Get What You Pay For – The Cost Benefit of ITAM

By Kelly M. Lowe & L. Rene Abreo, Cask LLC

Globalization, diversification, and the rapid change in technology are highlighting the need to have robust asset management processes in place to manage IT purchases and software licensing, mitigate risks, reduce costs, and optimize performance levels.

A comprehensive IT Asset Management program is fundamental to managing the infrastructure that supports the delivery of IT services to the business. ITAM is an important building block for organizations, as it enables tracking, control and financial management of the assets that comprise the IT infrastructure.

The technical, financial, and service-related information available from an ITAM program can give IT the ability to optimize its investment in a company’s asset base. It provides a comprehensive view of the resources supporting IT service delivery, and an assurance that best use is made of assets. With ITAM, it is possible to establish and maintain best practices, improve asset service levels and manage service risk and IT resources.

Yet, a challenge faced by many organizations is actually selling the value of ITAM program development in the first place. For ITAM programs to be successful, executive-level support is critical, ensuring appropriate prioritization against the plethora of other IT projects continuously proposed. However, many ITAM initiatives fail to receive appropriate prioritization and funding, as senior leadership wants to see, and be guaranteed, the impact to the bottom line.

Creating a compelling business case for an ITAM program requires an in-depth understanding of the current environment, identification of high-value add activities, development of prioritized roadmaps to improvement, and a tangible ROI. It is incumbent on IT Asset Managers to provide real numbers, including costs, risks, and benefits of a program over time.

Identifying the Benefits of ITAM

So what ARE the actual benefits of an ITAM program for your organization? Some of them might include:

  • Tangible
  • Reduced resource requirements
  • Improved operational effectiveness
  • Reduced support costs
  • Cost avoidance
  • Reduced risk
  • Intangible
  • Improved decision making
  • Increased employee morale

Additionally, how do you choose what is of greatest value to your organization, and most impactful? Executing a cost-benefit analysis, using industry standards and proven best practices, can help. Such an analysis can provide answers to the value of ITAM, as well as insight into the true cost drivers of the ITAM effort, the potential value over time, and the risks associated with implementation.

A Cost-Benefit Analysis Process

Our analysis process takes a disciplined approach to understanding the process and its measureable attributes. It includes tactics and techniques for quantifying intangible benefits by striving to understand the observable consequences of those intangible benefits.

If it’s observable, it’s measureable – with a helpful structure and some hard work.

There are six steps to the analysis process (Hubbard, 2010):

  1. Define the information model
  2. Consolidate known measures
  3. Conduct an information value analysis
  4. Perform additional measures as required
  5. Perform risks analysis
  6. Generate options

The remainder of this article discusses the key aspects of each step.

Identifying Improvement Opportunities

Process improvements, including the initial implementation of a process, provide the basis for business benefits. These benefits vary widely and are dependent on the specifics of the improvement effort. So what are some possible ITAM process improvement initiatives? Consider:

  • A new ITAM implementation
  • Optimization of the procurement process
  • Inventory management optimization
  • Software license purchase improvement
  • Optimization of software utilization
  • Improvement of vendor management

Each initiative has its own associated goals, providing benefits for the business. The following are opportunities for benefits associated with improving the procurement process:

  • Reduce resource requirements:
    • Staff time required to complete these activities
    • Effort associated with placing orders when generating purchase vehicles
  • Improve operational effectiveness via process automation
  • Avoid costs associated with excess inventory
  • Improve cost savings via supplier rebates for electronic or timely transactions
  • Improve cost savings with discounts and support for standard makes and models
Building a Measurement Information Model

Each of the initiative’s goals has observable consequences for the business. These observable consequences are found in changes to attributes in the descriptions of the assets of the organization.

For example, you might see a difference between the Quantity Assigned count in the Asset Inventory and the count of assets by Location. This discrepancy can lead to under-used inventory or under-billed asset use. Either way, it’s an opportunity to improve.

The Measurement Information Model (JTC1/SC7, 2000) takes this detailed knowledge of ITAM to generate Key Performance Indicators (KPI’s). These KPI’s are derived from base measures that result from counts of characteristics (attributes) of the items managed by the ITAM process. These base measures are transformed, using well-defined functions, to generate derived measures. Derived measures combine to generate indicators that, through interpretation, provide an information product. You can see the hierarchical structure of a KPI in Figure 3.

