Advisory / Moving Information Technology from a Cost to an Investment / January 2014 1

2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Moving Information Technology from a Cost to an Investment
ADVISORY
Moving Information
Technology from
a Cost to an
Investment
The Technology Business
Management Approach
kpmg.com
2 Advisory / Moving Information Technology from a Cost to an Investment / January 2014
2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Moving Information Technology from a Cost to an Investment
Table of Contents
They say cost. We say value. . . . . . . . . . . . . . . . . . . . . . 4
The TBM Value Optimization Pathway . . . . . . . . . . . . 5
Value is optimized across three domains . . . . . . . . . . 6
The four stages of sustained value optimization . . . . 8
Managing the journey and realizing value . . . . . . . . 11
Optimization making the transition to value . . . . . 14
Creating sustained value over time . . . . . . . . . . . . . . 17
The conversation begins... . . . . . . . . . . . . . . . . . . . . . 19
Advisory / Moving Information Technology from a Cost to an Investment / January 2014 3
2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Moving Information Technology from a Cost to an Investment
4 Advisory / Moving Information Technology from a Cost to an Investment / January 2014
2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Moving Information Technology from a Cost to an Investment
Information Technology (IT) transparency has become the new mantra for many IT organizations as
they struggle to become more relevant and responsive to the business. Publishing a service catalog,
building service cost models, and sharing this information with stakeholders is a signicant step
towards running IT as a business, but transparency is not enough. In fact, under certain circumstances
transparency alone can lead to the wrong behaviors if not explained properly.
They say cost. We say value.
After years of cost cutting begun during the nancial crisis and subsequent deep
recession, CIOs have managed to capture much of the low-hanging fruit. However,
at some point, cost cutting begins to reduce capabilities that can adversely impact
business. Leading IT organizations do not stop with transparency; they continue the
journey so they can change the conversation with the board of directors and business
leadership away from the singular focus on IT as a cost to be reduced and towards IT
as an investment with a focus on enhancing returns and winning in the market.
At KPMG, weve been helping IT organizations apply Technology Business
Management (TBM) disciplines to navigate the journey from technology provider to
value-focused business partner. TBM helps IT organizations manage the business of
IT through an integrated view of technology, cost, performance, supply, and demand
(see gure 1).
Figure 1 | The TBM Framework
Source: Technology Business Management Council 2013
Advisory / Moving Information Technology from a Cost to an Investment / January 2014 5
2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Moving Information Technology from a Cost to an Investment
KPMG has developed the TBM Value Optimization Pathway to help IT organizations
navigate the journey from technology provider to value-focused business partner. The
pathway recognizes that organizations typically pass through four stages of maturity
on their way to sustainable value optimization. Effectively advancing an organizations
maturity calls for effective transparency and management across three inter-related
optimization domains (see gure 2). This report starts out by providing a high level
overview of the framework and moves on to offer recommendations for taking action
based on KPMGs experience helping clients. Simply put, its how we change the
conversation from IT cost to IT value.
Figure 2 | The TBM Journey Pathway to IT Value Optimization
Financial Resources
Technology Portfolio
Business Demand
Value Measurement and Management
Organization and Behavioral Change Management
Program and Risk Management
TBM
Optimization
Domains
Managing the TBM
Journey and
Realizing the Value
STAGE 2:
Transparency
STAGE 1:
TBM Strategy & Roadmap
STAGE 3:
Optimization
STAGE 4:
Sustained Value
The TBM Value Optimization Pathway
6 Advisory / Moving Information Technology from a Cost to an Investment / January 2014
2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Moving Information Technology from a Cost to an Investment
Technology portfolios
IT portfolio management, despite being around for years, is
still an undeveloped competency for many IT organizations.
Over time, many IT portfolios have grown organically from
the demands of the business, such as massive investments
in ERP, CRM, and supply chain automation, and from merger
and acquisition activity. The result is portfolios bloated with
redundancy, excess capacity, and underutilized and/or unused
assets.
Many businesses today are focused on agility and data
exploitation as competitive differentiators. Scale and efciency
is giving way to smaller and faster.
The technology portfolio is typically divided into four main
areas:
Application portfolio All of the applications currently being
hosted and maintained by IT, which for a large global rm
could easily number in the thousands. Management of this
portfolio focuses on comparing the total cost of ownership
for each application to its relative value to the organization.
Infrastructure portfolio The hardware, software, and
networking assets typically located in data centers, including
servers, storage, and networking hardware and requisite
non-applications-specic software such as middleware,
information management, and security.
Investment (project) portfolio Current and proposed
projects representing new strategic initiatives or major
enhancements of capabilities to existing applications and
services.
