Management of
Computer System
Performance
Chapter 11
Value For Money, and Health Checks
Value For Money, and Health Checks
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Agenda:
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Chapter 11
Outsourcing IT services
Objective:
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Students should be able: to identify the value
for money and health checks.
2
Value for Money and Health
Checks
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Value for Money and Health Check valuations are
used to validate the efficiency in which the IT
department is being managed.
They seek to measure the efficiency of the
management of the department and the
investments within the IT department.
These types of analysis lead to the
identification of issues that can serve as a
basis for change or in extreme cases, as a
basis for IT outsourcing.
3
Value for Money
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VFM studies take an analytical look at the
different services offered by the IT department.
The object is to determine if:
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the department is providing a value at a level consistent
with the funding,
the requirements being placed on the department are
reasonable,
there are areas where efficiencies and savings are possible
and
What the department does well and by extension, what
areas can be improved.
4
Value for Money
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A typical IT department provides numerous services.
Customized questionnaires are usually created for
each department to obtain the optimum results from
a survey.
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Consider that your firm will expend time and money collect
the data, an optimal data gathering approach should be
exercised.
The components of those services, that should be
examined, (assuming that they exist) for a VFM
study are as follows:
5
Value for Money
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Staffing: Issues should include identifying what are their
current skills, what technology trends exist and if they
will be positioned to support new technologies as they
roll out. Other elements include staffing turnover and
levels of management.
Service Levels: Is the department successful in meeting
or exceeding their service level agreement.. This
crosses multiple areas from servers to helpdesk call
response and problem solving.
Security: This seeks to identify all aspects of the firms
security positions and what they do to enforce security
throughout the organization. This covers the gamut from
user logins to firewalls to Intrusion Detection Systems.
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Value for Money
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Technical Support: This addresses the applications of
patches and upgrades. Most patches are, by far,
security related so there will be a partial overlap in
these activities.
User Support: This predominately refers to users of
the technology and how the IT department assists them
in solving their problems.
Costs and Charges: This area of study refers to how
the consumers of IT servers are billed back for those
services. Examples include Desktops, Helpdesk calls,
Software licenses, etc.
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Value for Money
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Application Systems Development: What Software
Development Life Cycle methodologies are used and
how are the methodologies followed. This is a project
management type of question and it involve the
meeting of client expectations and the delivery of
projects on time, to specification and to budget.
Networks: Is the system reliable and delivering
adequate performance now and for the immediate
future. This covers both Networking issues as well as
Network Security. Again there is an overlap with the
security element. They are intertwined and cannot be
considered separate areas of work.
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Value for Money
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IT Department Organizational Integration: This
element is design to examine how the different support
groups within the IT department interface and provide
support to the rest of the organization. IT addresses
internal and external reorganizations and how they are
handled, how the IT staff interface with their users and
the communications provided by the different elements
with all external organizations.
Information Systems Plan: This is the long term IT
plan as part of the their execution of the firms strategic
goals.
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Value for Money
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IT managers may legitimately be concerned about
this type of study being performed on their
departments if they are not co-sponsors of the
activity.
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A lack of IT knowledge on the part of the investigators can
impact the results of the study.
 A biased study could be career limiting to the IT
departments staff.
The knowledge of how the data gathered by the study will
be used may result in less than honest responses by the
participants.
Select the right staff for the job.
GET BUY IN OF IT STAFF / MANAGEMENT.
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Value for Money
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Components of the study should include:
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Hardware and software refresh and maintenance.
 Includes servers, desktops, network equipment and all
related OS and applications.
Staffing turnover and the underlying reasons.
System and support SLA’s.
Project Performance
Security
Budgetary performance and compliance.
IT support of BPR initiatives.
Integration into the corporations strategic planning.
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Value for Money
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In this case, each of these elements will involve a
significant methodology to identify and document
what is being done in that particular area.
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This is a very involved and meticulous process.
The larger the organization, the more involved this
becomes.
This type of study invariably leads to the
discovery of inefficiencies.
Root cause analysis of those inefficiencies is
the next step.
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Value for Money Study Results
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Action item points as a result of a VFM Study.
Such a study usually finds several areas for
remediation. These may include:
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Security changes
Hardware/Software refresh
Integrated systems implementations
(ERP/CRM/SCM)
Staff increases or decreases.
13
Value for Money Study Results
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The Root cause analysis will identify many causes,
depending on the problem but in the end, it
becomes a matter of determining if those problems
can be fixed internally or if it would be more cost
effective to resolve them externally (outsourcing).
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Hardware purchases at retail levels can be beat by getting
someone else that buys larger quantities to buy it for you.
Skilled staff that is not needed full time may be acquired
through a larger organization.
Costs associated with 7x24x365 support can be off loaded
to a third party.
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Value for Money Study Results
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IT Strategic integration, Contributions to the
Organization and Delivery of services are all
aspects that would be evaluated.
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Product support for home grown applications may need to
stay local.
Each has a cost element to it that should be quantified as
far as possible with a limited error range as possible.
Internal examinations will get you to the point of
knowing your cost.
The next element is to determine what you can get
those services for from an outside vendor.
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Value for Money Study Results
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This becomes the basis for a “keep in
house” or “outsource” decision.
Outsourcing will remain a key tool in the IT
Staff’s arsenal in controlling costs.
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There are many aspects of this that must be
examined in great detail before firm undertakes
this type of challenge and risk.
This is clear case of knowing what you’re getting
into before you move forward.
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IT/E-Commerce Outsourcing
Outsourcing (Specifically, IT Outsourcing)
 Definition - Contracting Key Information
Technology (IT) Services to another company
or companies.
 Key IT Services are defined as those
services needed for the profitable operation
of the company.
Potentially, if the services fail, the company could fail.
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IT/E-Commerce Outsourcing
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Compelling reasons for Outsourcing
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The IT Dept. is not a core product or service sold
by the company.
IT is considered an administrative service.
IT operating costs have a negative impact on
financials
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No volume discounts in purchasing
High indirect salaries
Staff skills may be difficult to keep current.
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IT/E-Commerce Outsourcing
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The base argument then becomes:
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why divert the companies administrative
resources, energies and funds to something that
is not a core product if there are other firms that
can do it better for less money.
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Outsourcing allows the business to focus
on its fundamentals by letting someone
else focus on the services.
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IT/E-Commerce Outsourcing
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The problem is that your IT Services are
critical to the successful and efficient
operation of the firm.
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Contractor selection is critical.
Consider the following in contractor
selection criteria:
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Are they Experienced?
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Have they done this before?

