Reducing market risk through consolidation

Consolidation of demand reduces the financial risks for service providers and in turn reduces operation risks for customers. With an increase in the scale and scope of demand there is a reduction in the costs to serve the next unit of demand (Figure 9.11). The cost of unused capacity is also reduced through careful grouping of demand. Similar demand from multiple customer organizations can be hosted by the same set of service asset s or service units. Fragmented pieces of demand are matched with the capacity to fulfil the demand. This leads to economy of scope for those particular service assets. On the whole there is an increase in the average return of assets realized by the service unit, and a reduction in the variation in returns.

Figure 9.11 Consolidation of fragmented demand reduces financial risks

Afterword

This publication encourages exercises in strategic thinking much needed by IT organizations and others vying to be service providers preferred by customers. It has established a strategic context for service management in the real world. But that world is about change and uncertainty. Commercial pressures, competition, legislation and environmental factors all affect business priorities and consequently also the strategies that support the business. Public sector and non-profit organizations may not have to make profits for shareholders, but they share many of the same concerns as companies and corporations. Public sector organizations, for example, have to deliver cost-effective services, and at the top level or at the internal department level run the risk of being shut down, merged or outsourced if they are not effective. This publication is about being prepared for possible scenarios, and turning threat s into opportunities.

We all want to be ‘not optional’. To survive and flourish, every organization, department, branch, section and individual has to understand how they create value for themselves and for their customers and the way that their supplier s enhance that value. They must appreciate the strategic choices both for their own services and those they receive from providers. Because of the environment of constant change, strategy is not something to do once, and service strategies need to be developed, applied and continually reviewed, just like all the other parts of the Service Lifecycle. If the strategy is effective, then the effort in all the other stages of the lifecycle will be applied appropriately and successfully.

Service s are a predominant form in which value is created and transferred between organizations, and service management is in time maturing as a discipline. A wealth of knowledge and good practice is available for use if there is clarity on why services may be used to support the customer’s business. Clarity is attained if there is a willingness to take a long-term view, to search for patterns among the noisy detail, and to be guided by business fundamentals rather than technical possibilities. Good practice is rooted in hard facts and sound principles, which are often dismissed under the pretext of being practical. Poor practice is often the blind pursuit of success in the footsteps of early champions and leaders who, unbeknownst to their followers, have been far more diligent. This publication encourages its readers to adopt a practical but principled approach to finding long-term success and durable capabilities in service management.

Appendix A: Present value of an annuity

Use Table A.1 to find the present value of an annuity of Ј1 in arrears.

Find the column under your discount rate (or cost of capital). Then find the horizontal row corresponding to the last year of the investment. The point at which the column and the row intersect is the present value of a series of Ј1 payments. Multiply this value by the number of pounds you expect to receive in each payment, in order to find the present value of the series.

