Benchmarking Market Pricing

Copyright © 2012 Information Services Group, Inc. All Rights Reserved

Benchmarking Market Pricing

Rawdon Simon - ISG 31st May 2012



Why Benchmark? Uncover opportunities for improved efficiency

Determine a sourcing strategy

Sole Sourcing – don’t leave money on the table!

Ensure you are paying the right amount for your outsourced services



• Looked at from the perspective of your costs in providing the IT service

• Addresses all costs, both in-house and outsourced

• Typically used to uncover efficiency opportunities across in-house operations

• Uses costs data for comparison

Cost Benchmark

• Analyses the price you are paying your service provider for services received

• Typically used to analyse fees paid for already outsourced services or to determine fees for proposed outsourced services

• Only looks at outsourced fees for a specific set of services

• Uses price data for comparison

Price Benchmark

Types of Benchmark



When are Benchmarking Clauses Appropriate?

More Appropriate for:

Longer term contracts (at least 3-5 years)

Well-defined, commonly outsourced services

Services where benchmark data is available or

reasonably expected to become available

Less appropriate for:

Shorter term contracts (3 years or less)

Services not commonly outsourced

Services where data is not available

Services with large components of

transformation embedded through the contract life



The Importance of Scope Application Development & Maintenance

(AD)P0/P8 Development Q0/Q6/QW Maintenance ZF Management & Tools

Mainframe (MF) Storage (ES) Servers (SP) Desktop (DT) Network (NW) Service Desk (SD)D1 Mainframe

Processors

B1 Transaction Processing

B2 Interactive Processing

B3 Batch ProcessingB4 VM ProcessingBF Mainframe

Databases

G3 Mainframe Planning

L5 Production ControlL6 Mainframe

OperationsLB Mainframe SupportM5 Mainframe Change

ZA Mainframe Management and Tools

E1 Disk StorageE2 Automatic Tape

Retrieval SystemsE3 Manual Tape StorageE4 Optical StorageM1 Backup and Restore

ZD Storage Management and Tools

DA Server ProcessorsDB Server FunctionBA Server Batch

Processing and Job Scheduling

BB Server Transaction Processing

BD Server DatabasesG5 Server Planning and

DesignK5 Server Hardware MACK6 Server Software

DistributionL8 Server SupportL9 Server Hardware

MaintenanceLA Server Monitoring and

SupervisionM7 Server System

Administration

ZG Server Management and Tools

B8 Common Office Applications

BC EmailD6 Personal ComputersD7 Infrastructure ServersD8 Thin Clients F9 Distributed Printers

G1 Desktop Planning and Design

K1 Desktop MACK2 Desktop Software

DistributionL1 Common Software

SupportL3 Desktop Hardware

MaintenanceM8 Infrastructure Server

AdministrationN3 Desktop Training

ZJ Desktop Management and Tools

A1 LAN ArchitectureA2 LAN SwitchingA3 LAN RoutingAA LAN Planning &

DesignAB LAN ChangesAC LAN SupportAD LAN Operations

W1 WAN ArchitectureW2 WAN SwitchingW3 WAN RoutingWA WAN Planning &

DesignWB WAN ChangesWCWAN SupportWDWAN Operations

V1 Voice ArchitectureV2 Voice PBX/CentrexV4 VoIPVA Voice Planning &

DesignVB Voice ChangesVC Voice SupportVD Voice Operations

X1 Contact CentreX2 Network SecurityX3 Remote Network

AccessX4 CablingX5 Internet Connectivity

YP Network total HW and SW costs

ZP Network Line Management and Tools

C3 Central Service DeskC4 Local Service DeskC5 Incident Management

& Problem Management

ZM Service Desk Management and Tools

Central Printing (CP) Surveys (SU)

F1 Laser PrintingF2 Impact PrintingF3 COM ProductionF7 Post ProcessingF8 Enveloping

