.
Secondly, Application criticality & value assists in determining the recommended future
use of the Application to better manage portfolio and pro-actively conduct portfolio
planning
• Sample criticality & value classification would be: Strategic, Discrete, Tactical,
Disadvantage
Key Point to note:
1. ADM activities and hence costs are sometimes captured within Business Units budgets (and not IT).
This step also assists to identify and capture such costs.
1.0 Talent
Management
1.1 Workforce
Planning
1.2 Recruiting
1.3
Onboarding
12. Page 12
Step 5 – Application Rationalization
Snapshot provides immediate focus areas
A sample deliverable from such analysis would be:
Note: Size of bubble measures the criticality and value of application to the business users (i.e. alignment with
business processes at present and expected in future). Colors represent different Business Groups.
Re-engineerRetire
MaintainRemediate
13. Page 13
Benefits realized
EY’s approach involves a detailed understanding of each portfolio’s current state,
business capabilities desired, strategic decision criteria, and timeline for realization.
Business
Objectives
Obstacles Outcomes
Reduce Costs
• Lack of cost visibility (seeing the cost of consumption)
• Regional or other process variations
• Capex spend encouraged over Opex driving new
demand
• Rationalized application
portfolio
• Standardized and uplifted
technologies
• Standardized processes
• Converged and standardized
solutions
• Improved governance
• IT costs reduced
Increase IT agility
and effectiveness
• Application proliferation
• Platform and process variations
• Disintegrated point solutions
Reduce business risk
• Unsupported technologies
• Risk associated with edge application
14. Page 14
Summary
1) The App TCO approach is a standardized, quantitative
method to bring transparency and visibility into Total
Cost of Ownership and a starting point for application
rationalization discussions
2) Collaboration and Business Partner Input is key to
success of any application technology rationalization
initiative
3) “This is a marathon not a sprint”
16. Page 16
Peter Hidalgo, Jr
Senior Manager
IT Transformation
Advisory Services
Ernst & Young LLP
5 Times Square
New York, NY 10036-6530,
United States of America
Pete.Hidalgo@ey.com
Mobile: 973-223-5616
Education
West Point - USMA
BS – Engineering
Columbia University
MBA
Certification(s)
PMP
ITIL Financial Management
► Senior Manager with over 20 years of experience in I.T. Financial Management, Telecom and I.T. infrastructure,
Cost Optimization, Program Management, and I.T. Shared Services Transformation.
► Deep industry experience in managing and optimizing I.T. costs. Previous responsibilities included serving as the
Global I.T. Financial Manager for a Fortune 100 company, where he managed an annual operating budget of over
$100 million. In that role he also developed and implemented an ITIL based service costing and chargeback
process, resulting in improved client satisfaction and major, recurring cost savings.
► Currently serves as the I.T. Financial Management Service Leader within Ernst & Young’s IT Advisory practice
Relevant experience
► Assisted a Fortune 50 global manufacturing client with redesigning their current IT allocation model and
processes for over $1 billion in annual spend
► Advised a Fortune 50 pharmaceutical client with improving their IT financial management processes, cost
transparency, data management, chargeback model redesign, service owner framework, and automation
► Advised and assisted a leading media and entertainment company to transform their IT operations into a shared
services model encompassing 11 major service domains. Also assisted in the development of a data center
strategy, a WAN architecture review, and a detailed IT service cost analysis, to include the development of a
service catalog, and a chargeback model.
► Assisted in an IT infrastructure (voice, data, and data center) strategic assessment and financial analysis for a
Fortune 500 corporation, which resulted in identifying the strategies to improve network and data center
performance and availability, in addition to saving $32M - $53M over three years in IT operating expenses.
► Supported an IT Cost Optimization study for the premium spirits and wine supplier in the U.S., which addressed
their telecom and infrastructure spend. Identified annual savings of 10% to 19%.
► Advised in the strategic assessment of the voice and data networks for a Fortune 500 high tech manufacturing
firm, which resulted in a new technology direction (VOIP) and Identified over $9M in annual savings.
► Assisted in performing an IT Operations strategic assessment for a Fortune 100 manufacturing corporation,
focusing on data center consolidation. Developed data center consolidation and disaster recovery strategies, in
addition to Identifying over $5M in annual savings.
► Advised a leading medical device manufacturing company in the evaluation of their outsourced infrastructure
service contracts, resulting in overall savings of $5M - $6M, or 35% - 45%.
► Assisted a Fortune 100 consumer staples company with the assessment of their wireless telecom services
contracts, resulting in overall savings of $6M - $9M, or 45% - 55%.
17. Page 17
Shashank Aggarwal
Manager
IT Transformation
Advisory Services
Ernst & Young LLP
5 Times Square
New York, NY 10036-6530,
United States of America
Shashank.Aggarwal@ey.com
Mobile: (646) 642-6756
Education
Monash Uni, Australia
Certification(s)
PMP
ICAA
► Manager with over 12 years of Global experience in data-driven Business Transformation, IT Shared Services
Transformation, IT Financial Management and Program Management.
► Deep industry experience in managing and optimizing IT costs. Previous responsibilities included serving as the
Global IT Finance Controller for a Fortune 500 company, where he managed an annual operating budget of over
$50 million. In that role he also had responsibility for all commercial management including contract
management and vendor management.
► Key team member of Ernst & Young’s IT Financial Management practice
Relevant experience
► Assisted a Fortune 50 global manufacturing client with redesigning their current IT allocation model and
processes for over $1 billion in annual spend.
► Managed the IT Service Management Office and Finance Management functions at a leading medical device
manufacturer ($3B+ in revenue). Responsibilities included implementing ITIL V3 based ITSM processes and
developing a service costing framework to allocate IT costs to business partners based on actual consumption.
► Steering Committee member for a “Smart Retail” program focused on customer advocacy and increasing
customer value at a leading airline. He was a major contributor to developing data mining techniques using
marketing concepts of customer profitability and customer lifetime value.
► Managed the development and implementation of a transformation plan for the North American operations of a
Global HR staffing organization. Focusing on sales business processes and enabling IT systems, the project
redesigned over 50 core business processes, and developed a new operating model for the sales, delivery, and
customer service functions.
► Managed the redesign of a Billing Inquiry and Claims Management function responsible for the “Order-to-Cash
cycle” at a global telecom company. Leveraging Lean Six Sigma principles, the project involved moving from a
de-centralized to a customer-centric structure with an enhanced claims management system. Completed within
nine months, the project resulted in revised customer service processes, including root cause analysis, and
improved productivity measures; 38% reduction in claims volume, 27% reduction in processing time, and $8.1M
in headcount savings.
► For global telecom equipment manufacturer, led an assessment covering accounting, financial reporting and
internal controls processes to identify opportunities for savings by redesigning financial processes. Cost savings
identified included eliminating ‘shadow’ finance personnel and designing a revised project accounting system to
provide real-time project profitability and project risk reporting.
