Useful and valuable insights from IT cost data share three characteristics: they are consumable, defensible, and actionable. But knowing what you’re looking for is only half the equation. The other half is knowing where to find them.
There are three areas in your cost model that are typically useful first places to go to find insights on optimization and productivity. While more financially focused, they represent the first places a cost model can be pointed to drive efficiency. Let’s categorize them as Potential Surplus, Purchase Order Burn Down, and Vendor Spend.
Potential surplus focuses on comparing actual spend against planned spend. It’s about getting enough visibility to know how you’re measuring up against your budget, based on changing business conditions, project priorities, and more. This area of exploration offers opportunities to reallocate or move budget around, taking advantage of areas of spend you’re not going to use and putting the money somewhere more useful.
The challenge is that most often a budget or forecast doesn’t easily align to a report on actual spend. Because it is not easy to achieve, many organizations simply don’t do it until the end of a fiscal year, when it is too late to do anything about it. Applying a standard cost model helps to quickly overcome that misalignment in order to get a true comparison and understanding of spend variance.
The IT Finance team at a service provider was following a regular cadence of forecast-to-actuals comparison. Because this was a manual process, the difficulty involved in tracking all of the data forced an “acceptable margin of error” method of calculation; i.e., budgets would often be padded 20% or more to accommodate the lack of management. To unlock this trapped potential, the team knew they had to enable faster reactions to changes in spend and business need.
With Apptio Cost Transparency®, they were able to spend less time aligning actual spend to budget—even at a more granular level—and more time actually using the data to influence business decisions. This focus enabled them to do a more detailed forecast to actuals comparison than they could accomplish with a spreadsheet, which made the data consumable. And because the comparison drilled down to into specifics, it was exponentially easier for the team to track and validate the source of the variance, instead of shrugging discrepancies off as an acceptable margin of error.
This team soon discovered they were underspending significantly in a few areas. This discovery alone, identified a full quarter sooner than they would have the old way, made the data immediately actionable.
Knowing in advance that a few projects weren’t going forward as planned (validated by the PMO) gave the CIO an action: s/he could now go back to the business and say, “Hey, we’re ahead of where we thought we’d be at this point, and we have the bandwidth to take on something else.”
This was IT Finance doing their normal variance thing, but with an Apptio Cost Transparency-driven reporting process whittled down from 2-3 days to 2-3 hours. By rolling up their sleeves, this team was able to explore opportunities to reduce costs, get projects out the door a lot faster, and tackle other projects important to the business.
Purchase Order (PO) burn down looks at the rate at which you are using an approved PO allocation. It’s easier to manage spend when you can easily see where you are against what’s approved and can assess performance details. This information helps identify where you have money left to spend, where you may be overspending, and where you may be able to reallocate resources or budget.
The IT Finance team at a manufacturing company had a PO approval process that was tracked outside of their normal financial system of record. Requests for funds that required a PO (e.g., were above a certain threshold), were put into a separate request management system. The CIO would review these requests weekly to approve funds, and those approved POs would get loaded into the financial system to be leveraged for spend.
Because the systems were disconnected, it was tough to track and get visibility into what was or wasn’t approved. The team couldn’t easily tell how much they’d spent against a PO. Mid-quarter, had they gone too far or not gone far enough? When the CIO got to the end of the year, he’d often find he’d missed out on a percentage of his budget—in this case, almost 2% of his budget in approved PO spend that didn’t end up getting used. This was budget he could have used in other valuable ways. He needed better visibility into who had spent what they said they were going to spend.
Combining this PO system into what they were already doing with Apptio Cost Transparency, this team was able to associate actual spend with approved POs to understand where they were over budget, where there were available funds, and where spend was misaligned or misappropriated. This made the data consumable.
This made it much easier to identify line items that should have been associated with a PO and to track spend against those approved levels. The CIO had enough information to go back to ask questions and gain greater clarity around where there were opportunities to free up money. This made the data actionable.
An interesting thing occurred when POs became more transparent: the team was able to identify multiple transactions for the same vendor or the same kind of item—looking at the same account code, cost center, or vendor. Certain trends became apparent, like invoices that were consistently just under the threshold, month-over-month.
With a little research, the TBMA realized certain vendors were doing work that should have been approved through a new PO but were working instead just below the threshold to do multiple transactions for this amount. She brought this insight to her manager and the leadership level, creating a new decision-making opportunity and highlighting an unexpected benefit of having more control and scrutiny over POs.
Finally, vendor spend is an area ripe for additional transparency and governance. That’s because managing today’s mix of traditional, outsource, and cloud-service vendors have become increasingly complicated. Lack of alignment around spend, contract terms, performance, and renewals often leaves money on the table that could otherwise be used to grow and transform the business
Within IT Finance at a Fortune 100 company, financial analysts were spending 4-5 days analyzing invoices from various service providers, including those for voice, WAN, cellular, video conferencing, and data centers. This intensive, manual process didn’t allow time for real analysis. Instead, the focus was on quickly chopping up the bills and getting them out to the business units so that vendors were paid and the team could look ahead to the next month.
The challenge was that it was difficult (or nearly impossible) to determine if the monthly charges on the invoice were correct. By loading those invoices into Apptio’s Vendor Insights module and allocating them up to business consumers, it became possible—in hours versus days— to see anomalies and incorrect billings. With the data in a more consumable format, the team was able to spend a lot more time doing data analysis—which made the findings more actionable.
Because the team could now track usage to a very detailed level, comparing rates for the same service across geographies, operational units, etc., they were able to identify outliers. When looking at mobile phone use, for example, they realized that various employees were misusing expensive public hot spots. This resulted in the discovery of a $57K case of fraud where an employee’s phone number was compromised.
Better transparency around vendor spend also provided evidence to various providers when there were billing issues. The action here? The team was able to secure a significant rebate from a vendor by identifying that they’d been overcharged for roaming, text, and visual voicemail services.Just as in our previous example, it was the TBMA who did the research and brought the findings to the person responsible for I&O in the department. They were then able to go back to procurement to make the corrections needed.
None of this is possible if you don’t make insight hunting real for your team and your organization. Insights don’t magically appear, so it’s essential that you operationalize your efforts to uncover them. This can’t just be someone’s hobby—data analysis needs to happen on a regular basis. Create an incentive program to reward valuable insights. Track your progress to make sure actions are really happening. Do what you need to do to get your data to the right place.
You’ll be amazed at what you can accomplish when you focus on consumable, defensible, and actionable insights.
Bill Balnave is Regional Vice President of Solutions Consulting at Apptio. This is the second installation in a 3-part series on data analysis. If you’re just tuning in, here’s a quick link to Bill’s first article: Striking gold: How to get useful and valuable insights from your IT cost data.
Want more? Read Bill's next installation in this series on leveraging IT cost data insights, Insights tracking: Define your scope and measure your success