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The Politics of IT Service Valuation

Feb 15, 2008

Hank Marquis


On the other hand, Cococo may consider the radio dispatch service less important to a worker at the truck-loading hopper who has access to other forms of communication, but still likes to use the radio for convenience.

In this example, Cococo has three customers, one service, and two different yet equally valid potential IT service valuations. As seen in this example, the true value of an IT service is only possible to ascertain in the context of the enterprise’s end-customer. For the majority of IT service providers, this makes establishing a value for a service a harrowing exercise.

The Customer Isn’t Always Right

Notice that the opinion or perception of the customer (e.g., dispatcher, driver or loader) is not a factor in the valuation of the service. It is better to define IT service value by measuring enterprise value empirically than by customer perception measured politically.

This does not mean to ignore customer feelings or be insensitive. It means IT has to help the customer understand and separate needs (empirical) from wants (political.) The place for customer preference and opinion is not as the basis for service valuation, but rather for remediation, and this is one point that ITIL misses completely.

Figure 2. clearly illustrates why focusing on customers (the political solution) entirely fails to capture the real value to the enterprise. This model also shows how customers sue IT services to mitigate risk on behalf of the end-customer, and points out why IT service value should be in terms of risk to the end-customer, viewed through the lens of enterprise products and customers.

ITIL says, “If you can’t measure it you can’t manage it.” The simple Cococo example illustrates why the ideas of utility and warranty (that is, performance) are necessary, but insufficient to manage IT services by value.

First, it offers no metric and provides no scale to objectively rate performance. Without a metric, there is no way to balance resource allocations based on need instead of want.

Second, it is utility and warranty to the enterprise and its products that matters most. Applying utility and warranty to customer wants (versus needs) often results in politically motivated resource allocations, which are the basis of many IT shortcomings and much customer dissatisfaction.

It makes more sense to value IT services based on the risk the enterprise faces should its products not meet needs of its end-customers. Business risk then, not customer perception, is the right place to start valuing IT services. Risk is the potential loss from things not coming off as planned or expected. Using risk as the basis of value is not a unique idea. In fact, virtually all risk management systems have a valuation phase to the analysis. Examples here include CRAMM®, M_o_R and even common project management frameworks like PRINCE2, Project+ and PMI.

Risk is probably the most elegant way to determine what and how much IT ought to do, when to stop doing it (an important and often overlooked aspect), and why IT needs to do it in the first place—all in business terms. In this context risk assessment is a straightforward measure of the consequence of an IT service not functioning as required and the impact (or potential impact) it can have on the enterprise. It subsumes concepts of utility and warranty which themselves encapsulate the idea of variation of the Six Sigma sort; it combines them with ideas of impact and urgency and elevates IT service valuation to a business level.

Adopting an approach to IT service value based on risk leads to standard valuation systems that span multiple business units, and which tie IT services directly into the business of the enterprise. One can then use IT service value to establish the required level of investment and support. It also cleanly identifies the most important enterprise product, business unit, process, operation, and ultimately, IT service.

Measure the enterprise value at risk, and you have the basis for actionable and quantifiable decision-making that is inherently self-justifying. Empirically quantified enterprise value at risk may just be the long sought after means to attain the most elusive of IT desires—alignment with the business, control of costs, and quality improvements.

Hank Marquis is director of IT Service Management Consulting at Enterprise Management Associates based in Boulder, Colo. Marquis has more than 25 years of hands-on experience in IT operations, management, governance and operational frameworks. Visit his blog and podcasts at www.hankmarquis.info.