Service provider or vendor portfolio The current provider
relationships and contracts in place to provide IT-related
products and services including outsourcing, hardware,
software, contract labor, system integration, and other
services, which may also include shared services.
To enhance the business value of IT, the IT organization must
develop competencies to effectively manage across three inter-
related domains:
Financial Resources
Technology Portfolios
Business Demand
Within these three domains, some assets are under the direct
control of IT. Others are under the control of the business and
will undoubtedly require more collaboration. For example, the
infrastructure portfolio is directly controlled by IT whereas the
applications portfolio is controlled by the business.
Financial resources
The IT budget represents a rms investment in IT and includes
running the business by operating, maintaining, and enhancing
existing applications and services, as well as changing the
business or strategic investments. Historically this IT spend
has been treated as a burden the cost of doing business. As
a result, budgeting has been problematic - an annual activity
driven from the bottom up and often capped as a percent of
revenue leading to:
A disconnect between the general ledger view of the IT
budget and the way IT is actually consumed
A lack of understanding about demand and cost drivers
making forecasting a guessing game.
A lack of incentives and accountability
Because of this, the business feels powerless to control its
IT costs and makes no effort to alter its behavior. IT generally
feels frustrated and put upon. Together, this often leads to poor
choices, reactionary decisions, and wasteful spending.
Value is optimized across three domains
Advisory / Moving Information Technology from a Cost to an Investment / January 2014 7
2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Moving Information Technology from a Cost to an Investment
Business demand
Ultimately, all IT spend should serve the needs of the business. Historically, IT has
operated as a supplier handling requests rst in/rst out. With new demands and cost
cutting measures occurring at the same time, IT is backlogged. Delivery times are
long. The business is frustrated. And the value side is often neglected.
Many IT organizations struggle to achieve sustainable value from their optimization
efforts. Rather than approaching the challenge from a holistic perspective they
typically respond with independent, point projects that deliver value initially but lose
much of this value over time as the project loses momentum and the focus turns to
the next project (gure 3).
Figure 3 | The Typical Cost-Saving Journey
Value to the
Business
Time
Data Center Consolidation
Quick reductions in excess
capacity yields immediate savings
Progress stalls and run-the-
business costs creep back up as
attention shifts away from
maintaining early efficiency gains
Application Rationalization
Slow ramp-up as business is skeptical
that shared applications will be
responsive to their unique needs
While simplifying business processes
may provide significant value, interest
wanes in the face of shifting priorities
Cost Takeout Initiative
Tactical, one-time response to
top-down mandate
Emphasis on low-hanging fruit
Rapid savings but not
sustainable as suppressed
demand and old habits re-
emerge
Expected
Actual
ILLUSTRATIVE
Data Center Consolidation
Application Rationalization
Cost Takeout Initiative
8 Advisory / Moving Information Technology from a Cost to an Investment / January 2014
2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Moving Information Technology from a Cost to an Investment
Making the transition from cost-centric to value-centric doesnt happen with the
installation of tools and a few projects. Its the result of a holistic disciplined journey
that moves through four stages of maturity across each of the domains as depicted in
the following chart.
Figure 4 | The TBM Sustainable Value Journey
A planned and purposeful TBM journey can lead to sustained
value.
Spending for run the business
reduced as a result of efficiency
gains, and funding shifted for
grow the business
Investments optimized for grow
the business
IT portfolio rationalized and well-
aligned with business priorities
Run the business spending is
draining most of IT funding and
resources
Substantial unsatisfied grow the
business demand
Redundant, poorly-aligned &
under-performing IT portfolio
The four stages of sustained value optimization
Advisory / Moving Information Technology from a Cost to an Investment / January 2014 9
2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Moving Information Technology from a Cost to an Investment
Getting started with TBM:
strategy and road map
Our experience helping clients develop
a TBM strategy hasnt yielded any real
shortcuts, but we have developed a solid
methodology and set of activities that
get your organization to value quickly and
with integrity.
Transforming an organization with TBM
is not easy; in fact it represents a major
organization and behavioral change
initiative that includes both IT and the
business. A successful transformation
demands a disciplined approach with
program management, dedicated
resources, and sufcient funding.
It begins with the development of a
TBM strategy that will drive the effort
by articulating the vision, objectives,
expected outcomes, and metrics that
will be used to measure and monitor
progress. A roadmap will provide the
plan to move the organization from its
current state to the desired target state
described in the strategy (see gure 5).
Key success factors include:
Organization readiness Can the
organization change? What is the level
of readiness of data, process, people,
communications, organization, and
metrics?
