As IT Finance practitioners and practice leads, we can all agree that cost modeling (aka service costing) is the key to truly evaluating costs and informing decision making within our organizations. It is the catalyst for alignment between IT and the enterprise it service and the key to organizational maturity, e.g. “running IT like a business.” If you’ve recently implemented your cost model or are just beginning your journey, being properly prepared to defend it is your next move. The excitement of data and insights often quickly fades as the model is shared and adopted. The new transparency it provides stakeholders often leads to doubt and “defense mode” for everyone involved.In the long-term, your model will result in trust and better decision-making between IT and the business. But first, you must navigate a sometimes-tenuous “transparency journey” and lead the business to trust your model and the insights it delivers.
Phase 1: “Black hole” (No cost model)
This is where everybody starts, the status-quo. Stakeholders know there’s a vast amount of data out there, but nobody knows how to use it. Insights are locked up, and questions go unanswered. There is zero transparency.
Phase 2: Challenge defending transparency (New cost model)
When transparency is first introduced, stakeholders are skeptical. All the data is finally on the table, but people are slow to trust it. IT is forced into a defensive position and conflicts arise.
This phase can be discouraging, but just remember… the data isn’t flawed. What’s truly flawed is stakeholders’ perception of the data.
You must continually educate to fight doubt. Be prepared to answer questions like:
- Has the organization clearly defined and communicated the components used to calculate unit rates, consumption rates, service costs, etc.?
- What are the specific calculations being used?
- What is included/excluded?
- Does data come from the same source?
- Which cost groups are associated to costs?
- How do general items (such as overhead) impact costs?
- What assumptions are being made? Are they accurate and agreed upon?
- What pieces of data are missing or incomplete?
- What data collection processes need improvement?
- Are there duplicated services and products?
Phase 3: Transparency as a foundation (Mature cost model)
When transparency becomes standard operating procedure, that’s when the real magic starts to happen. As IT, executives, business partners, and other stakeholders see the data through the same lens, the dialog is elevated from being emotionally-driven to strictly fact-based.
Eventually, stakeholders come to trust IT and its data – letting transparency fully guide decision-making.
Education and socialization: The unspoken rules of defending your model
Doubt is inevitable as the business evaluates your new model’s outputs, so you must be prepared to field questions and defend your data. Here are three crucial rules for responding to stakeholders and socializing new insights:
- Superior level of detail – In the same way ambiguity leads to doubt, detail leads to confidence. Always provide the highest level of granularity possible. When consumers can see all components associated with an allocation, they ask fewer questions and have more trust in your answers.
- Context and narrative – Giving detailed, fact-based data is only half the equation; every response should also be framed with a strong narrative. Thoroughly contextualize your insights to prevent stakeholders from drawing their own conclusions. Leave nothing open to interpretation.
- Rapid responses – Strive to answer questions as quickly as possible. Delayed responses increase skepticism and mistrust. The longer stakeholders wait for a response, the more they begin to wonder if you’re “cooking the books” or struggling to find a good answer.
Shedding Light: Moving beyond “defense mode” and delivering value
Once the organization accepts cost transparency for what it is, you’ll be able to focus on cost optimization. Your cost modeling initiative will allow you to quickly drive down run costs, reveal waste and redirect savings, justify new spend, and so much more.
If your organization is asking “What can we do to spend smarter?”, download our eBook A Practitioner’s Guide to Cost Modeling and contact us to speak with an ITFM expert who can guide you and your team through this journey.