Simplify Estimating & Pricingof Application Management

Frank Vogelezang

Manager Pricing OfficeOrdina Professional Services & Projects

AgendaEstimating & Pricing of Application Management

Estimating & Pricing at Ordina

Estimating Application ManagementPrinciples of our Estimating Model

The choice for SEER

First resultsBuilding the model

Validating the model

Next steps

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OrdinaLocal player with a global reach

Ordina adds to the success of customers by:

Advising on the improvement of processes

Developing and integrating applications that support these improvements

Manage or outsource IT-portfolios

We have knowledge of local markets and regulations

We know our customers and speak their language

We maintain long-lasting customer relations

We have about 3,000 dedicated professionals

We spot opportunities for successful connections and bring parties from all over the globe together to activate that success

We connect knowledge from within and outside our organisation to improve the results of our customers

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Based on soundEstimating & Pricing

4Estimating & PricingTwo very different disciplines

Estimating is an engineering discipline that leads to:

Best estimation of units

Best way of sourcing and staffing

Cost price calculation of the results

A good estimation is a combination of (at least) two different estimation techniques

Pricing is a commercial discipline that leads to:

A pricing structure that is optimised to win the deal

An offering that meets the customer’s acceptance criteria

The cost price calculation is the starting point and is not under debate for Pricing

5Estimating & PricingNothing new and innovative, really

Solution

Although estimating and pricing of Application Management can be very complicated, the process must be as simple as possible

Estimating Pricing

6Estimating & PricingNothing new and innovative, really

Solution

In practice Estimating and Pricing can be an iterative process

Keep the responsibilities separated

Estimating

Pricing

7Estimating & Pricing at OrdinaBreak-up into repeatable components

FinancialGovernance

FinancialEngineering

Pricing Summary

Work Package

Work Package

Work Package

Work Package

Work Packages

Housing &Hosting

ApplicationManagement

PurchasedGoods &Services

Misc.Activities

RiskReservation

GuaranteeReservation

Ratecard Info

CustomerPricing

Structure

Keeps the process simple and straightforward

Ability to create custom service offerings easily

Re-using tested knowledge about components minimises estimating or pricing errors

Break-up into repeatable components creates internal track-record

Estimating & Pricing at OrdinaEstimating Application Management for Oracle E-Business Suite

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ApplicationManagement

=

Volume (formal)

Application ManagementDefinition

9

The process of managing the operation, maintenance, versioning and upgrading of an application (portfolio) throughout its lifecycle.

Application centered

Key stakeholders:

Business owners

IT development

IT maintenance

IT operations

Application users

Service Component Model

Estimating Application ManagementOne size fits all

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Most of the existing estimation models are:

Based on one set of input parameters

A sophisticated algorithm

One output for all activities

0,0666 Y2 - 0,7838 Y+100 + 9,1872 * I

Y = Years in operation

I = Cost of the initial release

___Y( )

Estimating Application ManagementPrinciples of our Estimating Model

We do not believe in “One size fits all” for Application Management

Different activities have different cost-drivers:

Functional size

Age of the application / implementation

Technical debt

Number of users

Governance

Service level

Service window

Response time

The estimating model needs to have a breakdown structure that can accommodate different cost-drivers

Our model is designed for outsourced Application Management

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Estimating Application ManagementThe Ordina Service Component Model

12

Innovativeapplication

management

Control (service

delivery)

Central Point of Contact

Correctiveapplication

management

Maintenance&

Renewal

Foundation

Con

trol

(co

ntra

ct)

Adaptiveapplication

management

Preventiveapplication

management

Technical Management

Functional Management

Technical Application Management

Estimating Application ManagementThe choice for SEER

The estimating model needs to have a breakdown structure that

can accommodate different cost-drivers

Requirements for a supporting tool:

Ability to facilitate a breakdown with different cost-drivers

Based on experience data

Possibility of calibrating the data with own experience

SEER for IT as the basis for the model

Six types of knowledge bases (out of 12)

SEER for Software for Application Development calculations

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Rollup

Purchased Software

ApplicationDevelopment

Software/DatabaseServices

End User Services

Service Desk

Additional Items

Building the model

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Building the Estimating ModelOverview – Corrective Application Management

19 estimation elements

9 roll-ups for structering the model

4 estimation elements without appropriate knowledge base:

Consignment

Contract Management

Service Management

Knowledge Guarantee

Different experience model for corrective maintenance

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Building the Estimating ModelApplication Management as Scenario

16

Building the Estimating ModelApplication Management as Scenario

17

Additional informationabout the WBS element

Building the Estimating ModelEstimation elements

18

The number of solution groupswith consignment duties

Building the Estimating ModelEstimation result – Overview

19

Building the Estimating ModelEstimation result – Diving into the details

20

Building the Estimating ModelEstimation result – Tailoring the details

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The first results

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The first resultsValidating the Estimating Model

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Data represents normalised monetary units for the first three years of the contract

Contract Data

First Estimate

Δ Calibrated Estimate

Δ Re-estimate with pre-contract data

Δ

Contract A 18,762 21,094 +12% 19,378 +3% 19,378 +3%

Contract B 4,180 4,721 +13% 3,956 -5% 4,122 -1%

Contract C 3,599 4,271 +19% 3,461 -4% 3,014 -16%

Contract D 1,000 1,425 +43% 1,108 +11% 1,180 +18%

First Estimate : Not precise enough and skewed towards the high end

Re-estimate : Fair enough for rough estimation purposes

Calibrated Estimate : Precise enough and fairly well centered distribution

Next stepsTesting and improving the Estimating Model

Test it as a reference model in new service offerings (currently under way)

Work together with Galorath to have more knowledge bases based on application or environment related characteristics

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25Wrap upEstimating & Pricing of Application Management

Estimating & Pricing are two different processes,

with different rules

requiring different skills and mindset!

Estimating Application Management

We don’t believe in “One size fits all”

Different activities have different cost drivers

Create a flexible break-down model

Papers on this subject available on my blog

26Questions, Suggestions and more InformationFind my resources on ThePriceof IT.blogspot.com

Frank Vogelezangfrank.vogelezang@ordina.nl+31 6 2214 3005