Sponsorship Executive-level
sponsorshipShort-term tactical wins
can be attained through nance or
IT-sponsored initiatives, but getting to
true value requires buy-in from the top.
Business case A business case documents the lifecycle cost and quanties the
benets. Organizations that have implemented TBM have demonstrated signicant
short and long-term value, far in excess of the investment.
Business engagement Commitment from IT, nance, and the business is
imperative. Changing the ways in which business and IT are held accountable
for demand and consumption of IT resources often presents new and potentially
signicant cultural hurdles.
These steps are important as TBM changes the way that IT and the business work
together, putting more ownership and accountability onto the business, while
positioning IT as a trusted, reliable, and eager partner.
Figure 5 | Typical Focus Areas for TBM Strategy and Road Map
Financial Resources
Technology Portfolio
Business Demand
Typical Focus Areas
TBM readiness
assessment, planning
and objective setting
Sponsorship
Business case
Business
engagement
Value Measurement and Management
Organization and Behavioral Change Management
Program and Risk Management
TBM
Optimization
Domains
Managing the TBM
Journey and
Realizing the Value
STAGE 2:
Transparency
STAGE 1:
TBM Strategy & Roadmap
STAGE 3:
Optimization
STAGE 4:
Sustained Value
10 Advisory / Moving Information Technology from a Cost to an Investment / January 2014
2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Moving Information Technology from a Cost to an Investment
Transparency
Many IT organizations have existed as a black box with little to
no visibility into their nancials outside of the annual budget.
Remarkably, with IT budgets typically accounting for, often
depending on industry, anywhere from 2 percent to 12 percent
of revenues and more than half of total capital expense, there
is an absence of nancial accountability. IT is either funded
as a lump-sum corporate expense or it is charged back to the
business as a levy based on some (often mysterious) allocation
methodology. As the business takes more control of the IT
demand spectrum, pure cost transfer is no longer an option. IT
organizations are expected to provide transparency into their
operations as well as articulate the value of those costs as basic
table stakes.
Transparency is about sharing information with stakeholders
about the cost, purpose, service levels, risks, and consumption
of IT resources in business terms. This enables the business
to make informed, rational decisions about the use of IT and
increase accountability for the outcomes. But transparency
cuts both ways. The business must also become more
transparent about its business volumes and growth projections,
product and marketing plans, and any planned merger and
acquisition activity. Sustainable value optimization is built on
the foundation of transparency and credibility
Value realized
Value is attained by implementing an array of initiatives that
unlock value across the three target domains. The initiatives
are an explicitly designed set of linked programs engineered to
deliver enhanced value along both the technology demand and
supply chains. The focus is on leveraging the information gained
from transparency to increase the effectiveness and efciency
of both the technology demand and supply chains.
These initiatives are aimed at improving the accuracy and
timeliness of budgets and forecasts, rationalizing portfolios,
managing demand, and improving the allocation of resources.
The objective is to drive better business outcomes such as
optimizing the running the business vs. changing the business
ratio, improving the return on capital, or reducing risk. Some
of the initiatives fall entirely under the control of IT and can
be implemented quickly providing immediate returns. Others
will require a collaborative effort between IT and the relevant
stakeholder to realize enhanced value.
The value optimization initiatives often correct problems that
were created from non-existent or immature processes, lack of
skills and expertise, or automate inefcient manual procedures.
Sustainability
Sustainable value is achieved by changing the culture where IT
is a black box cost to be managed to one where IT is embraced
as an investment in technology-enabled value creation as
measured by business outcomes. While optimization initiatives
focus on discrete programs to capture value, sustainability
focuses on embedding value optimization within processes on
an ongoing basis. For example, in a value optimization initiative
we might look to eliminate redundant applications whereas
sustainable value requires a process that prevents redundant
applications from occurring in the future.
Without this focus on sustainability, organizations will miss
signicant opportunities for realizing more business value, and
over time all of the hard work and benets from optimization
initiatives would eventually be undone.
Advisory / Moving Information Technology from a Cost to an Investment / January 2014 11
2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Moving Information Technology from a Cost to an Investment
A transformation like this is a major undertaking and needs to be managed as a
program consisting of IT and business projects. Getting from cost transparency
to value optimization is about organizational and behavioral change management
and requires an enhanced engagement model between IT and the business aimed
at enhancing value and winning in the market, not just on lessening technology
cost. New capabilities and competencies are required for both IT and the business.
