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How to Implement an Effective Cloud Cost Expense Management Program

Feb 13, 2020

In this blog, we will provide high-level guidance to help organizations expand the capabilities of their expense management program to accommodate all dimensions of premise and cloud service technologies. 

A Quick Refresher

In the beginning of this eight-part blog series, we explained how the results from a survey we conducted during our Calero World Online webinar on “Extending TEM Best Practices into Additional Cloud Based Subscription Services” clarified that 82% of attending organizations relied on multiple cloud service providers and that 72% relied on a hybrid approach to managing cloud services. In short, organizations are seeking comprehensive expense management solutions that can effectively and efficiently accommodate their evolving multi-facet business environments and ever-growing reliance on landline, mobile and cloud service hosted technologies.

In the same blog, we started this discussion by introducing the diagram below.  The diagram illustrates the continuous and incremental accumulation of best practice milestones that organizations typically achieve as they evolve from an ineffective pre-expense management environment into high-performing IT service brokers that provide the key strategic services that exemplify the fundamental characteristics of IT Cost Optimization (ITCO).

Why Cloud Expense Management

The goal of a shared service IT expense management program is to provide value to department agencies by facilitating outcomes their cost centers want to achieve without the risks of ownership of the processes, people and infrastructure required to optimize their technology investments. An effective IT expense management program helps organizations achieve an appropriate balance between quality and costs. It requires a collaboration between the centralized and shared IT Service Brokers and business unit stakeholders, which are dispersed throughout the organization in order to establish and sustain a mutual understanding of service costs and the relationship of costs to service levels. This collaborative partnership focuses on optimizing technology investments for stakeholders across the organization.  A common practice is to establish a centralized Cloud Center of Excellence, (CCoE) which typically implements a combination of “guardrails” to prevent bad outcomes and publishes “guidelines” which communicate risk boundaries to help client cost centers streamline their business operations. Generally, implementing guardrails requires leveraging system automation to prevent human error. An IT expense management program is established to support two fundamental requirements:

  • institutionalize the protocols for the processes and procedures that capture, maintain and convey the information to stakeholders
  • provide the right secured information to all stakeholders in a timely manner

IT Service Brokers provide the subject matter expertise and intuitive multi-tiered self-service transparency to help stakeholders optimize their investments in cloud services. The two tables below summarize the difference between cost allocation versus a chargeback and the specific models IT organizations, as a rule, adopt as they evolve from “Pre-TEM” to “IT Cost Optimization” (the least sophisticated expense management model being generalized cost allocation with the most progressive being service-based chargeback).

Frequently, cost allocation methods are managed from a centralized budget with limited reporting to cost center stakeholders.  Organizations that adopt more robust chargeback services typically enable secure access to a “Bill of IT Services”, along with several other financial reports. These reports provide intuitive insights to help cost center managers better understand the specific business benefits of the services they are consuming and make change management decisions accordingly.

Table 1

Chart 2

Table 2

Chart 3

Framework for Continuous Improvement to ITCO

The transformation from Pre-TEM to ITCO is centered on accumulating incremental improvements. IT Service Brokers need to embrace an iterative agile approach to their continuous process improvement program. The world’s most popular continuous process improvement framework is the contemporary incarnation of the Plan-Do-Study-Act (PDSA) Shewhart Cycle that was invented by William Edwards Deming in the 1950’s. In short, all of the continuous improvement activities to enhance your telecom expense management into a more comprehensive cloud expense management can be mapped into a “PDSA” framework as summarized in the table below.

Chart 4.1

In Conclusion

Implementing an effective cloud expense management program does not require starting from scratch. The typical TEM program provides a scalable and sustainable foundation. Conceptually, the activities and chronology organizations follow to fully implement ITCO for cloud expenses are similar. However, the specific implementations at each milestone may be considerably different. One size/one method does not apply to all organizations. A continuous improvement approach that does not accommodate your current state or your culture will be less suited and create resistance.

In case you missed our previous blog “Architecting an Effective Enterprise Taxonomy is the Key to Cloud Expense Management”, check it out here.

Written by Calero-MDSL