It's about time that IT organizations began to adopt the framework called ITIL, or the IT Infrastructure Library. Because ITIL allows clear communication and consistency without being proprietary to a platform or hardware vendor, it will be important to the future of IT service management.

As an outsourcer, we see organizations try to bite off more than they can chew when implementing ITIL. One of the most important tools is laid out in Chapter 5 of the ITIL Service Delivery book (Stationery Office, 2001), "Financial Management for IT Service," because it shows how to obtain and effectively manage IT infrastructure costs. Many organizations would benefit from incorporating financial management for IT service concepts into their ITIL adoption programs as early as possible -- but the problem is they just don't know where to start! When working with potential and new customers, outsourcers start by developing a rough order of magnitude (ROM) model that defines key data elements and costs. The ROM allows the outsourcer to quickly benchmark the existing cost of IT services and project potential savings from the service improvements methods they will implement.

Outsourcers make their money by implementing improvements that are "self-funding" over a given period of time. In other words, there is (or should be) a return on investment for all service improvement projects -- including outsourcing or your internal ITIL projects. To develop an ROM costing model, you need to define three key types of data points: Units of cos tService transaction definition sAverage fixed cost of delivering each type of service transactio nUnit of cost: This can be as simple as "per end user" or "per device." In complex organizations, you might consider a derived unit of cost such as a "seat" that combines the number of end users supported normalized by the ratio of client or enterprise devices supported.

Service transaction definition: Define a "unit of work" or transaction that has a beginning and end. Common transactions include incidents resolved at a given tier of support, such as the service desk or e-mail administration.

Cost of service transaction: A quick way to estimate cost is to figure time spent on a task multiplied by the hourly rate of appropriated skilled resources needed to do the work, plus some percentage to cover overhead for technology, facilities and management. In the beginning, this doesn't have to be exact. You can refine the cost model over time. ITIL provides details on how to calculate cost units .Once the data points are defined, you can estimate current demand for each service transaction, per unit of cost, times cost of each service transaction. This is your benchmark ROM. It will tell you what it costs today to delivery a particular service.

But the real value of the ROM approach comes from being able to model "improvement ROMs." Improvement ROMs quantify the potential savings from proposed changes and service improvement plans. Potential savings are the difference between the benchmark ROM and the improvement ROM. To develop improvement ROMs, look for opportunities to change the transaction and consumption economics of the defined service transactions.

Transaction economics: Minimizing the cost of executing a support process (service transaction).

Consumption (demand) economics: Minimizing the number of times a type of support transaction needs to be executed across the units of cost.

The basic focus for reducing costs is on the transaction economics side of the business. These are the things like the number of calls end users make to the service desk, the cost of processing an order and the cost of performing a network operating system upgrade/migration -- things that have a repeated action or process associated with them. The goal is to reduce the cost of transactions through improving defined measurable activities. Advanced training for service desk agents and improved known error database entries are examples of activities that can drive transaction economics by reducing the time to resolve an incident.

Consumption economics adds opportunities to eliminate, or reduce, the original need for the "consumption" of service. Here you want to address issues such as reducing the number of incidents by fixing the underlying problem. Underlying problems could be the poor reliability of a device or the need to process unmanaged or unapproved changes. Focus on eliminating service transactions altogether.

In ITIL, this is the focus of improved problem, capacity and availability management processe s.As is the case with all ITIL service delivery processes, financial management measurements, reporting and planning will improve and become more accurate over time. The key is to start sooner rather than later. Using the ROM approach can get you started on the road to success and help you quantify the ROI of your ITIL adoption and service improvement programs.

Financial management for IT services is one of the 10 core processes defined within the ITIL reference material. Chapter 5 of the Service Delivery book provides 72 pages of detailed information on how to effectively manage this area of IT service. Additional references to cost are scattered throughout the entire library.

-- Margo Fullilove is the senior architect and manager of the Siemens Business Services ITIL/ITSM Alignment Program.