Secrets of Service Level Management by Nahari Ami; Stationery Office ; LaCava Craig J

Author:Nahari, Ami; Stationery Office,; LaCava, Craig J.
Language: eng
Format: epub
Publisher: The Stationery Office Ltd

Neither chargeback nor penalties can be executed without transparency of service cost. Financial management, with the assistance of service catalogue management and SLM, should develop a cost model for each service, which details and calculates the total cost of ownership of the service. Therefore you can initiate appropriate financial activities by implementing the cost model, allowing deployment of chargeback and penalties effectively and efficiently.

10.2COST MODELLING

The textbook definition of ‘cost model’ is ‘a set of mathematical equations that converts resource data into cost data’.

In order to calculate the costs of providing services, it is necessary to design and build a framework – a cost model – in which all costs can be recorded and then allocated or apportioned to specific customers or other activities. Such a cost model can be developed to show, for example, the cost of each service, the cost for each customer or the cost for each location.

Although the development of a cost model for services is under the scope of financial management, it is common for the service level manager to be heavily involved in the process, mainly because SLM is familiar firstly with the services and secondly with the service owners. Moreover, in many organizations where SLM possesses a high level of authority in parallel to weak financial management practice, the development of the cost model will be executed and led by the service level manager.

Regardless of who is responsible for the cost-modelling project, it is important to be familiar with the process. The following are the main activities of cost modelling:

Define the goal The first requirement is to understand why you are modelling the cost of the service. Will you utilize the model for chargeback purposes or is it required for a business case to justify a purchase of a service? The purpose of the cost model will help dictate the structure and the attributes of the cost model.

Identify services A common mistake in cost modelling is to prioritize the services to be modelled and model them one by one, while not considering them as a whole. We must visualize the complete list of services that are in scope so that we can determine the model structure that fits all, while allowing minimum customization in the future.

Select model Select the type of cost model that will be utilized for this exercise and the cost categories to be included. In this phase you will also need to determine the major model structure breakdowns: capital versus expenses, or initial versus ongoing, etc.

Identify cost drivers Define a list of underlying costs for the services, such as labour, server systems, telephony facilities and more. This list is ultimately a breakdown of the cost categories identified in the ‘select model’ phase.

Populate model data Once the stage is set, it is time to work with the operations and service owners to obtain the costs for each cost driver. The completion of that work must result in service-owner sign-off of the cost model.

Operate the model The operation of the model means the utilization of the data that were captured during the development process.

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