Bill Kasenchar, Director of the Technology and Business Management Office, has been in IT at UPenn for over 20 years, employing technology and standards to foster collaboration across a large, decentralized organization. Here Bill talks TBM, RCM, and how transparency creates opportunities to better manage spend.
Responsibility Center Management (RCM) and technology business management (TBM) both focus on communicating value and providing levers IT consumers can control. Parallel and complementary, these management processes work well together in the university environment.
The RCM model is a mechanism for ensuring every school, or administrative center, within the university is financially solvent and essentially accountable for their profit or loss. The University of Pennsylvania, as well as several other universities, use the RCM model.
UPenn became an early RCM adopter in the 1970s in an attempt to better control costs and better align cost with revenue. All money coming into the university is taxed, and it's taxed from the standpoint of being able to support the administrative centers of which the IT department, central IT, is one of those administrative centers. The IT department gets a portion of its funding from the central tax. The remainder of the department budget comes from charging for its services in the same manner an outside vendor charges its customers. And for many services, it is competing with outside vendors. The IT department doesn’t have to profit, but it needs to fully understand the costs of the services it sells to develop ‘break even’ rates that compete with the market.
Another benefit that RCM provides is a new level of autonomy. Other than a few central services like payroll and student systems, the university does not have to use the central IT department’s services. That might be very different from a corporate or government environment. The upside to this is that people can't make claims they can't back up, and they can’t request services they're not willing to pay for or can’t fund. There is a high level of accountability. This autonomy allows them to control their own budgets, revenue streams, and the amount of money they make.
By extension, TBM brings RCM more fully into IT, providing accurate and benchmark-able cost data that is consistent across schools and administrative centers, and it reveals three views into IT spend: finance, IT, and business.
UPenn adopted TBM as a standard across all of IT three and a half years ago, but in reality, some elements of it had been practiced for years before that. Pockets of people emulated the principles of TBM but had not wholeheartedly adopted it. With full-scale adoption, UPenn promoted consistency across the whole organization. One of the big tenets of TBM is that it forces accountability for every dollar that's budgeted and spent. All funds must be allocated to some activity or service that is consumed internally, by IT, or by clients.
The biggest asset TBM brings to the table at UPenn is transparency. In the past, everybody at the university would consider central IT to be the big black box where money goes in and nothing comes out. So the biggest benefit has been bringing clarity, consistency, and accuracy to the invoicing system that shows clients where their dollars have gone.
With that clarity, there’s an opportunity for cost savings because overlap becomes obvious. For example, when an analysis of software systems that support the data center was conducted, it showed that the system was very expensive for our data center size. These are the types of things that are exposed. Every year, UPenn takes its top 5 to 10 services, analyzes whether they’re charging appropriately for them, and makes adjustments accordingly. The big benefit of TBM is once implementation has begun, all that data is updated monthly and readily available.
If an organization’s data isn’t sorted out and clean, implementing and adopting TBM is a forcing mechanism for starting this process. They go hand in hand. That’s why it’s very important to just get started. Apptio was key to understanding which data sources were most important to determining accurate costs and key to decision making When you start to understand your services, understand your costs, and begin allocating them, the holes in the data will show up and you can address them.
IT departments at educational organizations that use TBM to enhance RCM will benefit when their IT organization becomes more like a business with a structured service catalog. Each of your services can have discernible rates or tiers of service: 24/7, 9 to 5 or 12 to 12. You can set up gold, silver, and bronze-type global services to influence consumption, as it becomes easier to show clients and business partners where their costs are going.
Another benefit is that conversations with your CFOs will likely change when they no longer see and treat the IT department as an expense center. IT is no longer viewed as a commodity service facing budget cuts.
Instead of being in a defensive position with a CFO who says, “Let's just make it as cheap as possible: I want to see you cut your cost by 3% next year,” IT has the opportunity to be more proactive, starting the conversation with "You're a digital organization. How can we enable you to do your business? We can show you what technology costs, what's discretionary versus non-discretionary, and help you make decisions that benefit the business functions that use technology.”
The bottom line is that TBM enhances RCM. With RCM, schools have to operate the same way we do. They have an IT budget to buy services from us, and they want to make sure they’re getting value. They have to post their own P&L to the university just like we do. RCM keeps us diligent to make sure that what we're providing is comparable, efficient, etc. It also keeps all the units within the university diligent and cognizant of spend because they also manage their spend based on their revenue from their portion of tuition and research dollars)
But in the past, we never calculated a true-up between cost and rate, and we never reconciled at the end of the year. Now that we have Apptio, we do that. We meet with the IT planning task force a couple of times a year, and that reconciliation is on the agenda. The community weighs in on the decisions, becoming part of the process. We reconcile back and then determine net new costs for the upcoming fiscal year and adjust service rates accordingly.
We also use benchmarking to show the schools and centers that we operate efficiently. In the RCM model, the schools don't have to use internal IT. For example, every school and center buys their own desktops/laptops and can provide their own desktop support. In this environment, it is difficult to get economies of scale with enterprise contracts because they can make their own decisions. But even if we have to raise prices, we can show via benchmarking that we are still cheaper than other sources because we have the data and we’ve measured ourselves to ensure we aren’t bloated in that area.
Apptio helps us fit in well with what our budget office expects us to do and report out. If I had my way, I'd implement this across the whole university. The university now has a very accurate and transparent view of IT spend, and other non-IT services might benefit from the functional and operational view with the same level of detail.