Blulogix Whitepaper
Leveraging Consumption Behavior Data in Public Sector ITFM: Moving from Cost Allocation to Value-Based Service Optimization
“ Government CIOs must go on the offensive to lead digital transformation by focusing on the transforming Shared Service Organizations (SSO) from Simple Cost Allocation to the Value Based Service Optimization.”
Table of Contents
Introduction
BluLogix is a relatively new entrant to the Shared Services model with some big wins against established incumbents. BluLogix success in Shared Services is largely based on automating the billing or chargeback & cost recovery process, based on Generally Accepted Accounting Principles (GAAP), to address the migration to Cloud and SaaS services. Working from this viewpoint gives BluLogix a different perspective than legacy ITFM solutions focused on IT general ledger (GL) analytics and data presentation.
In many cases GL analytics and data presentation meets the requirement of aligning IT Cost with business value. However, as the world shifts to public/private cloud and SaaS, there is a requirement to manage and consume expanding amounts of usage data, from multiple sources, to account for business cost based on use.
Moving to a usage enabled shared services model fixes problems other allocation methods ignore, one of the most significant of which is adherence to GAAP. GAAP adherence ensures de-risking of financial audits focused on how expenses and funds are allocated across an enterprise. GAAP is a federal requirement for public sector organizations that receive federal funding and allocate cost (OMB Circular A-87).
About BluLogix
BluLogix has delivered advanced monetization solutions to enterprises for more than a decade. The history of the platform dates back even further as a billing platform built for telecom and mobile carriers.
For the past decade BluLogix has been focused on the Managed Service Providers and ISVs enabling billing automation and agile monetization for broad technology portfolios.
Today, BluLogix is a recognized leader for complex agile monetization, operating in three countries, across a spectrum of industries to include Public Sector
What is OMB Circular A-87?
OMB Circular A-87, also known as “Cost Principles for State, Local, and Indian Tribal Governments,” is a set of guidelines issued by the Office of Management and Budget (OMB) that establishes principles for determining the allowable costs of federal awards to state, local, and tribal governments.
The circular provides guidance on the types of costs that can be charged to federal awards, as well as the documentation and reporting requirements for those costs.
It also includes information on indirect cost rates, audits, and other related issues. The circular is intended to ensure that federal funds are used efficiently and effectively, and that the costs charged to federal awards are reasonable, allowable, and allocable.
Key Challenges:
- Many SSOs were built to support shared use of data center resources and enterprise software licensing. These structures are challenged with management of public/private cloud and Software-as-a-Service.
- Business stakeholders are not satisfied with primitive high-level and low-level allocation methods that do not align with competitive commercial usage-based consumption pricing.
- SSOs have traditionally provided one to one chargeback & cost recovery for resources sourced by IT. Product definitions don’t translate to business service definitions making it difficult for business stakeholders to associate cost to value.
- Business stakeholders are not satisfied with primitive high-level and low-level allocation methods that do not align with competitive commercial usage-based consumption pricing.
- It is difficult for IT to accurately assess usage in virtualized environments —which IT resources are being utilized, how much they are being utilized, and who is utilizing them.
- Business stakeholders cannot determine whether IT is offering a competitive service or whether the service can be procured more cost efficiently elsewhere.
Recommended:
BluLogix BluIQ is a shared services management platform that enables organizations to track, manage, allocate, and bill end users for IT resources. It assists with:
- Redefining service catalog descriptions and bundles to represent services that align with business value.
- Establishing a method to manage an inventory of digital assets based on service identifiers.
- Enabling advanced billing code management for both cost sharing and project codes where costs can be directly attributed to value.
- Incorporating more advanced chargeback & cost recovery methods based on use with the ability to capture and mediate near real-time usage data from potentially dozens of internal and external data sources.
- Capturing both internal and external costs for services delivered to the business unit, as well as the rate the business unit will pay.
- Reconciling vendor invoices against expected cost and use. Manage exceptions between the expected (contract) cost data and the vendor invoice data.
- Mapping chargeback & cost recovery to ERP General Ledger to roll-up charges for reporting and reconciliation at the GL level.
- Integrating transaction transparency and self-management into customer portal functionality.
BluIǪ Solution Overview
There are three primary components to BluIQ’s SSO Solution:
- Service Catalog & Portfolio Management
- Service Asset Management
- Service Financial Management
Service Catalog & Portfolio Management
As with any service being bought or sold, it is important for all parties to be familiar with exactly what is being transacted. This is true for the Shared Service Organizations (SSO) and the client organizations. Ideally, a service catalog would be developed so that the customer can see exactly what they are buying/expecting and will not expect new or desired enhancements as necessarily being free of charge.