Executive management and the business leadership must become much more
engaged in dening the measure of IT value and assume accountability for realizing
the benets of technology investments while IT must run as a business with mature
management processes and scal discipline. Without successfully executing the
required organizational and behavioral change, it will be difcult, if not impossible, to
achieve sustainable value optimization.
Transparency is the baseline
Transparency is about sharing information with stakeholders about the cost, purpose,
service levels, risks, and consumption of IT resources in business terms to enable
rational decisions about the use of IT. Following are the actions for transparency for
each of the three domains.
Figure 6 | Typical Focus Areas for Transparency
Financial Resources
Technology Portfolio
Business Demand
Typical Focus Areas
Value Measurement and Management
Organization and Behavioral Change Management
Program and Risk Management
TBM
Optimization
Domains
Managing the TBM
Journey and
Realizing the Value
STAGE 2:
Transparency
STAGE 1:
TBM Strategy & Roadmap
STAGE 3:
Optimization
STAGE 4:
Sustained Value
TBM readiness
assessment, planning
and objective setting
Sponsorship
Business case
Business
engagement
Service catalog
Service cost models
Unit cost reporting
Technology resource
and service
consumption
Demand forecasting
and capture
Managing the journey and realizing value
12 Advisory / Moving Information Technology from a Cost to an Investment / January 2014
2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Moving Information Technology from a Cost to an Investment
Financial resource transparency
The IT budget represents a rms investment in IT and includes
running the business by operating, maintaining, and enhancing
existing applications and services and changing the business or
strategic investments. The budget is typically the only visibility
into the nancials of IT. But there is a disconnect between the
general ledger view of the IT budget and the way IT is actually
consumed. Financial resource transparency is achieved by
implementing the following:
Service catalog IT denes what it does not in traditional
terms of technology assets (e.g., servers) and resources
(e.g., people) but as a collection of business services (e.g.,
email) and publishes them in a service catalog. For each
service, the catalog includes a description, the expected
service level or quality, who is authorized to request the
service, the price, and how to order. This enables the
business to procure IT the way it gets used.
Service cost models A cost model is built for each service
that includes both the direct and indirect costs of providing
the service and the cost drivers. Some services may offer
different levels of service or availability (tiered) at different
pricing. Cost models are used to set the price of a service
and to help IT and the business understand how business
demand impacts IT costs and the budget.
Unit costs In the process of building service cost models,
IT must also gain an understanding of its unit costs for
infrastructure components since they often underpin a
business service. Unit costs typically reect the cost of
commodity assets and can be benchmarked against peers,
leading practices, and external providers. This enables IT to
make improvements to its unit cost structure.
Consumption tracking While the service catalog provides
the supply side information, transparency also requires
capturing consumption (usage) data to provide the demand
side. This supply/demand transparency enables IT nance
to calculate the actual cost of delivering IT services to the
various functions and business units.
Technology portfolio transparency
Technology portfolios consist of the tangible IT assets of the
rm and are used as organizing structures for management and
control. Just like any other investment portfolio, technology
portfolios must be balanced to ensure alignment with business
strategy and the desired trade-off between risk and return.
Technology portfolio transparency provides the information
required to make the right decisions to enhance portfolio value.
Portfolio views The overall technology portfolio is
comprised of many sub-portfolios. Transparency requires
visibility at the sub-portfolio level. The portfolios that
provide the greatest opportunity to create value include
the applications portfolio, infrastructure portfolio, service
portfolio, and vendor portfolio. Decision makers require
access to a single source of truth about each of the
portfolios.
Application TCO In addition to service costs and unit
costs, portfolio transparency requires the total cost of
ownership (TCO) for each application. The TCO of an
application includes the initial implementation costs plus the
ongoing operating costs over its lifecycle these are often a
multiple of the implementation costs.
Business demand transparency
With demand soaring and IT budgets undergoing continuous
cost cutting, the demand for IT far exceeds the available supply,
leading to large backlogs, lengthy delivery times, and frustrated
business units. Business demand transparency provides
visibility into the demand chain through the following:
Demand gathering and reporting Demand for IT
comes in many forms and from many sources making it
extremely challenging for IT to efciently allocate resources.
Most of the time demands are funneled into silos: one for
maintenance, one for enhancements, one for projects, etc.
without a holistic picture of the total demand. Transparency
requires a single intake for all demand.
Project requests and approvals Steering committees
review and approve new investment proposals, prioritize
active projects, and periodically review existing projects
to decide whether to continue, defer, or cancel them.
Publishing minutes from their meetings provides
transparency around the investment decision process.