IBM, EDS and CSC remain the main players in this
market.
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IT/E-Commerce Outsourcing
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Can they staff the job?
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What will they do with the existing IT staff?
Do they have the financial means to manage
the cash flow requirements in terms of the
payment schedule.
Do they really understand your business?
Is their culture sufficient to meld seamlessly into
your operation?
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This can actually be a critical issue in the selection of
the contractor.
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IT/E-Commerce Outsourcing
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What Customers Require From Outsourcing
Vendors:
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Capability to shift risk from customer to vendor
Commitment to customer success
Flexible terms and conditions (e.g., minimizing extra
charges)
Understandable product (scope, service-level agreements
and simple, but flexible, pricing)
Demonstrable vendor capabilities (particularly project
management skills and quality benchmarking strength)
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IT/E-Commerce Outsourcing
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Some of the key issues now being seen are
as follows (CY 2002/2003):
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Contractors are not accepting risk as the once
were.
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Competition does tend to force this but there is now
push back where once there was none.
There is doubt as to the overall value of these
agreements but if structure correctly for the right
company, there are benefits.
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Mainframe operations are an example of this.
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IT/E-Commerce Outsourcing
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Outsourcing Keys to Success
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Define the rules of the engagement.
Let excellent people manage the relationship.
Realize that it often takes a year to put the deal
into operation.
Control demand, rather than constraining supply
to manage costs.
Understand that it might not be a true
partnership, but it is a marriage.
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IT/E-Commerce Outsourcing
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Outsourcing Keys to Success (Continued)
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Let the deal be profitable for the vendor.
Understand that a good contract does not
guarantee a good relationship, but a bad
contract guarantees a bad relationship.
Maintain a healthy competitive tension among
vendors.
Ensure that contractual provisions are capable of
being executed.
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IT/E-Commerce Outsourcing
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Outsourcing Keys to Success (Continued)
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Agree on governance structure upfront.
Focus on risk mitigation — outsourcing is all
about shifting risk.
Avoid ambiguity, inconsistency and lack of
concern for supplier’s costs.
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IT/E-Commerce Outsourcing
E-Commerce Outsourcing Applications
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Potential elements;
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WEB Hosting
WEB Site Development
Middleware and BackOffice Services (Internet
Managed Asset Provider, IMAP)
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IT/E-Commerce Outsourcing:
Specific Examples
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WEB Hosting Requirements
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Minimum of 99.5% uptime (Gartner Group).
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Quality Hardware: Dual 1GHz homegrown vs.
Compaq Dual Alphas.
UPS vs. Backup generators. View rural Eastern
Shore vs. Baltimore
Guaranteed high-speed connections outbound to
the Internet. T1, Cable or T3 with redundancy if
warranted. Satellite up-links in case the local
phone system goes down? How important is your
Site?
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IT/E-Commerce Outsourcing:
Specific Examples
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Service is not cheap.
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Time to do a make/buy analysis. Could you do it
yourself cheaper?
WEB Site Development Requirements
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Do they know HTML and some flavor of JAVA?
Do they show graphics savvy. (Flash may be
great eye candy but it doesn’t do a lot for
content in all cases.)
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Will they turn over to you copies of all that they
produce in some media format.
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IT/E-Commerce Outsourcing:
Specific Examples
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Will they Document their work?
Will they respond quickly to changes? The initial
rollout is fine. What about all of the changes that
will be needed on a weekly basis?
Middleware and BackOffice Services
Requirements
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(Internet Managed Asset Provider, IMAP,
Application Service Provider, ASP) See
Subcontractor Considerations. The same begins to
apply.
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Health Check Review
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Upon completion of a VFM and the
subsequent analysis of collected data, a
Health Check Review can be conducted.
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This type of study usually overlays on top of the VFM
study data in that it addresses the:
 overall integration of the IT department into the
corporation and
 attempts to determine how it is used.
It can review the data both from a predictive and
historical perspective (ex-ante and ex-post)
31
Health Check Review
