What is TBM?

Technology Business Management connects tech investments to business value

Topic

Technology Business Management

Measuring IT Value with TBM

Many organizations start (and end) analysis of IT value with spend metrics. There’s goodness in an all-up view of IT actuals to budget, but it’s an invitation for further analysis rather than an endpoint (e.g., “What’s driving variance? Which cost centers are outliers? Which parts of IT are poorly optimized?”).

Other organizations blend financial and operational data for more insightful calculated metrics. IT Finance takes extracts from the corporate financials and layers in the IT context from a CMDB, project lists, IT asset database, and service desk systems.

IT needs to measure, optimize, and operationalize management practices for IT spend—both for traditional on-prem solutions and the emerging majority of cloud-based IT.

Companies adopting Agile development at scale must fund both a value stream or product and measure the value it delivers. It was much easier when an entire department or cost center worked on a project that delivered a business outcome. Today, teams are striped across program increments (PI) that combine labor and tooling to produce a result.

Traditional IT financial management (ITFM) practices struggle to support the needs of decentralized teams across multiple PIs. The TBM value management framework snaps stakeholders and strategy, whether through projects or products, into one single source of truth.

Speed to market is an IT value that depends on Agile ways of working. Agile development models depend on public cloud services that scale on demand but come at a cost. In the meantime, organizations must still manage, modernize, and rationalize existing technologies while optimizing costs. Technology leaders must ensure people and teams are working on the best business outcomes, demand innovation at the speed of the business, and confirm precious capital is being invested to create leverage for the business.

Measuring IT value is a metric-driven endeavor (e.g., TCO of apps and IT), but the outcome from defensible metrics is a change in the conversation with the business around trade-offs, IT complexity, and variable spend—particularly from cloud solutions.

As cloud computing continues to take precedence in IT strategies, integrating cloud cost management within the TBM framework becomes imperative. This addition aims to extend the principles of TBM to address the unique challenges and opportunities presented by cloud services. By doing so, organizations can ensure a more comprehensive approach to optimizing IT spend, leveraging the scalability and flexibility of cloud solutions while maintaining control over costs and maximizing value to the business.

TBM provides a structured approach to not only managing traditional IT investments but also embracing the dynamic nature of cloud spending, ensuring that every dollar spent is aligned with strategic business objectives.

TBM: The Discipline

Once the domain of tech companies like Cisco, Microsoft, HPE, and Red Hat, TBM is now adopted by enterprises in every industry, such as banking, healthcare, manufacturing, government, and more, independent of maturity and size. Increasingly, every company is becoming a technology company. More and more value is being digitally delivered to customers directly through the application of IT.

TBM provides data-driven decision-making to manage, plan, and optimize costs, value, and quality of all technology investments.

TBM Framework

Ideally, Technology Business Management adoption begins with a strong financial foundation and then works within a framework to ensure complete business alignment for all technology investments.

By starting with the basic financial baseline and working toward the ability to communicate and chargeback, companies can also include any of the specialized pillars they need.

TBM Taxonomy

TBM provides a common language that normalizes tech and business speak to connect IT to the business. TBM’s standard hierarchical taxonomy of IT services, towers, and cost sources promote alignment between IT, finance, and business unit leaders.

The TBM Council governs and maintains the TBM taxonomy.

TBM Model

A TBM model requires a data-driven method for mapping and allocating costs and resource consumption from their sources to their uses—powering value conversations with reports, analytics, and metrics.

Cost allocation is an integral part of TBM. Visibility and trust into the fully-loaded cost and quality of IT services requires a defensible allocation of IT costs through a TBM model. TBM relies on trustworthy data. When data quality comes into question, stakeholders doubt the output.

Common allocation strategies fall into six major categories:

Even spread
Manually assigned percentage
Manually weighted
Direct spend weighting of shared expenses
Consumption-based
Multi-dimensional

TBM Metrics

TBM’s top-down approach to business value abstracts a lot of operational detail.

Application rationalization (AppRat) is a key initiative for many TBM practices. First, segment applications (by revenue driver, by revenue supporter, and KTLO), then determine the action to take in each segment (invest to maximize performance, optimize performance and cost, and minimize cost to meet SLAs).

The KPIs for AppRat success are not technical—or particularly complicated. Successful AppRat initiatives shrink portfolios, remove duplicate business capabilities, and cut application spend. Anyone with or without an infrastructure and operations background understands those metrics. However, baselining application costs is not easy. Asserting that you’ve cut total application spend depends on knowing what your costs were before the rationalized effort. That isn’t a given.