Advisory / Moving Information Technology from a Cost to an Investment / January 2014 13
2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Moving Information Technology from a Cost to an Investment
Project dashboard Requests that have moved out of
the queue and into the active project list have their status
continuously updated in a dashboard accessible by project
sponsor/owners. The dashboard displays relevant information
about the project scope, schedule, and budget.
Business volumes and growth projections IT demand
directly correlates with business volumes and growth.
As business volumes increase, so do the number of
transactions and data requiring increased capacity from
servers and storage. Business growth also impacts IT
demand as the business adds people and other resources to
accommodate more customers.
Product and market plans Launching new products and
entering new markets increases demand for IT. At the very
least, existing services will need to be changed and more
likely new services will be required.
Merger/divestiture plans The success of merger and
acquisition transactions is increasingly dependent on IT and
how rapidly and effectively it can integrate IT systems and
organizations. Experience has demonstrated that engaging
IT upfront as part of the due diligence process is a key
success factor.
Standard business cases Investment transparency
requires a level playing eld when it comes to evaluating
proposals and making tradeoffs. Using standard business
cases across the organization for all investment proposals
with review by an independent body helps ensure a fare and
credible process.
The kind of transparency described above puts valuable
information into the hands of stakeholders that can be used
to make better decisions about the demand for IT resources.
Dening IT as business services enables the business to link a
service to a capability and a business outcome. The business
can begin to understand the relationship between the price
of a service and its value (or lack thereof). It can also see how
different service levels can impact prices. IT costs cease to
be something not understood and uncontrollable and become
something that can be managed.
Watching out for pitfalls
But transparency is not easy to accomplish, and if not done
correctly it can lead to problems. Potential pitfalls include:
The effort can be expensive and distracting. IT cost data,
when it exists, is stored in many different systems and
formats. Locating, aggregating, and normalizing all of the
data can be time consuming and expensive, requiring a level
of effort that diverts valuable and already overstressed IT
resources to manually capture and report cost information.
For example, calculating labor costs requires getting data
from HR systems and IT time tracking systems.
Poor data or sloppy work impacts credibility.
Organizations may be tempted to take shortcuts that use
bad or incomplete data, leading to a loss of credibility. When
moving to cost transparency, it is important to get it right the
rst time since there is rarely a second chance.
Business leaders may not understand the costs. IT must
change its engagement model and implement a strong
account management function to work with the business
to help them understand the costs, drivers, and linkages,
otherwise they may make uninformed decisions.
IT costs may not be competitive. Once IT builds its service
cost models it may nd that due to internal inefciencies or
lack of scale, some or all of its costs are more expensive than
comparable services from external providers. This may result
in even more pressure to cut costs or open the door to major
outsourcing.
Without context, cost transparency can lead to wrong
behaviors. Since there are no standards for IT services,
comparing them and their pricing can be complex and
confusing. Requirements for security and/or regulatory
compliance or management overhead can burden an internal
service with additional costs that are not reected in a similar
service offered by an outsourcer, making its price look more
attractive. It is important to help ensure that you are always
comparing apples to apples.
14 Advisory / Moving Information Technology from a Cost to an Investment / January 2014
2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Moving Information Technology from a Cost to an Investment
Value optimization builds on the information produced by
transparency and opens the door to implement an array of
initiatives to unlock value across the three target domains. The
initiatives are an explicitly designed set of linked programs
engineered to deliver maximum value. The focus is on
leveraging the transparency to increase the effectiveness and
efciency of both the technology demand and supply chains.
Some of the initiatives fall entirely under the control of IT and
can be implemented quickly providing immediate returns.
For example, optimizing the infrastructure portfolio through
consolidation and virtualization can be done by IT without
involving anyone else. Others will require a collaborative effort
between IT and the relevant stakeholder to realize maximum
value. For example, rationalizing the applications portfolio
will require a joint effort between IT and the users of the
applications.
Value optimization initiatives often correct problems that were
the result of non-existent or immature processes, lack of the
right skills and expertise, or inefcient manual procedures.
Following are specic value optimization initiatives that can be
applied across the three domains to unlock value.
Financial resource initiatives
Preparing and managing the IT budget is challenging at best and
often out of date before it becomes operational. One problem
is the disconnect between the cost pools in the budget (e.g.,
labor, hardware, software, maintenance) and the way that IT is
actually delivered and consumed (e.g., applications, services).
Another is the absence of accurate historical consumption data.
That said, there are proven ways to increase the transparency
and understanding of budgets, costs, and consumption.
Showback/chargeback By combining consumption data
with service pricing a bill of IT can be produced that shows
the allocation of IT costs based on actual usage by each
business unit. With showback, each business unit gets a bill
for IT for informational purposes while with chargeback each
business unit gets a bill that results in a real charge against
their P&L.
