Key Stakeholders: Chief Information Officers, Chief Financial Officers, IT Finance Directors and Managers, IT Procurement Directors and Managers, Accounting Directors and Managers, Telecom Expense Directors and Managers, IT Operations, IT Strategy, FinOps Directors and Managers
Why It Matters: Poorly managed ordering on IT subscription services leads to as much as 5% waste in the overall IT budget. During COVID-19, especially, this level of overspending cannot continue and can be quickly remedied.
Top Takeaway: Following Amalgam Insights’ recommendations for IT service orders provides a way for IT to bolster the organization’s overall cash position.
When it comes to reducing technology costs, service order management stands out as perhaps the most overlooked area. Few CIOs and CFOs consider their IT service order processes when trimming expenses, which is part of why Amalgam Insights estimates 90% of CIOs will end up missing opportunities to effectively cut costs without harming their environments. IT, finance, procurement, and operations must correct this unintentional neglect now. Analyzing and adjusting service order management practices will contribute significantly to trimming spending and saving jobs during the COVID-19 pandemic.
How Much Waste Results from IT Service Ordering Issues?
On average, companies lose or waste IT subscription outlay to the tune of 2-5%, because of poor service order management. This blog delivers guidance to empower IT and its cohorts in attaining the strongest cash position possible for the organization. This will prove critical as the coronavirus crisis continues to generate uncertainty, fear and doubt.
A Quick Primer on IT Service Ordering
Most businesses remain in the second and third stages of COVID IT.
Acting on the insight here will assist in getting closer to Stage 4, where IT moves into more strategic activity. Reaching that phase, though, requires following the directions for controlling Corona and quarantine-related issues that Amalgam Insights has consistently laid out in our series of blogs and webinars.
There is a specific route that leads from procurement to payment. The nine steps comprise:
- Purchase identification
- Purchase request
- Purchase approval
- Service order or request creation
- Service order approval
- Service provisioning
- Service level agreements
- Invoice processing
- Payment processing
The biggest risk for leakage lies in steps 4, 5, and 6 – so that’s where this blog focuses. Before we go further, though, be aware that momentum on the third step, purchase approvals, is slowing. The deeper the United States gets into the pandemic and a recessionary environment, the harder it will become to obtain permission to buy resources. I expect companies to lock down any spending that exceeds .001% of total bookings in a billion dollar company, which equates to a $10,000 purchase. These are the purchases that will require C-level approvals. All in all, expect purchase approvals to remain tight for the rest of 2020, and probably into 2021.
Still, IT can pitch in to mitigate overspending by eliminating that 2-5% of losses and waste I mentioned, as it relates to poor IT service order management. Correcting that situation begins with acknowledging that IT service orders differ from standard service orders.
For instance, IT must verify the order has been placed correctly with each provider or vendor based on the vendor’s terminology and proper technical terms, then understand what service order approval status means, and then shift to handling the physical and virtual aspects of provisioning associated with each service order.
In other words, IT service orders demand technical skill, especially for subscription-based services, including IaaS, SaaS, enterprise mobility, and landline telecom and networks. The people with that expertise need to ensure the orders adhere to the ABCs: Active, Billed, Compliant.
What Does Active Service Ordering Mean?
Active service ordering means tracking the order to be certain that functionality, billing, and integration are all active and in place. This gets especially complicated with networking and cloud infrastructure services. Taking networking as an example, network service can be combined with ports, physical infrastructure, security, network management, and other components; each element needs to be tracked.
The same goes for cell phone service orders. IT needs to track not just the device itself but also rate plans, features, access permissions, and applications.
An active service, then, meets these criteria:
- Technically functional
- Physically deployed
- Proper billing plan in place
- Has the proper start date
- Accounted for in all relevant systems
Functional checks require a holistic view as IT can’t verify a service’s functionality without also validating all integrations and billing plans. Determining functionality is easiest with a SaaS or mobile application – you just log in and work. With network and IaaS, this grows more complex. Network services have physicality – trenches to dig, cable to install, and extensions to wire and program. Each of these services needs a combination of functionalities to run for a service order to be completed. And this is why technical skill is needed: Tracking down all those functions is difficult if someone doesn’t know what the service entails or how it is implemented.
