Delivering Business Value Through IT Cost Transparency Using IT CMF

Sharad JoshiVice President, IT Business Management

March 24th, 2015

Office of the CIO

About the Depository Trust and Clearing Corporation (DTCC)

OUR PROMISE: As a global financial services leader, we proactively develop solutions to secure today’s marketplace, while shaping the future of our industry. We promise to stand at the forefront of innovation to

mitigate risk, create market efficiencies and reduce costs.

With 40 years of experience, DTCC is the premier post-trade market infrastructure for the global financial services industry.

From operating facilities and data centers around the world DTCC, through its subsidiaries, automates, centralizes, and standardizes the post-trade processing of financial transactions and mitigates risk for thousands of institutions worldwide.

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What Do We Stand For?

OFClearingSettlementAsset ServicingInstitutional Trade Matching

Global Data ManagementInformation Services

FOREquitiesCorporate & Municipal BondsGovernment & Mortgage-Backed Securities

DerivativesSyndicated LoansMoney Market InstrumentsMutual FundsAlternative Investment ProductsInsurance Transactions

WITHBroker/DealersInvestment BanksInstitutional InvestorsInvestment ManagersIssuersFund CompaniesExchanges and MarketplacesBanksTrust CompaniesInsurance Carriers & DistributorsCentral Securities DepositoriesTransfer Agents

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IT Cost Transparency - Purpose

WHAT behavior does it influence?

HOW will the business benefit?

• Buying decisions• Vendor decisions• M&A decisions• Strategy alignment

• Trend of IT costs per transaction• Product or venture profitability• Transparency and Predictability• Continuous improvement

...Drives Insight

Information...

WHAT services  do we offer?

HOW much do we charge for them?

• Hierarchical service portfolio• Technical services• Engineering services• Tiers and configurations • Consumption model

• Understanding costs • Cost components• Cost and savings levers• Unit pricing

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Overview of Accounting and Allocation (AA)

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DefinitionThe policies, processes and tools used for calculating and distributing the costs of IT. A range of methods such as chargeback, transfer pricing, and allocation are used to manage the cost of IT services and to influence the demand for IT services within an organisation.

What’s in scope What’s out of scope• Accounting platform capabilities• Policy for the allocation and chargeback of IT

costs• Agreements on which IT services are covered by

the Policy for allocating and chargeback of IT costs

• Business Planning of IT funding level and target spending by IT portfolio (refer to BP).

• Oversight of IT finance and overall budget performance (refer to BOP)

• Variance analysis of IT intensity compared to a benchmark (refer to BGM)

Categories and Underlying Capability Building Blocks for AA

Category Capability building block Description

Model

Cost CoverageDevelopment of an IT cost allocation and chargeback policy, detailing the scope of IT service costs allocated back to business units (basic services, as needed services, discretionary services)

Quality of Accounting Model

Sophistication of the model, including alignment between IT, finance, and BUs

Transparency of Accounting Model

Quality and transparency of documentation re accounting logic including alignment of stakeholders

Deployment

Usage of Accounting Model

The extent to which accounting models are used in strategic decision-making

Accounting and Allocation Governance

Governance between IT, finance, and other business units leading to continuous improvement of methods and practices

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Problem Statement

• Strategic

o Financial pressures and higher capital requirements

o Emerging businesses with faster time-to-market and quick decision-making needs

o Geographical expansion into Europe, Australia & Asia Pacific

o Increased complexity – technology and business

• Operational

o Different allocation models existed for IT (App Dev, Infrastructure, Other Overheads) with different owners and systems

o Monthly chargeback was already being executed but using Excel spreadsheets and SAS code running on Mainframe

o High person dependency

o Limited or no ability to provide required analysis and transparency without spending a lot of manual effort

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Established Vision and Objectives

• Vision

To structure IT service offerings that are integrated with both business goals and risk

tolerance profiles, thereby providing IT customers with a clear and consistent

understanding of their IT service costs and giving them the flexibility and transparency to

make informed business decisions and manage their costs using IT service tiers and

levers.