Present worth of Ј1 per period payable at end of each period
Years	3%	3.5%	4%	4.5%
	Ј0.970874	Ј0.966184	Ј0.961538	Ј0.956938
	Ј1.913470	Ј1.899694	Ј1.886095	Ј1.872668
	Ј2.828611	Ј2.801637	Ј2.775091	Ј2.748964
	Ј3.717098	Ј3.673079	Ј3.629895	Ј3.587526
	Ј4.579707	Ј4.515052	Ј4.451822	Ј4.389977
	Ј5.417191	Ј5.328553	Ј5.242137	Ј5.157872
	Ј6.230283	Ј6.114544	Ј6.002055	Ј5.892701
Years	5%	5.5%	6%	6.5%
	Ј0.952381	Ј0.947867	Ј0.943396	Ј0.938967
	Ј1.859410	Ј1.846320	Ј1.833393	Ј1.820626
	Ј2.723248	Ј2.697933	Ј2.673012	Ј2.648476
	Ј3.545951	Ј3.505150	Ј3.465106	Ј3.425799
	Ј4.329477	Ј4.270284	Ј4.212364	Ј4.155679
	Ј5.075692	Ј4.995530	Ј4.917324	Ј4.841014
	Ј5.786373	Ј5.682967	Ј5.582381	Ј5.484520
Years	7%	7.5%	8%	8.5%
	Ј0.934579	Ј0.930233	Ј0.925926	Ј0.921659
	Ј1.808018	Ј1.795565	Ј1.783265	Ј1.771114
	Ј2.624316	Ј2.600526	Ј2.577097	Ј2.554022
	Ј3.387211	Ј3.349326	Ј3.312127	Ј3.275597
	Ј4.100197	Ј4.045885	Ј3.992710	Ј3.940642
	Ј4.766540	Ј4.693846	Ј4.622880	Ј4.553587
	Ј5.389289	Ј5.296601	Ј5.206370	Ј5.118514
Years	9%	9.5%	10%	10.5%
	Ј0.917431	Ј0.913242	Ј0.909091	Ј0.904977
	Ј1.759111	Ј1.747253	Ј1.735537	Ј1.723961
	Ј2.531295	Ј2.508907	Ј2.486852	Ј2.465123
	Ј3.239720	Ј3.204481	Ј3.169865	Ј3.135858
	Ј3.889651	Ј3.839709	Ј3.790787	Ј3.742858
	Ј4.485919	Ј4.419825	Ј4.355261	Ј4.292179
	Ј5.032953	Ј4.949612	Ј4.868419	Ј4.789303
Years	11%	11.5%	12%	12.5%
	Ј0.900901	Ј0.896861	Ј0.892857	Ј0.888889
	Ј1.712523	Ј1.701221	Ј1.690051	Ј1.679012
	Ј2.443715	Ј2.422619	Ј2.401831	Ј2.381344
	Ј3.102446	Ј3.069614	Ј3.037349	Ј3.005639
	Ј3.695897	Ј3.649878	Ј3.604776	Ј3.560568
	Ј4.230538	Ј4.170294	Ј4.111407	Ј4.053839
	Ј4.712196	Ј4.637035	Ј4.563757	Ј4.492301
Years	13%	13.5%	14%	14.5%
	Ј0.884956	Ј0.881057	Ј0.877193	Ј0.873362
	Ј1.668102	Ј1.657319	Ј1.646661	Ј1.636124
	Ј2.361153	Ј2.341250	Ј2.321632	Ј2.302292
	Ј2.974471	Ј2.943833	Ј2.913712	Ј2.884098
	Ј3.517231	Ј3.474743	Ј3.433081	Ј3.392225
	Ј3.997550	Ј3.942505	Ј3.888668	Ј3.836005
	Ј4.422610	Ј4.354630	Ј4.288305	Ј4.223585
Years	15%	16%	17%	18%
	Ј0.869565	Ј0.862	Ј0.855	Ј0.847
	Ј1.625709	Ј1.605	Ј1.585	Ј1.566
	Ј2.283225	Ј2.246	Ј2.210	Ј2.174
	Ј2.854978	Ј2.798	Ј2.743	Ј2.690
	Ј3.352155	Ј3.274	Ј3.199	Ј3.127
	Ј3.784483	Ј3.685	Ј3.589	Ј3.498
	Ј4.160420	Ј4.039	Ј3.922	Ј3.812
Years	19%	20%	21%	22%
	Ј0.840	Ј0.833	Ј0.826	Ј0.820
	Ј1.547	Ј1.528	Ј1.509	Ј1.492
	Ј2.140	Ј2.106	Ј2.074	Ј2.042
	Ј2.639	Ј2.589	Ј2.540	Ј2.494
	Ј3.058	Ј2.991	Ј2.926	Ј2.864
	Ј3.410	Ј3.326	Ј3.245	Ј3.167
	Ј3.706	Ј3.605	Ј3.508	Ј3.416

Appendix B: Supplementary guidance

Дата добавления: 2015-11-14