Managing the Cost of IT When IT is the Business

Because for Hosting Service Provider IT is the business, the business depends on accurately understanding the IT costs incurred in providing services and the revenue associated with those services. Understanding how to increase margin by targeting the most profitable services or focusing on the most profitable customers requires an accurate and in-depth understanding of the total costs of those IT services, both while in production and before bidding on a new contract. For these reasons, it is critically important that Hosted Service Providers have robust systems to track the cost of IT, allocate costs to an IT service, manage costs down over time and communicate the cost and performance of IT to key business executives.

Managing the Cost of IT Services

More than any other industry, it is critically important that Hosted Service, Cloud, SaaS Providers understand their cost of IT down to the most granular level. In this case, understanding the cost to provide a service is the matter of positive profitability or loss. Businesses that understand their profitability per service, per customer and per transaction are better at managing their service portfolio and consequently maintain higher profit margins.

Apptio's Technology Business Management (TBM) solution provides the robust enterprise platform to automate the cost management process specific to IT. Apptio provides five TBM applications designed to streamline specific IT Financial Management processes: IT Service Costing, Bill of IT, IT Benchmarking, IT Planning and IT Service Performance. These applications help IT and IT Finance managers manage the cost of IT, systematically reduce cost, improve budgeting and forecasting processes and better communicate the value of IT to all key business stakeholders. Better understanding of service costs enables better management of profits and a proactive capability to drive higher margin bids during the sales process.

Avoid Negative Margin Bids

Hosted Service Providers that have deep understanding of their cost per services, and the ability to quickly and accurately analyze the cost of new services, can ensure high margin bid when bidding on new business. Too often, sales teams get aggressive on bids to win new business, and unknowingly create a contract that the business can not serve profitably. Being able to model the cost of new services on the fly and based on current, real service costs, enables sales managers to make better decisions during the sales process.

A Better way for Cost Reduction

For Hosted Service providers, any cost taken out of IT directly effects the bottom line. Many IT organizations don't have the tools in place to track costs down to the unit level, and how those costs relate to an IT Service or business unit. With a TBM solution, IT managers can use data analytics to deeply understand key cost drivers and find opportunities for easy cost reduction. Domain managers (servers, data center facilities, storage, support) can better manage their costs at a grass roots level. And sophisticated What If analysis enables ROI-based project analysis and a pre-active approach to "cost savings project portfolio analysis." This leads to a culture of Continual Cost Optimization where IT managers across the board are challenged to take cost out of their departments each year and shift more of the IT budget to Change the Business initiatives.