managing the 80% problem

Managing the 80% Problem

Combating the ‘ongoing support’ issue cannibalizing IT budgets

04/13/2023 Copyright: Crocus Hill Associates, All rights reserved

The 80% problem what is it? Why talk about it? Where are these costs hiding (show me the coffin and a

stake …)? What are the common approaches – do they work? A different approach – Alphabet soup: ABC, TQC, Re Getting started Institutionalizing continuous improvement

04/13/2023 Copyright: Crocus Hill Associates, All rights reserved2

Contents

Conventional wisdom and some accounting point to IT budgets being cannibalized by ongoing support issues– Legacy costs consume 70 – 80+% of total budgets– Hardware budgets still consume > 50% of total costs

• Even though Moore’s law continues we can’t beat the total cost burden• Infrastructure support costs are 30 – 40 + % of Hardware costs

We increase the burden every time we implement a new application– The expanding footprint of applications overwhelms productivity gains– The expanding infrastructure footprint increases the support / patch /

maintenance burden in the data center– Ongoing environmental support for old data centers takes people and

capital to keep up with new infrastructure demands

At the end of the day, it’s the ‘Golden Apple’, where everything good we do today, inhibits our ability to do more in the future


The 80% problem what is it?

It was second among InfoWeek’s survey of CIO’s for 20101. The Cloud Imperative. 2. The 80/20 Spending Trap. 3. CIO-Led Revenue Growth And Customer Engagement. 4. Mastering End-to-End Business Processes. 5. Business Analytics and Predictive Analytics. 6. External Information vs. Internal Information. 7. CIO Priorities, CIO Compensation, CIO Evaluation. 8. Vendor Consolidation, With Radical Exceptions 9. The Mobile Enterprise and The Mobile Mindset. 10. The Transformation Quotient.


Why talk about it?

As has been the case for the last 20 years - "the new normal" for CIOs in 2010 will be to accomplish a whole lot more with a whole lot less

IT budget, even if developed bottom up is almost always capped by G&A and expense ratios at budget time:– Benchmarks of % of revenue, free cash flow, PBT / EBITDA, etc. make budgets

for SG&A a ‘solved for’ number.– Sandbagged revenue estimates and escalating uncontrollable expense costs

(raw matl. , energy …) subtract from available cash.– Additionally head count caps, caps on consulting and variable resources

constrain any flexibility that the CIO has. Even the AICPA ‘dodge’ of the last 10 years is falling short:

– Software and new development capitalization has resulted in a tidal wave of depreciation washing over the budget ‘shores’.

– Free cash flow and debt covenants further constrain our ability to ‘grow the pie’ from creative accounting.

– Conservative auditors and CFO’s seek to stop capitalization at the earliest point in the implementation cycle.

We are left in ‘the do more with less environment’ just when competitive pressures and IT’s value proposition are increasing04/13/2023 Copyright: Crocus Hill Associates, All rights reserved5

Why talk about it (continued)?


Where are these costs hiding?

Infrastructure - hardware etc.

Infrastructure Labor - support

Infrastructure Labor - new

Application Labor - support

Application Labor - new

We all know where the costs are – Legacy, Legacy, Legacy


Where are these costs hiding?

Audit0%

Break - Fix (problem Mgmt)36%

Core Activities4%

Data Base Support2%

Operations Support2%

Project - Internal0%

Support - Main-tenance

44%

Work Request - Special Project12%

Break Fix and Support are the Killers

Embrace a ‘religion’ – e.g. ITIL– While service level control may manage demand, overall costs

rarely go down and often go up when formalisms are installed.– However, the good news is that the discipline of formal processes

and databases provide the basis to measure work and potentially to manage it better.

Give the problem to someone else – outsource– Overall, the outsourcing equation may transfer responsibility to

more efficient organizations.– However, it is still true that over 50% fail outright and more than

that go ‘upside down’ on costs in less than three years. Benchmark – see who might be doing it better

– Comparisons in this area are risky, however, at a high level they do provide a view into areas where there are opportunities to improve practice.

– The bad news is that they don’t help in ‘root cause’ analysis. They only identify areas of opportunity

What are the common approaches – do they work?