ZV Central Printing Management and Tools

UA User ProfileUB User Problem SolvingUC Support SatisfactionUD Office Technology

SatisfactionUE Business Systems

SatisfactionUF Overall SatisfactionUP Employee

QuestionnaireUZ User Population

Management Services (MS) Telecoms (TC) Middleware & Applications (MA)I4 Executive

ManagementI3 Central

ServicesI7 Outsourcer

Management

M4 IT Service ContinuityM6 IT SecurityN2 Service and Account

ManagementZ2 PremisesZS Management Services Tools

S1 Private CircuitsS3 Public Frame Relay

Virtual CircuitsS4 IP VPN ConnectionsS6 Call Volumes and

ChargesS8 Access ConnectionsS9 Internet Circuits

T1 International Leased Circuits

T3 International Public Frame Relay Virtual Circuits

T6 International Call Volumes and Charges

T7 Calling CardsT8 International ATM CircuitsV3 Telecommunications

InformationYT Telecoms total costs

B6 MiddlewareB9 Business ApplicationsBE Internet ApplicationsER SAP Applications

ZB Middleware and Applications Management and Tools

General Information

(GI)

H1 Budget AnalysisH2 Business VolumesZ1 Study Related InformationZ6 Additional ServicesZ9 Data Quality



Methodology Services Mapping

Scope Adjustment

Services Model

Analysis

Rates

$ Charges

Mainframe (MF) Servers (SP) Storage (ES) Desktop (DT) Service Desk (SD) Telecoms (TC) Network (NW)

D1 Mainframe Processors

B1 Transaction Processing

B2 Interactive Processing

B3 Batch ProcessingB4 VM ProcessingBF Mainframe

DatabasesG3 Mainframe

PlanningL5 Production ControlL6 Mainframe

OperationsLB Mainframe

SupportM5 Mainframe

Change

ZA Mainframe Management & Tools

DA Server ProcessorsDB Server FunctionBA Server Batch

Processing and Job Scheduling

BB Server Transaction Processing

BD Server DatabasesG5 Server Planning and

DesignK5 Server Hardware

MACK6 Server Software

DistributionL8 Server SupportL9 Server Hardware

MaintenanceLA Server Monitoring

and SupervisionM7 Server System

Administration

ZG Server Management & Tools

E1 Storage ArchitectureE2 SAN InfrastructureE3 Tiered DiskE4 Virtual Tape StorageE5 Automatic Tape

Storage & Legacy ATL

E6 Manual Tape Storage

E7 Optical Disk StorageEA Storage Planning

and DesignEB Storage ChangeEC Storage SupportEE Storage OperationsM1 Backup & RestoreM2 Centralised Archive

SolutionsM3 Disaster Recovery

ZD Storage Management &Tools

B8 Common Office Applications

BC EmailD6 Personal ComputersD7 Infrastructure ServersD8 Thin Clients F9 Distributed PrintersG1 Desktop Planning

and DesignK1 Desktop MACK2 Desktop Software

DistributionL1 Common Software

SupportL3 Desktop Hardware

MaintenanceM8 Infrastructure Server

AdministrationMB Desktop Backup and

RestoreN3 Desktop Training

ZJ Desktop Management & Tools

C3 Central Service Desk

C4 Local Service DeskC5 Incident & Problem

Management

ZM Service Desk Management & Tools

S1 Private CircuitsS3 Public Frame Relay

Virtual CircuitsS4 IP VPN ConnectionsS6 Call Volumes and

ChargesS8 Access ConnectionsS9 Internet CircuitsT1 International Leased

CircuitsT3 International Public

Frame Relay Virtual Circuits

T6 International Call Volumes and Charges

T7 Calling CardsT8 International ATM

CircuitsV3 Telecommunications

InformationYT Telecoms total

costs

A1 LAN ArchitectureA2 LAN Switching /

RoutingA4 Wireless LANsAA LAN Planning &

DesignAB LAN ChangesAC LAN SupportAD LAN Operations

W1 WAN ArchitectureW2 WAN Switching /

RoutingWA WAN Planning &

DesignWB WAN ChangesWCWAN SupportWDWAN Operations

V1 Voice ArchitectureV2 Voice PBX / CentrexV4 VoIP / IP Telephony VA Voice Planning &

