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Blog Series: Service Based Costing – Post #1 Defining SBC

Blog Series: Service Based Costing – Post #1 Defining SBC

Richard Laroque

Richard LaRocque, ing. ITIL V3 Expert

IT Service Management Lead

I’m in the process of writing a whitepaper to demystify Service Based Costing (SBC).  Not something theoretical, but a practical, experience based approach to operationalizing SBC.  As this work progresses, I thought it would be interesting to share some insight via the RAPA Blog.  Something tells me this will not be my only post on the subject!

SBC is about being able to track and report on how money spent is related to services delivered. This is important information for decision making, i.e. migrating services to the Cloud.

SBC is an overarching initiative that requires an organization-wide agreement of what the IT services are, how they are delivered, and how they can be broken down into their constituting elements.  IT services may be described in a variety of ways depending on the relationship between the client(s) and the IT service provider, but what must remain constant is that they need to be aligned with the client’s business.

To perform SBC, it is necessary to decompose IT services down to a common cost object around which IT costs will be aggregated.  Although there are advantages to selecting a low-level cost object, like the ability to roll up costs in a variety of ways, there are also important drawbacks, namely the effort required to capture the very detailed information needed.  It is therefore important to find cost objects that strike the right balance between the IT organization’s current capacity and capabilities with the ability to adapt in the future.

As SBC relies entirely on external data to aggregate costs around the agreed cost object, it’s essential to define an approach to gather, organize, manage and maintain this information.  This can be broken down in the following activities:

  • Create a structure to document the SBC model: this structure should allow the clear documentation of business rules used to calculate cost object (and IT service) cost;
  • Analyze existing financial information: through this analysis it will be possible to determine the business rules to be used to attribute costs to cost objects;
  • Assess operationalization of model maintenance: define the procedures to maintain and continually improve the model, and where in the IT organization it should reside; and
  • Test cost calculations: Calculate costs using a subset of data to validate the SBC Model.

The date of the whitepaper’s publication hasn’t be set yet. If you’d like to access to it as soon as it is finalized, just submit your information below and the team will make sure you get it.
Cordialement / kind regards,

Richard.

Read post #2 in this blog series.

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