Budget and forecast automation Cost transparency
provides the lever to solve the budget and forecasting
problems by mapping the general ledger accounts to the
service portfolio, and cost models, enabling the business
to budget by the services they consume and understand.
Furthermore, historical results may be viewed by month, by
line item.
Scenario based planning Because of its ubiquity and
ability to generate signicant returns, there is almost
always more demand for IT than available resources and
ongoing budget constraints can supply. At the same time,
organizations are faced with alternatives they can pursue,
such as whether to enter a new market, lower prices to
increase volumes, etc. These decisions have implications
for IT. Building on the automated budgeting and forecasting
capability, organizations can model the impact of alternative
strategies or growth rates on IT costs and demand.
Technology portfolio initiatives
Over the years weak or non-existent governance, absence
of architecture, decentralized IT decision making, mergers
and acquisitions, and poor asset management, to name the
biggest culprits, have contributed to technology portfolios that
represent fertile opportunities for optimization. Transparency
provides the necessary information to unlock value with the
following actions:
Application portfolio rationalization IT implements new
applications in response to business demand, but rarely,
if ever, retires older systems. It goes without saying that
merger and acquisition activities agitate the situation. An
ongoing effort to retire low value applications can result in
savings as much as 30 percent.
Infrastructure consolidation and virtualization
Infrastructure represents a signicant chunk of the IT budget
yet often avoids detailed scrutiny. While new investments are
subject to governance processes requiring business cases,
steering committee oversight, and stage gate reviews,
infrastructure costs are assumed to be non-discretionary and
a cost of doing business. Over the years, just as the number
of applications and services has grown, so has the number
of platforms, operating systems, middleware, and other
infrastructure components. The result is that asset capacity
utilization is low and the diversity of both hardware- and
Optimization making the transition to value
Advisory / Moving Information Technology from a Cost to an Investment / January 2014 15
2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Moving Information Technology from a Cost to an Investment
software-based platforms increases complexity, which drives
high support costs.
Recent technology advance in virtualization enable one of
the more signicant cost saving opportunities by shifting
workloads from dedicated to virtual devices. Virtualizing
servers can drive effective utilization rates to 80 percent
or greater and result in server reductions from 20 percent
to 60 percent. Infrastructure as a Service (IaaS), Platform
as a Service (PaaS), and Software as a Service (SaaS) have
had the biggest impact on the economics of computing.
Shifting workloads from internal servers to public cloud
infrastructure and using SaaS solutions where possible
can provide signicant cost savings, especially in up-front
capital expense.
Vendor rationalization Just as the applications and
infrastructure portfolios have grown over the years, so has
the number of vendor contracts. There is an opportunity to
review all vendor relationships and rank them according to
the level of spend and performance. Consolidating business
with a smaller number of strategic partners can result in
leverage to gain better pricing deals while strengthening
relationships.
Investment (project) portfolio optimization The program
investment portfolio, sometimes called the change the
business portfolio, typically accounts for 25 percent to 35
percent of the total IT budget. Value is gained by improving
strategic alignment, ensuring the most strategically
important initiatives are the priority.
Business demand initiatives
Demand management IT demand manifests in many
ways ranging from large, multi-year projects to help desk
tickets and everything in between. Current practices tend to
build separate demand queues for each type of demand with
only project demand subject to any governance process.
Informed demand management starts with the business
having a better understanding of how its demand impacts
IT costs and the accompanying value proposition. This often
results in the business modifying its demand to eliminate
wasteful or low-value requests.
Resource management Implementing demand
management creates the opportunity to improve resource
management due to the visibility it provides into future
needs. Trying to satisfy unplanned and uncontrolled demand
often leads to disruption caused by resource constraints.
Progress is stopped until the required resource becomes
available. The resource could be a person with a specic skill
or the availability of a server platform.
16 Advisory / Moving Information Technology from a Cost to an Investment / January 2014
2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Moving Information Technology from a Cost to an Investment
Demand management coupled with resource management creates a more efcient
demand/supply chain and helps ensure that resources are aligned with the highest
priority demand.
The chart below summarizes some of the typical actions that comprise stage three of
the TBM journey: value optimization.
