Representing it Assets and Costs

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If your organization must account for its IT costs by customer group, the SLA should subdivide all IT products and services, and their associated costs, into two groupings: maintenance and enhancements. This requires collaboration among your organization's business officer, your service delivery line managers, and PMO personnel. Within these categories, the document can also differentiate between vendor-based and internal products, services, and costs. When in doubt, consult your customer about how he or she would like to see this information presented. All related costs (e.g., asset protection, default correction, license upgrades) should be grouped together for ease of customer communication and understanding. For each business application serviced through the SLA, there will be associated labor (internal and external or contract), consulting, software, and hardware costs.

Although some of these costs are generated through the consumption of internal labor resources, others may be incurred through third parties:

• IT product vendor costs may encompass all charges related to licensing or purchasing hardware and software, as well as contract labor (time and materials) or consulting (fixed price) costs for product implementation or subsequent servicing.

• To ensure that the best and most appropriate resources are deployed to meet business unit requirements, IT may regularly employ external contract labor, billed on a time-and-materials basis, to complement in-house staffing resources.

• When the IT organization lacks a strong internal task or talent match in undertaking certain types of IT work, when there is a need to ramp up an effort quickly, or when IT has lost a key internal expert, IT will regularly employ external professionals in specialized areas on a consulting basis, typically billed to the customer on a fixed-price contract basis.

A simple template suffices to capture and communicate this detail to the customer. See Exhibit 4.

Exhibit 4: Maintenance Cost Matrix

Business Application	Labor Costs	Consulting Costs	Software Costs	Hardware Costs	Total Cost
Enter the name of the appropriate business application	Enter internal and external labor costs	Enter associated consulting costs	Enter application-specific software costs	Enter application-specific hardware costs	Add columns 2–4
_________	_________	_________	_________	_________	_________
_________	_________	_________	_________	_________	_________
_________	_________	_________	_________	_________	_________

Enhancement costs are distinct from those for maintenance in that they are largely discretionary. They are defined as customer-requested changes to existing applications. Typically, the IT organization will negotiate an allowance for business unit-enhancement work. More often than not, these requests do not have mandated start and end dates, and they often fall below the priority of project requests. An example of the criteria for classifying a request as an enhancement follows:

• Request has no significant external dependencies

• Request is below a certain clip rate, such as $10,000 per instance

Although it merits its own section to record tasks and costs, the enhancement cost matrix is otherwise identical to the maintenance cost matrix. See Exhibit 5.

Exhibit 5: Enhancement Cost Matrix

Business Application	Labor Costs	Consulting Costs	Software Costs	Hardware Costs	Total Cost
Enter the name of the appropriate business application	Enter internal and external labor costs	Enter associated-consulting costs	Enter application-specific software costs	Enter application-specific hardware costs	Add columns 2–4
________	________	________	________	________	________
________	________	________	________	________	________
________	________	________	________	________	________

A word of caution: take your time and be accurate. Nothing destroys trust within an SLA negotiation more quickly than misrepresenting or misunderstanding the underlying costs of the services governed by the agreement. So do your homework before meeting with your customer. Learn how the customer consumes your services, as well as how you intend to deliver them. You also must enter the conversation with a firm grasp of your business' cost drivers. If the customer responds to the SLA by saying, "We need to cut costs by 20 percent," you must be prepared to explore such issues to ensure the most positive outcome for the customer. Last but not least, be sure to state explicitly those services excluded from the scope of the SLA, in particular large-scale enhancement efforts that are estimated to exceed the SLA clip rate. These should be treated as separate IT projects. Do not leave the table until you have reached consensus and your business partners have signed the SLA document.

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