How to Justify IT Financial Models for Greatest Impact and Return
The IT industry has permeated our work and personal lives for the good part of four decades, even so it is actually an incredibly young industry by comparative standards. After all, when you consider the automotive industry for instance, now entering its second century, IT is very much in its infancy.
It is this infancy that has also been a contributing factor in its evolution—an evolution solely driven and determined by the influences that have been placed on it; for example, ongoing demand, continual changes, and new features or functions added to propel the business forward.
For this reason, it is no surprise that IT as an industry has also relied on mergers and acquisitions to build functionalities, acquire market shares, and to assess and predict the next stage of evolution.
It is this approach that has led to inherent issues within the IT ecosystem to maintain constant evolution, including more and more outsourcing, project resource pooling, and the reality of applying cost control measures to projects and infrastructure—all to continually rationalize productivity and ROI versus expenditure. As added pressure, the C-suite must also take best practices from older industries and apply them to the management of enterprise-quality control processes; in many instances, a square peg in a round hole scenario.
During the past two decades, many IT companies have had to manage a large acquisition or merge projects to pool resources. Then many of these companies had to apply a cost control approach or rationalize and outsource projects. In addition, IT C-level have had to take the best practices from old industries to manage their enterprise-quality processes.
However, like any evolving industry, inherent sophistication can experience tremendous leaps forward, leaving behind past processes and bringing about the next stage of evolution so that everyone can profit. In this case, the evolution pertains to software management and its impact on the datacenter. As well, how the costs that pertain to software can be drastically reduced, while delivering a better end-user experience across the enterprise.
For instance, the common practice for accounting departments is to build both short- and long-range budgets for forecasting future costs. Although how resources are categorized and allocated can be vastly different depending on the subject matter. For example, when an IT executive creates a budget and needs to add two people to his or her group, the line items are easily categorized and added into the financial management tool, as well they are easy to defend and justify.
Even so, how does one justify IT resources outside of the human element? For most, IT is highly complicated and equating the purchasing of software, hardware, etc., can be hard for a non-IT person to do.
Now, if the same method is used to forecast datacenter capacity, maybe the CTO would be happy and validate the cost of a new application. The goal would be to conduct an annual survey asking the end user how many workloads or new applications are planned for the future. The results would then be translated in capacity metrics and loaded into a capacity planning tool, like a financial management tool. If this tool is able to forecast the needed capacity and the software cost associated with the capacity hypotheses, then the CTO could get the cost of each individual hypothesis. Thus, a relevant budget is generated and, if the budget is insufficient, it can be renegotiated.
Knowing that the budget share for software is around 75 percent of the total budget, it would be interesting to take a look at each feature as a financial manager would, looking for any tool that helps to control costs.
Monthly License Charge (MLC) for the mainframe platform is the biggest part of the budget. The IBM contracts and billing methods are not easy to understand, but IBM offers many attractive options such as Parallel Sysplex License Charge (PSLC), or Country Multiplex Pricing (CMP), and incentive options such as Mobile Pricing, zCAP (z Collocated Application Pricing), Cloud Pricing or Instant Payment Pricing.
The attractive options are well known and have been used for a long time, even so customers are looking to migrate from PSLC to CMP.
The incentive pricing methods have not been particularly successful. As some customers have said, “We don’t have any Mobile Workload,” or “We don’t know how we can tag our Mobile transactions,” or “Our Mobile peak consumption doesn’t occur at the global MLC peak.”
Each customer is advised to manage all new options as a project, studying each method inside the enterprise, evaluating each method as it pertains to saving, and analyzing the results for cost saving initiatives.
Managing and forecasting mainframe capacity and associated software costs with the same approach as that of a financial management tool, is an interesting concept. Building the annual budget for the IT datacenter with such a tool is a real possibility as the wording is familiar and ready to use by either the capacity planning team or the CTO.
Jacky Hofbauer is the President & Chief Strategy Officer of zCost Management, the leader in MLC Cost Control. Jacky has been intricately involved with system Z and z/Pricing for over 30 years and is a recognized expert in this space. He continues to share his knowledge and experience through popular white papers and Newsletters about system z and z/Pricing. Jacky is a regular contributor of z/articles to Planet Mainframe.