• Objectives

o Define detailed Business and Technical service catalog

o Implement a single integrated system for IT costs (from expenses to products)

o Automated cost model for Budget, Forecast and Actuals

o 100% Chargeback to businesses and corporate functions using Bill of IT

o Service Benchmarking

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Action Plan

• Business Case for IT Financial Management solution with the following key drivers

o Cost savings on infrastructure and effort that was not required any more

o Risk mitigation regarding key person dependency and antiquated systems

o Value-added services in long term with what-if scenario capability

• Initiated RFP for leading IT Financial Management vendors

o VMWare was selected as the vendor of choice

o Sound company with long-term financial stability

o Strategic fit with infrastructure synergies

o Ease of use and configurability in the tool

o Strong relationship team with demonstrated commitment

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Program Execution

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Workstream #1: IT Cost Transparency – Core Chargeback

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Workstream #2: Service Catalog

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Workstream #2: IT Service Catalog Conceptual Model

* Not currently being established as a service; under consideration for a future effort13

Workstream #3: Advisory Group

– Established Charter with Leadership representation from Business, IT and

Finance

– Meets once a month and makes decisions on cross-functional policy on

chargeback/allocation

– Typical topics covered are:

• Labor chargeback approach

• First tenant on new technology

• Chargeback approach on new technology

• Overhead charges on new businesses

• Corporate functional charges

• Stranded costs

• Standard rates14

Client Outreach – Understanding Cost Drivers

Infrastructure Example

• Service Cost Pool comprises the following costs:

▪ Employees/Consultants directly managed by you

▼ Cost Lever #1 is Location and Sourcing strategy

▼ Cost Lever #2 is Automation

▪ Employees/Consultants outside your function supporting you

▼ Cost Lever #1 is Location and Sourcing strategy

▼ Cost Lever #2 is Automation

▪ Hardware and Software supporting your service

▼ Cost Lever#1 is Vendor negotiation

▼ Cost lever#2 is Reduce / consolidate/ optimize the asset footprint

▪ Occupancy, Other expenses

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Client Outreach – Consumption and Enablers

Understanding Consumption

• Who are your consumers?

• How do you charge your consumers for that consumption?

• How do you measure that consumption?

• What behavior change are you influencing with your consumption model?

• How does business reduce costs (saving levers) – what is in their influence vs not?

• How are you measuring your own performance?

Key Enablers

• Clean ITAM feed with application-service-asset mapping

• Accurate timesheet submission and approval

• Fixed-contracts properly aligned to your projects/services

• Alignment of cost centers to services

• Agreement on supporting services and their allocations16

Learning from the Journey So Far…

Inhibitors Enablers

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Way Forward – Multi-dimensional View of IT Services

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Accounting and Allocation (AA)Target Capability Building Block Maturity Levels

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Category Capability building block Level 1 Level 2 Level 3 Level 4 Level 5

Model

Cost Coverage Limited Key IT projects Essential IT services

Major subscription & discretionary services

All IT services

Quality of accounting model Ad hoc Basic model

established

Overall framework aligned with finance, not yet embedded

Fully embedded in cost model of finance and other business functions

Continuously optimised

Transparency of accounting model Limited

Documentation and explanation selectively used

Model defined for essential IT services

Fully documented. Available upon request

Shared as a catalogue with business

Deployment

Usage of accounting model Ad hoc

Basic gathering & reporting of some IT expenses

Understanding of costs to business units

Enterprise wide understanding influences consumption

Used in strategic decision making across enterprise

Accounting and Allocation Governance

No formal body Clear role of IT Clear role of IT & finance

Clear role of IT, finance & business

Clear improvement cycle realized

Way Forward – Key Takeaways

BUY-IN• Common problem that drove senior management support

o Businesso ITo Finance

• Created an advisory board for cross-functional policy decisions

• Engaged and communicated with key stakeholders

OWNERSHIP• Formalized roles of Service Owner, Service Catalog Process Owner

• Created scorecards for these formalized roles

VALUE-DRIVEN• Not the Data, drive the Insight to help change behavior and drive business decisions

• Leverage industry standards and frameworks (IT CMF, COBIT, ITIL)

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