You already know that cost modeling gives you transparency behind service costs. But what can you use that transparency to accomplish?
Well, the answer can vary a bit between organizations, but there are five valuable use cases and business outcomes that apply universally to any successful cost model implementation.
So, without further ado, let’s dive in and see what they are…
Controlling Costs and Consumption
This objective is by far the simplest to accomplish when starting out with cost modeling. With the initial transparency from a new cost modeling initiative, you can quickly:
- Drive down run costs by revealing inefficiencies
- Reveal waste, rectify it, and redirect the savings
- Enable better governance by uncovering mismatched or excess resource consumption
What-if and Impact Analysis
You can easily analyze the viability of new projects and allocations by running what-if scenarios and impact analyses through your model (e.g. “drilling forward”). In fact, this is one of the most powerful capabilities of a successful model, allowing you to do things like:
- Justify new spend by showing how it will be used to deliver business value
- Maximize financial visibility to inform multi-year budgets and forecasts
- Demonstrate proof of concept for new initiatives faster and easier
Once you have your services costed with an accurate model, you gain the capability to compare against rates from industry peers, outside suppliers, or internal actuals and forecasts. Some of the biggest benefits include capabilities to:
- Make apples-to-apples service cost comparisons
- Leverage benchmark cost insights during contract negotiations
- Identify and explain service cost variance
- Build defensibility into budgets by showing industry standards for each area of spend
- Prove internal efficiency and demonstrate cost-cutting progress
Cost modeling puts all service cost drivers on the table for everyone to see. And when that happens, it becomes much easier to get consumers to share accountability for service costs with IT.
The question from consumers goes from “Why are my technology costs so high?” to “What can we do to spend smarter?”
Multi-layer Views of Spend (The Big Picture)
As your model matures, you’ll continue to discover new insights by digging through its multi-layer views. The possibilities are nearly infinite.
The chart below gives a big picture breakdown of a standard cost model – showing each layer, the questions it answers, the stakeholders it informs, and the value and insight it provides:
Exploring Other Cost Model Benefits
To see more ways you can leverage a cost model to drive value for your organization – and the best practices you should know before getting started – download our free eBook, A Practitioner’s Guide to Cost Modeling, by clicking here.