A different approach


Evaluate key work activities

Understand Cost / quality

drivers

Prioritize ‘Hit List’

Re Engineer service delivery

Pilot evaluate and expand

Work request

Labor trackingKPI’s

Activity Based Costing to baseline work and standard costs– Identify core deliverables and activities for each group– Identify work at a low enough level to be actionable – activities that

can be eliminated, automated, restructured, or reorganized– Understand the cross functional (IT group) costs

Total Quality Methods for priorities and root cause– Pareto (Frequency) charting of incidents and activity volume – Ishikawa (Fishbone) to outline drivers and root cause– Plan-do-check-act cycle for change implementation

Use Reengineering principles to drive performance and efficiency– Eliminate unnecessary work / Restructure processes /Apply

automation only after optimization

Alphabet soup- Drive change through ABC, AVA, TQC and Reengineering


Break down high level costs into standard work units– At enough granularity to be able to establish standards

• Unix password reset…– Identify cross functional (IT group) involvement in activities

• Identify who the participants are, their place in the workflow and their estimate for their tasks

– Estimate standard work effort estimates for each activity • Focus both on labor / effort as well as “$” costs

Develop workload model summarizing standard activity costs into major accounting groups– Break Fix– Support / upgrade– Enhancement – New development etc.

Use Activity Based Cost to develop standard costs and linkage


Develop Pareto charts from tickets, service requests or other estimating techniques to analyze frequency of activities– May have to break ticket categories down to match with ABC– Ultimately workload categorization standards must synchronize

across all accounting and work management systems Combine with the data from the ABC analysis to understand

the total cost impact of the activity– Model the total costs by matching the frequency of activities to the

standard cost for the work Reconcile the cost with budget and headcount and redo

standards and volumes until budget, headcount and total cost are close– In first pass the model should be within 5-10% of explaining all work

and budget

Use TQC to prioritize and analyze activities


Understand Impact and Set Change Agenda


Activit

y 1

Activit

y 2

Activit

y 3

Activit

y 4

Activit

y 5

Activit

y 6

Activit

y 70

200400600800

10001200

$

Act

ivity

Co

st

Pareto Analysis

Activity Volume

Sys Admin Database Network PM BA PABreak Fix

Activity 1 10 5 1 0 0 0Activity 2 1 0 5 0 0 0Activity 3 20 5 3 1 2 10Activity 4 0 0 0 2 3 20

Support / MaintenanceActivity 5 2 5 1 10 5 20Activity 6 0 0 0 2 10 5Activity 7 1 8 1 3 9 15Activity 8 4 6 3 1 2 4

Upgrade / EnhancementActivity 9 6 3 3 0 0 0Activity 10 2 4 0 3 6 10Activity 11 9 3 4 6 8 22

Infrastructure Applications

ABC analysis

Analyze and Reconcile

Prioritize and Focus

This effort will identify and prioritize a portfolio

of improvement initiatives

Each targeted initiative should work on both reducing its frequency and cost


Act

ivity

Cos

t

Activity Volume

$

Drive down activity frequency with TQC and root cause analysis

Drive down activity cost with process redesign

Use Root cause analysis to find drivers of activities


Activit

y 1

Activit

y 2

Activit

y 3

Activit

y 4

Activit

y 5

Activit

y 6

Activit

y 70

200400600800

10001200

Pareto Analysis

Technology

Policy

Procedure

Training

Improvement efforts

Evaluating the root cause or drivers of efforts identifies changes to reduce frequency of support efforts

Reengineer process to drive efficiency and cost reduction


Eliminate

• Identifying activities that add no value to the product or service,

• Identifying activities that add no value for the customer,

• Organize around outcomes, not tasks

• Have those who use the output of the process do the process

• Subsume Information work into the real work that produces the information

• Treat geographically dispersed operations as if they were centralized

• Link parallel activities instead of integrating their results

• Put the decision point where the work is performed

• Capture data once at its source

Reengineer workflow

and process

Apply automation judiciously

• Automate after a working model has been piloted and implemented

• Don’t pave over the cow path – restructure, redesign then automate

Work

request

Labor

tracking

KPI’s

It is necessary to establish or rework key IT management systems to monitor and manage this effort– The ABC and initial quality initiatives can identify quick hit and

key process overhaul candidates– Over time, experience has shown that performance degrades and

sometimes costs are as high or higher than before the reengineering effort

It is critical to establish a solid set of KPI’s around the continued performance of these cost driving initiatives– Work tracking and labor management systems need to be tied

together to provide management visibility into ongoing operations

– A standard work breakdown structure is the critical link between the work request (problem / request management) system and the labor tracking system

– Management reports should tie both the volume of work and the cost of work into a coherent management dashboard

– KPI’s and performance management systems need to support continued improvement efforts

Sustaining change and continuous improvement