If this is combined with the service portfolio that the customers have been involved in designing, then there is little room for misplaced expectations to emerge, leading to any disagreement or dissatisfaction. Clarity and transparency for all is vital.
Service Hierarchies manage the connection between product, service and value. Service hierarchies typically start with the product source.
- Product/Service Source
- Category
- Sub-Category A Sub-Category A1
Each product in the Service Catalog can be managed with any number of attributes that control
- Billing Parameters
- Product Attributes
- Service Identifiers
- External Attributes
- Descriptions
- General Ledger Data
Products can be bundled into a Service Bundle with additional attributes that control how the bundle is managed.
Price Plans or Rate Plans are created by selecting a product from the catalog and assigning it to the price plan input price and optionally cost.
Discount schemes can be created and added to the price plan to allow for price automation based on use.
Service Asset Management
With the software budget progressively under pressure and the SaaS/Cloud portfolio expanding dramatically in parallel, the facility to eliminate waste, rightsize contracts and offset price increases makes Service Asset Management fundamental to cost-containment.
In many cases the way IT products are procured is very different than the traditional billing models. In turn, SSOs will need to chargeback & cost recovery for services as they are consumed.
SaaS/Cloud costs are driven by a series of factors that are increasingly difficult to address through negotiation but can be effectively limited with usage data management and the directive and business unit tools to manage consumption and drive out waste.
The ability to consume and associate usage data at the business unit or end-user level facilitates self-management of resource consumption. This process requires a unique service asset identifier, common in both the usage dataset and BluIQ, defined at the product level.
Before usage data can be consumed the data needs to be mediated. Usage data is typically captured from a flat file or API. Data will inherently come in multiple formats and structures. The mediation engine normalizes data into a single format to be processed for charging.
With large datasets, there are often exceptions where a conflict occurs between what in is BluIQ verses usage data. In these cases, exception handling automation is required. Establishing exception rules based on different use cases can automate most of the exception handling process, isolating the most extreme cases for manual intervention, if needed.
Service asset identifiers can be managed both globally as part of an inventory of digital assets and at the business unit or account level. An inventory of digital assets allows for assigning a digital asset as an identifier at the order level to facilitate provisioning management or automation.
Without effective Service Account Management discipline, in many cases 30% or more of SaaS/Cloud subscriptions remain unuse (Gartner)
Service Financial Management
Organizations of all types struggle with information technology (IT) budgeting. This often happens because the IT team doesn’t understand the budgeting process and the finance team doesn’t understand IT. CFOs can remedy this disconnect by changing their organization’s approach to IT budgeting from merely an annual “make it fit” exercise into a meaningful planning and ongoing management process
The ability to associate the IT budget with business value begins with defining a business hierarchy, if necessary, down to an individual user. Once the hierarchy is defined services can be associated at an n-tier account or sub-account level. These accounts roll-up to stakeholder groups that evaluate IT’s role in meeting business KPIs.
IT Management’s response to supporting goals and objectives would include enhancements and additional services linked to business goals and objectives consumed by respective stakeholder group. IT Managers making IT investments to achieve business stakeholder goals should be able to report on the cost of those investments for each stakeholder group and the use or adoption of new services requested.
IT Managers should be able to easily budget for new and existing services based on projected consumption by each stakeholder group. Stakeholder group leaders should be able to request a quote from IT for projected resource utilization which in aggregate would inform the IT budget. Consumption against budgeted services can then be managed against the budget forecast.
Defining annualized forecasted consumption provides IT Managers an important tool in negotiating with vendors to drive down cost of consumption. Accurate forecasting provides additional opportunity to drive down consumption cost in the form of paying vendors in advance for forecasted consumption.
To achieve GAAP compliance Shared Service organizations, charging for services in advance (annual), cannot recognize the charges against a billing code, until the services are rendered. Revenue recognition tools should be incorporated in this case to correctly recognize billing codes as payments allocated against services rendered.
Transparency
Most organizations have IT cost data mapped to an enterprise or general ledger. However, this data, in and of itself, does provide a complete picture of the total cost of IT services.
Business Stakeholder Transparency
Providing business stakeholders with tools to easily associate cost with value can be achieved by defining services specific to stakeholder needs and charging based on use.
As with competitive commercial service offerings, Shared Services Organizations should deliver transparency to business stakeholder in real-time through a customer portal. Customer portals should be enabled to support a complete business process:
- Quoting services
- Ordering services
- Managing charges and billing codes
- Forecasting
- Reconciliation
- Reporting
IT Cost Transparency
Services are composed of products provided by internal and external sources. Controlling the cost of these sources is the job of IT. Real-time visibility and tracking of cost is essential in a usage-based economy.