DesignVB Voice ChangesVC Voice SupportVD Voice Operations

X1 Contact CentreX2 Network Perimeter

ControlX3 Remote Network

AccessX4 CablingX6 Conferencing /

Telepresence

YP Network total HW and SW costs

ZP Network Line Management & Tools

Middleware and Applications (MA)

B6 MiddlewareB9 Business

ApplicationsBE Internet ApplicationsER SAP Applications

ZB Middleware and Applications Management &Tools

Management Services (MS)

Application Development and Maintenance (AD)

Central Printing (CP)

General Information (GI)

Surveys(SU)

I4 Executive MgmtI3 Central ServicesI7 Outsourcer MgmtM4 IT Service

ContinuityM6 IT SecurityN2 Service and

Account MgmtZ2 PremisesZS Management

Services Tools

P0 Project Characteristics

P8 Source CodeQ0 Application

CharacteristicsQ6 Source CodeQWCore Business

RelationZU Development

SoftwareZF Management &

Tools

F1 Laser PrintingF2 Impact PrintingF3 COM ProductionF7 Post ProcessingF8 Enveloping

ZV Central Printing Management & Tools

H1 Budget AnalysisH2 Business VolumesZ1 Study Related

InformationZ6 Additional ServicesZ9 Data Quality

UA User ProfileUB User Problem

SolvingUC Support SatisfactionUD Office Technology

SatisfactionUE Business Systems

SatisfactionUF Overall SatisfactionUP Employee

QuestionnaireUZ User Population

ISG Database

ISG ModelService definitions



Process Overview Planning

Fact Finding

Assurance

Analysis

Reporting

Understand customer organisation

Collect data and interview key stakeholders

Calculate performance indicators

Comparison and analysis

Documented findings

Charter Document



Quality Benchmark • Relationship between cost and quality • Most organisations achieve a similar level of quality though • Guaranteed 100% availability is a special case

• Level of Service makes a big difference • E.g. 24X7 vs. 12X5

• Benchmark Target (contractual) and Achievement (performance)

ACME RG min RG mean RG max

Target 7.0 6.0 7.0 8.0Actual 8.0 2.4 8.2 14.2

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

%

Abandonment rate for Central Service Desk calls



Level of Detail • Tower level • Rough indication of market price • Typically used as part of a sourcing

strategy determination • Determine if a detailed benchmark is

warranted

High Level

• Sub Process Level • Fairly accurate assessment • Can be used to negotiate with suppliers • Often used to decide on going to the market

or a sole sourcing option

Intermediate

• Highly detailed forensic review • High degree of accuracy • Used to effect a price change as per the

benchmarking clauses in a contract • Will stand up to scrutiny

Detailed


SAMPLE ONLY

The total annual expenditure analysed for the Type A application servers is $x.xx million . It includes annual hardware, software, support costs (internal and outsourced). It also includes an allocation of management services ($xxxK), Premises costs ($xxxK) and FTE related overheads ($xxxK).

x.xx FTEs have been allocated to the Type A server service tower.

xxx physical servers, xxx logical servers reported for Client.

Infrastructure availability of 336 hours, 99.99%.

Comparison Group profile:

− Number of physical servers, xxx – xxx severs

− Number of logical servers, xxx – xxx logical servers

− Availability 168 hours, 98.4 – 99.9%.

Client’s annual cost per logical server is within the market range and is in-line with the market average.

This result indicates that this is an area where Client has an opportunity to potentially save costs through a competitive bidding and negotiation process.