Figure 4 shows a partial ITAM Measurement Information Model.

Consolidating Known Measures and Generating Key Performance Indicators

The measurement information model is the container and strategy for consolidating what you know and don’t know about how you execute your process. It also serves as a way to consolidate information about what impact the improvements will have on your performance. At this point, you can continue with the following tasks:

  1. Collect information on current and future performance – you probably know more about your current environment than you think. You can collect current performance information from existing sources such as status reports, time accounting systems, resource management plans and work schedules. You can also consult the subject matter experts performing the work to understand the current situation and estimate the impacts of proposed improvements.
  2. Modeling your state of uncertainty – improvement estimates have a range. For example, automating a series of steps may result in a 5% time savings for executing those steps. But more likely, your subject matter experts will tell you that it’s highly likely that it will save 1-5%. This range represents uncertainty in the benefits you’ll gain. Modeling this uncertainty using well-known techniques such as Monte Carlo simulations will tell how confident you can be that you’ll achieve targeted gains.
  3. Collect additional information as needed to reduce areas of high uncertainty – you may find that some areas represent too much uncertainty to proceed. At this point you can change the scope of the improvement effort or you can collect additional information to get a better picture of the possible outcomes and reduce your uncertainty.
  4. Formalize your business case and Key Performance Indicators – once you understand your costs and benefits and the uncertainty involved achieving those benefits, you can formalize your business case and the KPI’s. You’ll use the KPI’s to monitor progress toward your goals over time.
Analyzing Risks and Options

In step 2 above, we referred to a technique for modeling the uncertainty of your business case (Monte Carlo simulation). Here’s an explanation of what we mean by this:

  • Imagine you get to execute the improvement effort 1,000’s of times
  • Imagine the results of each execution differ because the results vary across the range of estimated benefits
  • You can run a simulation to see what the most likely results are … as if you’d executed the improvement effort 1,000’s of times

The results will tell you how much confidence you can have that you’ll achieve your goals. Figure 5 depicts the uncertainty associated with the model we built for optimizing the procurement process. Of 10,000 scenarios, we found that we have a 25-75% chance of achieving an ROI between 200-300%. This simulation allows us to consider combinations of possible outcomes across all our variables – something we couldn’t possibly do without the simulation.

The Lever Dance

Besides understanding your chances of achieving a target benefit, the model you build can give you incredible insight into what matters most for your improvement effort.

In our model for optimizing the procurement process, we identify nine variables that impact the outcome. Some of these have a bigger impact on whether you make your targeted ROI. The simulation can tell you which ones they are. We call this the Lever Dance. Why the “Lever Dance?” Because pulling different “levers”, or making different decisions on approach, will make different impacts. When we say impact, we don’t mean absolute dollar impact. We mean impact because of the uncertainty that each lever may introduce to the outcome. Uncertainty introduces risk. The good news is that now you know which variable, or lever, you absolutely have to pay attention to in order to meet your goals.

Actionable Results

The benefits of a thorough analysis will be seen via:

  • A clear list of goals mapped to your process improvement effort
  • A list of KPI’s to plan and manage the effort
  • An estimate of costs and an estimate of benefits
  • A risk-driven list of key activities in your implementation plan
You’ve Proven the Case – Now What?

Even after doing an in-depth analysis, and selling the case for ITAM program development, you’re not done. Remember, your executive team wants to see the tangible benefits, as you progress. Therefore, there are ongoing activities to “prove the point”, and continue to gain the support you need for continual improvement. They include:

  • Monitoring your KPIs to make sure you’re on target
  • Continuing to do the “Lever Dance” (validate your measurement model!)
  • Establish consistent operating mechanisms to provide updates to the executive team and other interested stakeholders

Once you’ve gained buy in from decision makers in your organization, having developed a robust information model, following through on the above activities should be just a matter of commitment to ITAM and your organization … which will result in continued support and success. “Things do not happen. Things are made to happen.” John F Kennedy.

About the Author

Kelly Lowe is the Sr. ITSM Advisor for Cask, LLC.