An IT cost model built on a TBM taxonomy with defensible cost allocations (from a general ledger, through on-prem infrastructure, and up to applications and services) is a prerequisite for confidence in business value metrics. AppRat is a business value conversation, but you need operational and financial detail within TBM to have it.

TBM metrics incorporate the needs of product-led value workstreams. Agile metrics monitor productivity across the software development lifecycle, but product portfolios are ultimately judged for the time between the request for delivering a product and actual delivery. Product managers require a trendline of business value delivered by portfolio per quarter. This helps improve time estimates and flag resource constraints if business needs outstrip a team’s productive hours. Measuring and monitoring business value output enables product managers to meet delivery commitments.

TBM looks at four broad KPI categories:

Cost-for-performance KPIs help IT continuously improve the cost efficiency of its services while maintaining quality.
Business-aligned portfolio KPIs enable IT to focus its time and resources on the services, applications, technologies, and vendors that drive the most value for the business.
Investment in innovation KPIs helps IT and its business partners to better govern and collaborate on the right level of project spending.
Enterprise agility KPIs facilitate the creation of a more agile cost structure for IT and accelerate effective decision-making.

Underpinning these categories are 10 specific metrics:

Financial fundamentals

IT Spend vs. Plan (OpEx and CapEx variance)
Application and service total cost
% of IT spend on cloud

Delivery

Product lead time
Business value delivered by portfolio per quarter

Innovation and agility

% of IT investment on run, grow, and transform-the-business
% of project spend on customer-centric initiatives

Business value

IT spend by business unit
Customer satisfaction scores for business-facing services
% of IT investment by business initiative

TBM informs about all IT costs with general ledger data (e.g., labor costs, licensing, revenue), and operational data from on-prem (e.g., BMC TrueSight), private cloud (e.g., vRealize) and monthly cloud.

TBM and FinOps: Enhancing Cloud Cost Management

As organizations navigate the complexities of technology investments, the integration of TBM and FinOps emerges as a crucial strategy for enhancing cloud cost management. This synergy aligns with the overarching goal of TBM to facilitate data-driven decision-making in managing, planning, and optimizing the costs, value, and quality of all technology investments, while FinOps focuses specifically on the financial aspects of cloud services.

The fusion of TBM and FinOps principles offers a comprehensive approach to tackle the unique challenges posed by cloud spending. Cloud computing, characterized by its scalability and flexibility, demands a dynamic approach to financial management. The integration ensures that organizations can not only keep pace with the rapid changes in cloud services but also optimize these investments to align with strategic business objectives.

This approach extends the TBM framework to encompass the operational and financial nuances of cloud services, enabling organizations to:

Optimize Cloud Costs: By applying FinOps principles within the TBM framework, organizations can achieve a granular understanding of cloud usage and spending, identifying opportunities for cost savings and efficiency improvements.
Align Spending with Business Value: It ensures that cloud investments are directly tied to business outcomes, maximizing the return on investment and aligning IT spending with strategic goals.

Enhance Agility and Innovation: By managing cloud costs more effectively, organizations can allocate resources more strategically, fostering innovation and agility in a competitive landscape.
Incorporating FinOps into the TBM framework not only enhances visibility and control over cloud expenditures but also facilitates a culture of cost accountability across IT and finance teams. This collaboration is vital for driving optimal financial and operational performance, ensuring that every dollar spent on cloud services delivers maximum value to the organization.

TBM and Unit Economics

TBM delivers a fully burdened and accurate unit economic cost of IT, laying the groundwork for organizations to assess the revenue generated from a single unit of business against the cost to service it. This evaluation is pivotal for unveiling the business value of spend, highlighting the direct impact of strategic decision-making frameworks, like the integration of TBM and FinOps, on unit-level economics.

Unit economics is critical for organizations to:

Determine Revenue and Cost Relationships: By understanding the unit economics of IT services, organizations can identify the profitability of specific services or products, guiding strategic decisions on where to invest or cut back.

Reveal Business Value of Spend: It translates IT costs and quality into business-oriented KPIs, such as cost per transaction in a banking context or cost per patient day in healthcare, offering a clear picture of how IT investments contribute to business objectives.

Support Strategic Decision Making: The integration of TBM and FinOps principles enhances the accuracy and relevance of unit economic calculations, particularly in environments with significant cloud spending. This precision supports more informed strategic decisions, aligning IT investments with business value.