Make sure an active service fulfills the five benchmarks above before moving to the next step: Billing.
What Does Billing Mean in the Context of Service Ordering?
Here, IT must evaluate whether the service order is assigned to the right office, region, cost center, project, and stakeholder. If any of those points misses the mark, expect to waste or lose money. And since that is not an option, here’s how to accurately translate service orders into billed services:
- Check rate units. Whatever the unit is – kilobytes of data, minutes used, etc. – make sure it is correct.
- Check the time. For example, ensure a cloud service bills for 30 days or 720 hours (or 730 if dividing 365 days into 12 months). Amazon Web Services recently billed more than 1,000 hours per month for some services. A 30-day month does not contain 1,000 hours.
- Check service names. Companies change service names, rate plans, dimensions and features for services, and even do wholesale offering alterations. When this happens, confirm whether the services match contractual obligations, including discounts and service level agreements. Often when marketing makes a decision, the vendor does not update its systems or is unable to replicate marketing promises within its billing systems. And errors occur.
- Check cross-charging and tagging. Evaluate whether the charges and tags across departments align with the correct departments, users, locations, and projects. This data flows into cost and inventory management, too. Amalgam Insights highly recommends making those practices much simpler and smoother by doing things right the first time. This will avoid constant, retroactive cleanup.
- Check the start date. Compare the start date with the bill and actual activity. It’s not hard or uncommon for days and weeks to get messed up or to use an American date format rather than a global format (Does 11/7 mean July 11 or November 7?). Plus, a vendor might accidentally charge for a service that didn’t provide or that was supposed to be bundled into a package or a larger umbrella of services.
- Check the taxes, tariffs, discounts and other surcharges. Our next blog goes into more detail on this topic. For now, make sure IT knows how service orders fit into the regulatory obligations for which it is responsible.
The Importance of Compliance in Service Ordering
Finally, it is incumbent upon IT to ensure compliance – making sure each service is governed, compliant and secure.
This gets difficult. Each IT subscription service has its own set of governance, compliance and security tools. In addition, different states, countries and regions feature their own requirements. Naturally, all that – and, ultimately, compliance – looks different in the case of each technology type:
- Network – Requires monitoring, security, project management, and telecom expense management.
- Enterprise mobility – Must have unified endpoint and wireless expense management as part of an enterprise mobility management program.
- SaaS – Needs SaaS operations management, single sign-on.\, and software-asset management.
- IaaS – Needs cloud access security broker protections and cloud service management.
Frankly, these considerations build a solid argument for centralizing order sourcing. Everyone who orders a service outside of corporate or IT policy will be liable for ensuring compliance – and no one truly wants that responsibility. IT must educate employees accordingly and enforce processes for service ordering.
Conclusion: Bringing It All Together
IT must know the technical aspects of what makes a service active; the financial and accounting aspects of what makes a service billable; and the security and legal aspects that make it compliant. All these factors will vary across IT areas. Thus, some level of technical acumen is absolutely necessary. If operations handles service ordering, for instance, then have someone with the technical expertise review orders before proceeding. Abiding by all this advice will help IT drive its service orders to active, billed, and compliant end states and close that 2-5% waste gap.
This introductory blog is a starting point for managing service orders. If you are seeking outside guidance and a deeper dive on solutions and vendors that can help you manage your IT environment, Amalgam Insights is here to help. Click here to schedule a consultation.
***Join us at TEM Expo, available on-demand until August 13 at no cost, to learn more about how to prepare for COVID IT and take immediate action to cut costs. In context of this topic, Amalgam Insights recommends watching sessions by Denise Munro on Taxes, Fees, and Surcharges, Wayne Webers on The Trouble with Technology Expense Management, David Schofield on Maximizing Wired and Wireless Negotiations, Shane Hansen’s presentation on Cash Management, and Larry Foster’s presentation on Explaining the Value of Technology Expense Management.
***And if you’d like to learn more about this topic now, please watch our webinar on Service Order Enablement.