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Blog Series: Service Based Costing – Post #2 SBC in an ITIL based IT Service Management (ITSM) Context

Blog Series: Service Based Costing – Post #2 SBC in an ITIL based IT Service Management (ITSM) Context

itil-logoRichard LaroqueRichard LaRocque, ing. ITIL V3 Expert
IT Service Management Lead

In my last post, I jumped head first into a discussion on Service Based Costing (SC) as if it was a common term.  A quick internet search shows that it’s far from being the case.  So, in this post I decided to take a step back and situate SBC in the context of ITIL-based IT Service Management (ITSM).   Although ITIL covers in a fair amount of detail a number of the building blocks required to achieve SBC – e.g., Change Management and Service Asset and Configuration Management – it really only skims the surface on IT cost management.

ITIL describes Financial Management of IT services (often referred to as IT Financial Management) as “the process responsible for managing an IT service provider’s budgeting, accounting and charging requirements”.  ITIL further states that its purpose is to “secure the appropriate level of funding to design, develop and deliver services that meet the strategy of the organization”.  Although these statements are valid and accurate, they are very broad.  They point to having an accounting capability within IT without really getting into the heart of the matter.  General accounting may suffice to satisfy corporate accounting requirements but it’s not granular enough to allow IT to truly understand its costs. IT Cost Management, and its service oriented arm SBC, focus on a very specific area of IT Financial Management: the need to track, manage and understand cost from end to end.

In this context, SBC can be defined as the business practice of planning, tracking, and modeling the costs of providing IT services to clients.   From this definition, it’s clear that SBC fits into IT Cost Management which, itself, falls under Financial Management of IT services.  SBC is a means through which an IT organization can determine its service cost, not only at a point in time, but on an ongoing basis. It’s a costing approach that identifies the elements that compose an IT service and determines the cost of each element to obtain an overall cost for the service, thus providing an understanding of where and why costs are incurred within an IT organization.  SBC takes into account all IT spending, as if IT was an independent business.  This includes cloud-based services that are contracted by IT and passed along to the business.

I hope this description has helped better position SBC.  It’s important to understand that SBC is not a departure from best practice but a more specific approach to extend the return on its implementation.  I will continue to post on this and other ITSM related topics, so please stay tuned.

Cordialement / Kind regards,

Richard.

Read post #1 in this blog series.

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