Benchmarking Market Pricing

Benchmarking Market
Pricing
Rawdon Simon - ISG

31st May 2012
Copyright 2012 Information Services Group, Inc. All Rights Reserved
Benchmarking Market Pricing
Why Benchmark?
Uncover opportunities for improved
efficiency
Determine a sourcing strategy
Sole Sourcing dont leave money

on the table!
Ensure you are paying the right

amount for your outsourced services
Types of Benchmark
Cost
Benchmark
Looked at from the perspective of your

costs in providing the IT service
Addresses all costs, both in-house and
outsourced
Typically used to uncover efficiency
opportunities across in-house operations
Uses costs data for comparison
Price
Benchmark
Analyses the price you are paying your

service provider for services received
Typically used to analyse fees paid for
already outsourced services or to
determine fees for proposed outsourced
services
Only looks at outsourced fees for a
specific set of services
Uses price data for comparison
When are Benchmarking Clauses Appropriate?
More
Appropriate for:
Longer term contracts (at
least 3-5 years)
Less
appropriate for:
Shorter term contracts (3
years or less)
Services not commonly
outsourced
Well-defined, commonly
outsourced services
Services where data is not

available
Services where benchmark

data is available or
reasonably expected to
become available
Services with large

components of
transformation embedded
through the contract life
The Importance of Scope

Application Development & Maintenance
(AD)
Mainframe (MF)
D1 Mainframe
Processors
B1 Transaction
Processing
B2 Interactive
Processing
B3 Batch Processing
B4 VM Processing
BF Mainframe
Databases
ZA Mainframe
Management and
Tools
Servers (SP)
E1 Disk Storage
E2 Automatic Tape
Retrieval Systems
E3 Manual Tape Storage
E4 Optical Storage
M1 Backup and Restore
DA Server Processors
DB Server Function
BA Server Batch
Processing and Job
Scheduling
BB Server Transaction
Processing
BD Server Databases
G5 Server Planning and
Design
K5 Server Hardware MAC
K6 Server Software
Distribution
L8 Server Support
L9 Server Hardware
Maintenance
LA Server Monitoring and
Supervision
M7 Server System
Administration
B8 Common Office
Applications
BC Email
D6 Personal Computers
D7 Infrastructure Servers
D8 Thin Clients
F9 Distributed Printers
ZG Server Management
and Tools
ZJ Desktop Management
and Tools
ZD Storage Management
and Tools
Central Printing
(CP)
F1
F2
F3
F7
F8
Laser Printing
Impact Printing
COM Production
Post Processing
Enveloping
ZV Central Printing
Management and
Tools
Management Services (MS)

I4 Executive
Management
I3 Central
Services
I7 Outsourcer
Management
General
Information
(GI)
M4 IT Service Continuity
M6 IT Security
N2 Service and Account
Management
Z2 Premises
ZS Management Services Tools
H1
H2
Z1
Z6
Z9
Q0/Q6/QW Maintenance
Storage (ES)
G3 Mainframe Planning
L5 Production Control
L6 Mainframe
Operations
LB Mainframe Support
M5 Mainframe Change
P0/P8 Development
Budget Analysis
Business Volumes
Study Related Information
Additional Services
Data Quality
Desktop (DT)
G1 Desktop Planning and

Design
K1 Desktop MAC
K2 Desktop Software
Distribution
L1 Common Software
Support
L3 Desktop Hardware
Maintenance
M8 Infrastructure Server
Administration
N3 Desktop Training
Telecoms (TC)
S1 Private Circuits
S3 Public Frame Relay
Virtual Circuits
S4 IP VPN Connections
S6 Call Volumes and
Charges
S8 Access Connections
S9 Internet Circuits
T1 International Leased
Circuits
T3 International Public
Frame Relay Virtual
Circuits
T6 International Call
Volumes and Charges
T7 Calling Cards
T8 International ATM Circuits
V3 Telecommunications
Information
YT Telecoms total costs
ZF Management & Tools
Network (NW)
A1
A2
A3
AA
LAN Architecture
LAN Switching
LAN Routing
LAN Planning &
Design
AB LAN Changes
AC LAN Support
AD LAN Operations
W1 WAN Architecture
W2 WAN Switching
W3 WAN Routing
WA WAN Planning &
Design
WB WAN Changes
WCWAN Support
WDWAN Operations
V1
V2
V4
VA
Voice Architecture
Voice PBX/Centrex
VoIP
Voice Planning &
Design
VB Voice Changes
VC Voice Support
VD Voice Operations
X1 Contact Centre
X2 Network Security
X3 Remote Network
Access
X4 Cabling
X5 Internet Connectivity
YP Network total HW and
SW costs
ZP Network Line
Management and
Tools
Service Desk (SD)