Figure 7 | Typical Focus Areas for Value Optimization
Financial Resources
Technology Portfolio
Business Demand
Typical Focus Areas
Value Measurement and Management
Organization and Behavioral Change Management
Program and Risk Management
TBM
Optimization
Domains
Managing the TBM
Journey and
Realizing the Value
STAGE 2:
Transparency
STAGE 1:
TBM Strategy & Roadmap
STAGE 3:
Optimization
STAGE 4:
Sustained Value
TBM readiness
assessment, planning
and objective setting
Sponsorship
Business case
Business
engagement
Service catalog
Service cost models
Unit cost reporting
Technology resource
and service
consumption
Demand forecasting
and capture
Chargeback/
showback
Budget/forecast
automation
Scenario-based
planning
Application/
infrastructure portfolio
optimization
Vendor rationalization
Demand
management
Resource
management
Advisory / Moving Information Technology from a Cost to an Investment / January 2014 17
2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Moving Information Technology from a Cost to an Investment
While optimization initiatives focus on executing a designed set
of programs engineered to capture maximum value, sustaining
value is the result of embedding value optimization into the
culture and core processes. For example, during stage three
as part of an application portfolio rationalization initiative we
might eliminate redundant applications. But without changing
the process that led to this situation, it would only be a matter
of time before redundant applications found their way back into
the portfolio. To sustain value there has to be a process in place
that prevents redundant applications from occurring.
Without this focus on continuous improvement, organizations
will miss signicant opportunities for increasing value, and
worse, over time much of the captured value will decay.
Financial resource continuous
optimization
Transparency and value optimization create additional
opportunities for organizations to sustain value from nancial
resources. IT cost transparency and chargeback provide
opportunities to use pricing strategies to change behaviors.
Automated budgeting and forecasting open the door to move
away from the annual budget cycle to rolling budgets that
more accurately reect the dynamics of the business. And
benchmarking can be used to measure and improve overall
performance as described in more detail below:
Financial engineering and pricing strategies Cost
transparency requires IT organizations to build a cost model
for each service that accounts for all of the direct and indirect
costs of providing that service and identies the demand
driver(s) for the service. As IT develops new services,
it must adopt a nancial engineering competency that
incorporates cost and pricing strategies as part of the initial
design process just as their business counterparts do when
developing a new product.
The cost of providing a service does not necessarily
equal its price. IT can use pricing strategies to inuence
behaviors. For example, pricing can be used to drive demand
to different time periods, to different platforms, or to different
service levels. Cost plus margin pricing can be used to fund
research and development, support a prototyping lab, or
purchase extra capacity.
Creating sustained value over time
Rolling budgets and forecasts Most IT projects do not run
on annual cycles and demand for IT resources cannot always
be planned or anticipated at budget time. Consequently most
IT budgets become obsolete by the end of the rst quarter.
TBMs budgeting and forecasting capabilities support a
move to rolling budgets. This allows an organization to better
foresee risks and opportunities, revisit strategy in the event
of business changes, and align resources for competitive
advantage.
Benchmarking Calculating IT unit costs, developing
service cost models, and establishing a baseline for costs
is a good rst step. Setting targets for cost reduction
and measuring progress against those targets is a good
second step. But at some point, in order to determine how
competitive your costs are, you will need to benchmark them
against peers and leading organizations.
Technology portfolio continuous
optimization
Transparency and portfolio management help optimize the
various technology portfolios, but sustaining value requires
implementing processes that prevent a reoccurrence of the
original problems. Improving the governance of IT improves
decision-making and oversight.
Architecture governance Optimizing the applications and
infrastructure portfolios will eliminate the waste, duplication,
and low-value assets from the past but it will not prevent
the same issues from happening again. Implementing
strong architectural governance will provide continuous
optimization over the technology portfolio by initially dening
a target architecture and then by implementing a system of
controls over the creation and monitoring of all architectural
components and activities. For example, when a new
program is proposed as part of the governance process, it
will undergo an architecture review. If there is an existing
service or application that provides the same capability it will
be agged.
18 Advisory / Moving Information Technology from a Cost to an Investment / January 2014
2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Moving Information Technology from a Cost to an Investment
Investment governance Without
a strong rm-wide governance
process, investment decisions and
project priorities become highly
politicized and inconsistent and are
driven by immediate needs rather
than by strategic importance. Strong
investment governance results in:
Improved strategy alignment In
the absence of strong governance
and effective IT/business
collaboration, the IT agenda is
driven by the undirected orders
from the business, leaving IT to
prioritize the demand and balance
resources. Cost transparency data
can be used to drive discussions
with business leaders about
cost and value, mandatory or
discretionary, critical or nice to
have, etc. Out of these discussions
can come an ordered and holistic
demand agenda based more
closely on the strategic objectives
of the enterprise rather than an
individual business unit.
More accurate business
cases Business cases have
become the tool of choice for
evaluating IT investment decisions,
but their accuracy is often suspect.