Organizations often want a singular metric that encapsulates IT cost, quality, and value in a business-centric KPI. However, unit economics are inherently organization-specific, reflecting the unique operational realities and strategic priorities of each enterprise. For example, hospitals might measure cost per inpatient day, while transportation companies may evaluate cost per mile.

The refined focus on unit economics, bolstered by the integration of TBM and FinOps, provides a nuanced understanding of how technology investments impact the bottom line. This approach enables organizations to navigate the complexities of modern IT landscapes, ensuring that strategic investments in technology drive tangible business outcomes.

In essence, the dedication to understanding and optimizing unit economics, within the context of TBM and enhanced by FinOps, offers a path to not only managing but maximizing the value of technology investments. This strategic alignment ensures that organizations can effectively measure, manage, and communicate the value of IT in terms that resonate across the business.

A Dedicated System for TBM

TBM isn’t scalable if, once operationalized, it requires too much ongoing effort. When a process is too hard to support, organizations reverse engineer a rationale to not do it. The world becomes more complicated as the new IT operating model footprint expands—complicated, but rich with innovation and agility. At the point where stakeholders need governance the most, organizations often reject the process because “it’s too complicated and we don’t have time for it.” If you do the same manual steps forever, you’ll never get better, and you’ll burn through so many cycles that business partners fail to see the value in what you are doing. TBM must be scalable and robust in the face of change—with low manual effort and high automation.

Pre-requirements for a dedicated system for TBM include:

Ingestion, aggregation, and normalization of data from virtually any financial or operational source with minimal effort.
A standard cost model to provide the financial information needed to allocate costs and track consumption.
Data quality improvements over time.
Self-service business intelligence tools and a single source of truth.

TBM Automation Framework

Apptio, the technical advisor to the TBM Council, offers solutions to serve the most pressing needs of CIO and IT leaders. Apptio solutions give you the power of trusted, actionable insights to connect your technology investment decisions to drive better business outcomes.

ApptioOne unifies financial and operational data into a unified model built on the industry-standard taxonomy of cost categorization. Utilizing sophisticated allocation rules along with focused metrics and KPIs, we enable organizations to answer the most strategic questions about investments and accelerate budgeting and forecasting processes.

Apptio Cloudability connects multi-cloud, hybrid, and SaaS infrastructure with cloud financial management best practices to maximize the value of a cloud strategy.

Apptio Targetprocess empowers businesses to adopt and scale Agile across the enterprise. Targetprocess aligns development resources to business outcomes and plans and tracks value delivery for projects or products.

The Apptio TBM Unified Model

The Apptio TBM Unified Model® (ATUM®) standardizes the financial information necessary for IT leaders to manage their technology business. ATUM is ingrained in Apptio’s SaaS applications and incorporates the TBM Taxonomy, the backbone of the TBM discipline.

An Integrated Approach to Technology Business Management

Apptio is the only solution in the market that provides a TBM automation framework via an integrated platform. Apptio’s enterprise management platform provides the following benefits:

Ingests, aggregates, and normalizes data from virtually any financial or operational data source, with connectors to your existing financial systems for general ledger and fixed asset data and your service management data (e.g., ServiceNow) to speed implementation with minimal effort.
Leverages the Apptio TBM Unified Model™, an industry-standard cost model that provides financial information necessary to allocate costs and model utilization.
Provides powerful tools to help you improve your data quality over time, benefiting not only TBM but also your underlying processes such as cybersecurity or asset management.
Empowers stakeholders via self-service business intelligence so that people across your enterprise can make decisions based on the same set of facts.

Meanwhile, Apptio provides important product features that help you create value from TBM more quickly:

Machine learning to accelerate the mapping of general ledger data to cost pools, speeding configuration and automating data normalization, categorization, and mapping.
Proactive insights to automate the extraction of information and best practices collected from across the Apptio community to surface and track optimization opportunities.
Interactive benchmarking data as a means for more frequent cost comparison with your peers.

Apptio offers a unique, complete system to manage your technology business. Rooted in your corporate financials, it surfaces the insights you need to drive the IT operating model change the business needs to be successful.

TBM Success Stories

Lowe’s TBM model allocates approximately 80% of technology spend to products.

Secret Service’s compliance for FITARA scores went from 50% at the start of TBM to 100%

How UBS is Using TBM and FinOps to Successfully Enable their Cloud Journey