C3 Central Service Desk
C4 Local Service Desk
C5 Incident Management
& Problem
Management
ZM Service Desk
Management and
Tools
Surveys (SU)
UA
UB
UC
UD
UE
UF
UP
UZ
User Profile
User Problem Solving
Support Satisfaction
Office Technology
Satisfaction
Business Systems
Satisfaction
Overall Satisfaction
Employee
Questionnaire
User Population
Middleware &
Applications (MA)
B6
B9
BE
ER
Middleware
Business Applications
Internet Applications
SAP Applications
ZB Middleware and
Applications
Management and
Tools
Methodology
Services Mapping
Mainframe (MF)
Servers (SP)
Storage (ES)
Desktop (DT)
Service Desk (SD)
Telecoms (TC)
D1 Mainframe
Processors
B1 Transaction
Processing
B2 Interactive
Processing
B3 Batch Processing
B4 VM Processing
BF Mainframe
Databases
G3 Mainframe
Planning
L5 Production Control
L6 Mainframe
Operations
LB Mainframe
Support
M5 Mainframe
Change
DA Server Processors
DB Server Function
BA Server Batch
Processing and Job
Scheduling
BB Server Transaction
Processing
BD Server Databases
G5 Server Planning and
Design
K5 Server Hardware
MAC
K6 Server Software
Distribution
L8 Server Support
L9 Server Hardware
Maintenance
LA Server Monitoring
and Supervision
M7 Server System
Administration
E1 Storage Architecture
E2 SAN Infrastructure
E3 Tiered Disk
E4 Virtual Tape Storage
E5 Automatic Tape
Storage & Legacy
ATL
E6 Manual Tape
Storage
E7 Optical Disk Storage
EA Storage Planning
and Design
EB Storage Change
EC Storage Support
EE Storage Operations
M1 Backup & Restore
M2 Centralised Archive
Solutions
M3 Disaster Recovery
B8 Common Office
Applications
BC Email
D6 Personal Computers
D7 Infrastructure Servers
D8 Thin Clients
F9 Distributed Printers
G1 Desktop Planning
and Design
K1 Desktop MAC
K2 Desktop Software
Distribution
L1 Common Software
Support
L3 Desktop Hardware
Maintenance
M8 Infrastructure Server
Administration
MB Desktop Backup and
Restore
N3 Desktop Training
C3 Central Service
Desk
C4 Local Service Desk
C5 Incident & Problem
Management
S1 Private Circuits
S3 Public Frame Relay
Virtual Circuits
S4 IP VPN Connections
S6 Call Volumes and
Charges
S8 Access Connections
S9 Internet Circuits
T1 International Leased
Circuits
T3 International Public
Frame Relay Virtual
Circuits
T6 International Call
Volumes and
Charges
T7 Calling Cards
T8 International ATM
Circuits
V3 Telecommunications
Information
YT Telecoms total
costs
ZA Mainframe
Management &
Tools
Management
Services (MS)
I4 Executive Mgmt
I3 Central Services
I7 Outsourcer Mgmt
M4 IT Service
Continuity
M6 IT Security
N2 Service and
Account Mgmt
Z2 Premises
ZS Management
Services Tools
Service definitions
$ Charges
Scope Adjustment
ZG Server Management
& Tools
Application
Development and
Maintenance (AD)
P0 Project
Characteristics
P8 Source Code
Q0 Application
Characteristics
Q6 Source Code
QWCore Business
Relation
ZU Development
Software
ZF Management &
Tools
ZD Storage
Management &
Tools
ZJ Desktop
Management & Tools
ZM Service Desk
Management &
Tools
Middleware and
Applications (MA)
B6 Middleware
B9 Business
Applications
BE Internet Applications
ER SAP Applications
ZB Middleware and
Applications
Management &Tools
Central Printing
(CP)
General Information
(GI)
Surveys
(SU)
F1 Laser Printing
F2 Impact Printing
F3 COM Production
F7 Post Processing
F8 Enveloping
H1 Budget Analysis
H2 Business Volumes
Z1 Study Related
Information
Z6 Additional Services
Z9 Data Quality
UA User Profile
UB User Problem
Solving
UC Support Satisfaction
UD Office Technology
Satisfaction
UE Business Systems
Satisfaction
UF Overall Satisfaction
UP Employee
Questionnaire
UZ User Population
ZV Central Printing
Management &
Tools
Network (NW)
A1 LAN Architecture
A2 LAN Switching /
Routing
A4 Wireless LANs
AA LAN Planning &
Design
AB LAN Changes
AC LAN Support
AD LAN Operations
W1 WAN Architecture
W2 WAN Switching /
Routing
WA WAN Planning &
Design
WB WAN Changes
WCWAN Support
WDWAN Operations
V1 Voice Architecture
V2 Voice PBX / Centrex
V4 VoIP / IP Telephony
VA Voice Planning &
Design
VB Voice Changes
VC Voice Support
VD Voice Operations
X1 Contact Centre
X2 Network Perimeter
Control
X3 Remote Network
Access
X4 Cabling
X6 Conferencing /
Telepresence
YP Network total HW
and SW costs
ZP Network Line
Management &
Tools
ISG Model
Services Model
Analysis
Rates
ISG Database
Process Overview
Planning
Understand customer
organisation
Fact Finding
Collect data and