A major aw occurs when the focus
is on the capital or implementation
costs. History demonstrates
that the ongoing operating costs
are at least equal to (and often
signicantly more than) the initial
costs, yet they are often ignored or
underestimated in business cases.
Cost transparency data treats
new investments as services and
can be used to more accurately
estimate the full costs of operating
the service over its lifetime.
More accurate business cases help ensure that investments are made in the
programs with the highest value.
Continuous monitoring and adjustment Armed with more accurate
business cases and applying pro-active management, investment programs
can be continuously monitored. As changes arise, as they almost always do, the
impact of the change on the costs and benets is incorporated into the business
case, which is then re-evaluated and a decision made to continue to invest,
defer, or even terminate the program and re-allocate the resources to a higher-
value alternative.
Business demand
Demand shaping Informed demand management results in the business making
better decisions about their use of IT based on trade-offs they make between
cost, quality (service levels), and value. Demand shaping goes beyond demand
management by inuencing demand to match planned supply. At any given point
in time, IT has xed capacity (cloud computing is slowly changing this for certain
resources) that may constrain its ability to meet demand. In response, IT can try to
shape demand by offering incentives. For example, to avoid costly server capacity
upgrades IT could use price incentives to shift large computer workloads to the
evening or weekends by offering discounted prices (positive) for off-hours use or
charge a premium (negative) for peak usage.
Figure 8 | Typical Focus Areas for Sustained Value
Financial Resources
Technology Portfolio
Business Demand
Typical Focus Areas
Value Measurement and Management
Organization and Behavioral Change Management
Program and Risk Management
TBM
Optimization
Domains
Managing the TBM
Journey and
Realizing the Value
STAGE 2:
Transparency
STAGE 1:
TBM Strategy & Roadmap
STAGE 3:
Optimization
STAGE 4:
Sustained Value
TBM readiness
assessment, planning
and objective setting
Sponsorship
Business case
Business
engagement
Service catalog
Service cost models
Unit cost reporting
Technology resource
and service
consumption
Demand forecasting
and capture
Chargeback/
showback
Budget/forecast
automation
Scenario-based
planning
Application/
infrastructure portfolio
optimization
Vendor rationalization
Demand
management
Resource
management
Financial engineering
and strategic pricing
Rolling budgets and
forecasts
Benchmarking
Architectural
governance
Demand shaping
Investment
governance
Advisory / Moving Information Technology from a Cost to an Investment / January 2014 19
2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of the KPMG network of
independent member rms afliated with KPMG International Cooperative (KPMG International), a Swiss entity.
Moving Information Technology from a Cost to an Investment
So now we have the content and context in hand from an IT value perspective. Its
time to have the conversation. It is of utmost importance to remember your audience.
To help them gain an understanding of value, it is important to tie it to the culture,
strategy and goals.
How does ITs value t into the overall culture of the organization? Is it innovative
enough? Is it solidly trusted? Is it a change agent?
What about strategy? Have you positioned your conversation to tie IT value directly
and integrally to the corporate strategy? Has the IT organization been involved in
planning and strategizing the future?
And goalshow has IT made goals possible in the past, and how can it do a better
job of meeting business goals in the future? Can it help create better/faster product
launches, for example?
As with any conversation, the ability to get down to the nitty gritty details is essential.
But more often than not, the value-oriented conversation is about things bigger than
IT alone. Thats what KPMGs TBM is all about.

The conversation begins...
KPMG LLP, the audit, tax and advisory rm (www.kpmg.com/us), is the U.S. member
rm of KPMG International Cooperative (KPMG International). KPMG Internationals
member rms have 145,000 professionals, including more than 8,000 partners, in 152
countries.
2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member rm of
the KPMG network of independent member rms afliated with KPMG International
Cooperative (KPMG International), a Swiss entity. The KPMG name, logo and the
phrase cutting through complexity are registered trademarks or trademarks of KPMG
International.
The information contained herein is of a general nature and is not intended to address the
circumstances of any particular individual or entity. Although we endeavour to provide
accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the future.
No one should act on such information without appropriate professional advice after a
thorough examination of the particular situation.
January 2014
Contact us
Marc E. Snyder
KPMG LLP, CIO Advisory
Managing Director
T: 978-807-0522
E: msnyder@kpmg.com
Steve Bates
KPMG LLP, CIO Advisory
Principal
T: 832-493-1814
E: sjbates@kpmg.com
Denis Berry
KPMG LLP, CIO Advisory
Principal
T: 312-665-2866
E: dberry@kpmg.com
Contributions by Craig S. Symons.
Broad River Partners LLC
www.kpmg.com/us/tbm