BluIQ’s ability to capture source cost data and reconcile expected (contract) costs against vendor invoice data provides easy invoice reconciliation.
Without the benefits of complete IT cost information, the discussion of IT strategy with business peers is often about who has the right information, the value of technology and whether the business can trust IT’s numbers. When there is no debate on the data, business units and IT can focus on making informed decisions for the company related to establishing and maintaining an optimal portfolio of business capabilities and their respective costs.
The aggregation, allocation and representation of IT costs against definitions of business-valued services are critical to providing meaningful IT financial transparency to business leaders. Financial transparency and cost detail are not the same thing. Most business leaders want to understand the cost of IT in terms of business goods and services that they understand and care about — the remaining cost is too much detail and transparency.
In this case, IT should focus on optimizing the cost of the product components that make up a service anddefining the service in the context of business value.
Allocation
SSOs need to be agile enough to support all allocation methods to align with pricing, controlled by the source. There is no question that usage based variable pricing is taking over most fixed price models. These pricing models will continue to evolve, SSOs need the ability to adjust allocation methods based on how they consume sourced resources
BluLogix sees no additional complexity, or simplicity, for any allocation method. These allocation methods, and variations of them, are predefined as an automated process with the variable being the data that informs the process.
GARTNER is a registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S. and internationally and is used herein with permission. All rights reserved.
Success Prerequisite: Reliable Usage Data
The growth in cloud services makes transparency, through measuring and managing software usage, more complex and more critical. The Service Asset Management function must establish and maintain visibility of all cloud services by measuring detailed functional and quantitative cloud services consumption.
Without visibility of functionality consumed, and insight to identify optimization and rationalization targets across the SaaS portfolio, potential to eliminate increases in cost and risk will be significantly limited.
About BluLogix
BluIQ™ chargeback & cost recovery streamlines the process of Public Sector and Enterprise IT chargeback & cost recovery, making it easier for Shared Services to recover IT cost, change consumption behavior and effectively and efficiently demonstrate the value of IT for department and agency consumption of voice, cloud, desktop and other IT services.
BluIQ Chargeback & Cost Recovery is designed to help organizations struggling with legacy systems, processes and resource gaps to modernize and optimize their IT Financial Management to allocate costs across agencies and departments.
Public sector and enterprise shared services groups are increasingly tasked with managing expenditures, reducing costs, standardizing infrastructure and leading digital transformations to drive policies and standards across their organizations. For many, however, processes have become more and more fragmented, with increasing cloud usage, multicloud environments, legacy systems that are no longer supported, key resource and staffing gaps and the inability to add data, products, rates or new members to systems without development resources.
BluIQ™ Chargeback & Cost Recovery streamlines the process of Public Sector and Enterprise IT chargeback & cost recovery, making it easier for Shared Services to recover IT cost, change consumption behavior and demonstrate the value of IT for department and agency consumption of voice, cloud, desktop and other IT services.
BluIQ Chargeback & Cost Recovery provides the ability to allocate and manage vendors and contracts, chargeback & cost recovery and allocate costs to agencies, quickly, easily, leveraging automation that decreases time to process, improves error rates and increases customer satisfaction for departments and agencies.
With BluIQ chargeback & cost recovery, public sector and enterprise shared services centers can optimize their IT purchasing to
- Take advantage of volume purchasing across agencies and departments
- Monitor and optimize consumption behavior to drive awareness and change behavior
- Apply charges equitably across units, ensuring fairness in cost distribution
- Include any service offered in the chargeback & cost recovery portfolio
- Deliver against objectives for complex consumption-based models and chargeback & cost recovery based on actual usagelevels
Reviews
Michael R.
President, Allnet Air Inc. - Telecommunications
Best Outsourced Billing for Mobility
Karen R.
Manager, Cloud Billing - Computer Software
BluLogix has been a great partner.
“Over the last several years, I have seen continual enhancements and additions to the platform. BluLogix has created a comprehensive solution for users. They provide great communication regarding upgrades and address concerns thoroughly and timely.”
Sara K.
Marketing, Graphic Design & Social Media Management - Marketing and Advertising
Fantastic platform. Recommend!
Industry Leaders
Reviews
Michael R.
President, Allnet Air Inc. - Telecommunications
Best Outsourced Billing for Mobility
Karen R.
Manager, Cloud Billing - Computer Software
BluLogix has been a great partner.
“Over the last several years, I have seen continual enhancements and additions to the platform. BluLogix has created a comprehensive solution for users. They provide great communication regarding upgrades and address concerns thoroughly and timely.”
Sara K.
Marketing, Graphic Design & Social Media Management - Marketing and Advertising
Fantastic platform. Recommend!
