Creating a Return on Investment

The Return on Investment challenge needs to take into consideration many factors. On one side is the investment cost. This is the money an organization pays to improve services and service management process es. These costs will be internal resource costs, tool costs, consulting costs, etc. It is often easy to come up with these costs.

On the other side is what an organization can gain in a return. These returns are often hard to define. In order to be able to compute these items it is important to know the following:

• What is the cost of downtime? This would include both lost productivity of the customer s and the loss of revenue.
• What is the cost of doing rework? How many failed changes have to be backed out and reworked?
• What is the cost of doing redundant work? Many organizations who don’t have clear process es in place and good communication often find that redundant work is being done.
• What is the cost of non-value added projects? Many projects have been fully funded and resourced but due to changing requirement s no longer add value but the project moves forward instead of being stopped.
• What is the cost of late delivery of an application? Does this impact on the ability to deliver a new service or possibly an additional way to deliver an existing service?
• What is the cost of escalating incident s to second and third level support groups instead of resolving incidents at the first level? There is often a difference in utilization staff in second level and third level support group s. The more we escalate incidents to these groups the less time they have to work on projects that they may also be assigned to.
• What is the fully allocated hourly cost for different employee levels?

These are only some of the things that have to be considered when creating a ROI statement.

There are different approaches to measuring and reporting on the availability. Availability is a good measure to understand the cost of lost productivity, the cost of not being able to complete a business transaction, or the true cost of downtime.

• Impact by minutes lost – this is a calculation on the duration of downtime multiplied by the number of customers impacted. This can be used to report on lost customer productivity (see Table 4.13).
• Impact by business transaction – this calculation is based on the number of business transactions that could not be processed during the downtime. This measurement provides a better indication of business impact.
• The true cost of downtime that has been agreed on.

A good way to look at the impact by lost minutes is to create a component failure impact analysis table that identifies the number of user s impacted when a component fails. Understanding the number of users impacted allows you to calculate the cost of their non-productivity. Table 4.13 is an example only.

Component Description	Number of users impacted
Main frame	28,547
Core Router	17,433
Mid range	10,442
XYZ application	7,354
ABC database	1,819
Single desktop

Table 4.13 Component Failure Impact Analysis

When you have a failure you can determine the duration of the failure, how many people were impacted and using an allocated cost model for employees, define the cost of their non-productivity. Granted not all of them will try to access the application during the failure but remember you are creating a scenario that is based on what could happen. As an example, let’s say there is an application failure that impacts 7,364 employees. The application was down for 39 minutes.

Calculation: number of users multiplied by 39 minutes divided by 60 (to convert to hours) multiplied by Ј45 equals Ј215,397.

The next question is what is the investment cost to improve availability of the overall service?

The method chosen should be influenced by the nature of the business operations and business process es.

One of the keys for measuring and reporting is to be able to define improvement opportunities that will create a Return on Investment for the business. If your business is insurance and you cannot write policies than this can translate into lost revenue. This is especially true for those companies who sell their products and services via the internet. An organization ’s competition is only a couple of clicks away when a service is not available.

That is why it is so important to understand the cost of downtime. Defining the cost to downtime is an exercise that IT and the business should conduct. It is important to have agreement on what the financial impact is to the business when a service is not available for whatever reason.

Let’s say that your organization truly knows the cost of downtime. This is often measured based on the type of service being provided. In Table 4.14 we have defined three different levels of service. The mission-critical services have a higher downtime cost than the other services. Based on the hourly cost of downtime and with an investment of Ј300,000 to improve services you can see that the return is quick on the first two services.

Type of service	Cost per hour of downtime
Mission-critical service	Ј200,000
Critical service	Ј90,000
Non-critical service	Ј11,500
Investment information	Financial investment
Investment to make improvements to reduce the amount of downtime	Ј300,000
Number of minutes of downtime avoided needed to cover the investment	Return in minutes/hours
Mission-critical service	90 minutes
Critical service	200 minutes or 3.33 hours
Non-critical service	1,556 minutes or 26 hours

Table 4.14 Downtime costs of different services and investment information

Another option if the business and IT cannot agree to the cost of downtime or the cost of non-productive employees, is to take the annual cost of a service that the business pays and divide by the number of service hours for the year. This will provide a monetary cost the business is paying for each hour of service.

Дата добавления: 2015-10-02