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HCR studies were initially developed by
PWC according to the text.
They identify three general areas of
subsequent review. These are:
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IT Policy
IT Contribution
IT Delivery
Each of these elements includes the
following:
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Health Check Review
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IT Policy – Consists of Corporate IT
Strategy, planning and management;
Investment and budgeting.
IT Contribution – Consists of Customer
Relations, supply of IT services and
Evaluation of existing Services.
IT Delivery – Consists of Technology
Strategy, Development Planning,
Operations Planning, HR Strategies as
applied to IT and TQM type initiatives.
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Health Check Reviews
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The policy aspect of the rating of MIS’s
contributions is associated with:
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overall corporate strategy. Examples would
include:
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the implementation of an ERP system will increase
earnings x% or further growth is dependent on the
CRM deployment.
The effectiveness of IT Planning,
Management, Investment and Budgeting.
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Almost 50% of all IT projects overrun by about
189%
34
Health Check Reviews
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The Contribution to Operations from a functional
perspective refers to the ability of the MIS
department to deliver solutions that enhance
operations.
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This would run the range from deployment of solutions
to meet specific department needs to complete,
integrated solutions.
The key for this criteria is that the solutions designed or
selected by the MIS department must meet the needs
of the department being supported.
35
Health Check Reviews
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The delivery of services is probably the
most visible of the three, though not
necessarily the most important.
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These elements would include desktop
refresh.
SLA compliance.
System availability.
Helpdesk service call response time.
System service maintenance (avoiding
downtime).
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Health Check Reviews
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As is the case with Value for Money
reviews, the results can be extensive and
result in the redirection of MIS activities.
Participation AND buy in by the MIS
department is critical for success of the
assessments.
Planning is a key component in the
initiation of this activity.
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Assessments
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VFM analysis is an internal review of IT
operations.
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They attempt to gather quantitative metrics on specifics
of IT operations and determines if the services being
delivered are being delivered at a fair price.
Health checks are an external review of the value
of the IT organization to the rest of the
corporation.
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They attempt to identify value of the services being
delivered to other organizations.
38
Comparative Valuations
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As is the case of both of these processes, the
data derived is only available from one
perspective.
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You cannot compare it to itself.
Additional data sources can be obtained from
consultants and research organizations.
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Make sure that external comparisons are valid.
Use firm size in terms of employees and IT services as
a base line, not market position or revenues.
Normalize comparison points.
The more valid reference points, the more accurate the
comparison.
39
VFM and HCR Review
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Value for Money (VFM) Studies focus on the
effectiveness of the IT department and focuses
on Micro-valuation of the services rendered.
Health Check Review (HCR) is categorized by
the text is periodic monitoring of various aspects
of the IT departments integration into the rest of
the organization and leans towards Macrostudies.

It addresses how the individual elements from the VFM
study tie together.
40
VFM and HCR Review

VFM studies take an analytical look at the
different services offered by the IT department.
The object is to determine if:




the department is providing a value at a level consistent
with the funding,
the requirements being placed on the department are
reasonable,
there are areas where efficiencies and savings are possible
and
What the department does well and by extension, what
areas can be improved.
41
VFM and HCR Review

Once VFM data gathering and analysis is
complete, a Health Check Review can be
conducted.



addresses the overall integration of the IT department
into the corporation and
attempts to determine how it is used.
They identify three general areas of subsequent
review. These are:



IT Policy
IT Contribution
IT Delivery
42
VFM and HCR Review


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These components are measured, more
from an impartial perspective, such as by a
consultant. Methodologies are again
developed and assessed against an
industry and/or a competitive basis.
The results of this analysis are often used
to address the use of the IT department
from an organizational perspective.
Intangible Data collection remains
problematic.
43
Summary
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VFM looks at all internal aspects of IT
department operations.
HCR looks at all external aspects of an IT
departments impact on the corporation,
Both require IT management buy in and
commitment to the process.
The results of these types of analysis will identify
numerous items that can be “optimized”

Range from staffing changes to outsourcing.
44
Homework
45