$

$

$

$

$ - $,000 $,000 $,000 $,000 $,000 $,000 $,000 $,000 $,000 $,000

Client

Market Min Market Avg Market Max

Annu

al p

er S

erve

r ($)

Midrange Server - Type A




High Level

Service Tower Client Expenditure ($000's)

Minimum Savings $(000's)

Maximum Savings Opportunity $(000's)

Server – Type A $ x,xxx $ - $ x,xxx

Server – Type B $ x,xxx $ - $ -

Server – Type C $ x,xxx $ - $ xxx

Desktop $ x,xxx $ xxx $ x,xxx

E-Mail $ xxx $ - $ x

Infrastructure Servers $ x,xxx $ - $ xxx

Storage $ x,xxx $ - $ xxx

Network - LAN $ x,xxx $ - $ xxx

Network - Voice $ xxx $ - $ xxx

Network - Contact Centre $ x,xxx $ - $ -

Total Savings Opportunity $ xx,xxx $ xxx $ x,xxx

Sample Results



Tower ACME Monthly Total

Peer Group Monthly Total

Unix Servers $2,015,971 $1,938,900

Wintel Servers $2,055,425 $2,002,300

Linux Servers $133,103 $130,900

HP Non Stop Servers $265,210 $300,000

Teradata $6,647 -

Batch $217,668 $200,118

Migration $24,617 -

Middleware $364,021 $344,200

Midrange Hardware $1,169,690 $1,096,795 Out of Scope – Adjustments not applied to Resource Units

Total $6,252,353 $6,013,213

ACME total as a percentage of Peer Group total 103.98% Percentage Delta for Monthly Total 3.82%

Intermediate

Sample Results


The Role of Contractual Benchmarking


Traditional view is changing…

An accepted management

tool for clients to gauge the cost-

and quality-competitiveness

of service delivery…

…to the Transformational

view

…but also a strategic tool for

clients and service providers

to mutually enhance the

sourcing relationship


Win-win situations occur when all parties work together transparently and coherently.

Must ensure they obtain a holistic view of the services they receive, and

understand the root causes of any gaps

identified

Must demonstrate to their client the full value of their services and quantify opportunities where changes to technology, processes or business requirements would enhance the value they deliver, or allow the service provider to deliver more profitably

Need to have a detailed methodology, broad reference data and experience to analyse complex environments and handle unique features



Using Benchmarks to Drive Change

► A standard services-based transformation model is characterised by “pay-as-you-go” utility computing, transparency into billing and consumption, and effective demand management.

► Service providers leverage the ability to deliver economies of scale.

Efficiency and effectiveness savings

Efficiency improvements Effectiveness

improvements



Building a Benchmark Price

Total Spend

CLIENT

Uncontracted Constraints

Historic Investment

Contracted Constraints

Client Specific Services

Standard Service

(normalised for

scope, size, complexity & service level)

Remaining opportunity with unidentified cause

Benchmark Price

The most efficient and effective environments in the market relating to the scope that is being benchmarked – described purely in output terms.

Any service not commonly found in other organisations, and therefore no comparator prices exist. Valued through discussion of the costs with the service provider and client.

Each constraint identified in the contract which causes an increase in the cost of delivery

Any charges still to be paid for services already delivered by the service provider

Each constraint which cannot be identified in the contract but which is accepted as a cause for an increase in delivery cost



Setup + do it


► Change initiatives based on standard service delivery models can deliver significant client savings and allow service providers to improve margins by leveraging economies of scale.

► Clients can reinvest savings with service provider on other initiatives

Right

No one is

Left Out

Get the data

Right

► Negotiate benchmark clauses where it makes sense ► Contract benchmarking can be a positive experience if the client,

service provider and bench-marker all work together transparently and coherently.

► Use of well classified, and detailed benchmark data uncovers the source of performance issues and defines the potential scope of the improvement opportunity.

In Summary


Discussion

Questions?


Date post:	20-Aug-2015
Category:	Business
Upload:	information-services-group-isg
View:	696 times
Download:	2 times