interview key
stakeholders
Assurance
Calculate performance
indicators
Analysis
Comparison and analysis
Reporting
Documented findings
Charter
Document
Quality Benchmark
Relationship between cost and quality
Most organisations achieve a similar level of quality though
Guaranteed 100% availability is a special case
Level of Service makes a big difference

E.g. 24X7 vs. 12X5
Benchmark Target (contractual) and Achievement (performance)

Abandonment rate for Central Service Desk calls
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
ACME
RG min
RG mean
Target
7.0
6.0
7.0
8.0
Actual
8.0
2.4
8.2
14.2
RG max
Level of Detail
High Level
Intermediate
Detailed
Tower level
Rough indication of market price
Typically used as part of a sourcing
strategy determination
Determine if a detailed benchmark is
warranted
Sub Process Level

Fairly accurate assessment
Can be used to negotiate with suppliers
Often used to decide on going to the market
or a sole sourcing option
Highly detailed forensic review
High degree of accuracy
Used to effect a price change as per the
benchmarking clauses in a contract
Will stand up to scrutiny

Midrange Server - Type A
Annual per Server ($)
$,000
$,000
$,000
$,000
The total annual expenditure analysed for the Type A

application servers is $x.xx million . It includes annual
hardware, software, support costs (internal and outsourced).
It also includes an allocation of management services ($xxxK),
Premises costs ($xxxK) and FTE related overheads ($xxxK).
x.xx FTEs have been allocated to the Type A server service

tower.
xxx physical servers, xxx logical servers reported for Client.
Infrastructure availability of 336 hours, 99.99%.
Comparison Group profile:
$,000
$,000
$,000
$,000
$,000
$,000
$Client
Market Min
Market Avg
Market Max
SAMPLE ONLY
Number of physical servers, xxx xxx severs
Number of logical servers, xxx xxx logical servers
Availability 168 hours, 98.4 99.9%.
Clients annual cost per logical server is within the market range and is in-line
with the market average.
This result indicates that this is an area where Client has an opportunity to
potentially save costs through a competitive bidding and negotiation process.
Sample Results
Client
Expenditure ($000's)
Service Tower
Minimum Savings
$(000's)
Maximum Savings
Opportunity $(000's)
Server Type A
x,xxx
-$
Server Type B
x,xxx
- $
Server Type C
x,xxx
-$
xxx
Desktop
x,xxx
x,xxx
E-Mail
xxx
-$
Infrastructure Servers
x,xxx
-$
xxx
Storage
x,xxx
-$
xxx
Network - LAN
x,xxx
-$
xxx
Network - Voice
xxx
-$
xxx
Network - Contact Centre
x,xxx
- $
Total Savings Opportunity
xx,xxx $
xxx
xxx
x,xxx
-
High Level
x,xxx
Sample Results
ACME
Monthly Total
Peer Group
Monthly Total
Unix Servers
$2,015,971
$1,938,900
Wintel Servers
$2,055,425
$2,002,300
Linux Servers
$133,103
$130,900
HP Non Stop Servers
$265,210
$300,000
$6,647
Batch
$217,668
$200,118
Migration
$24,617
Middleware
$364,021
$344,200
Midrange Hardware
Out of Scope Adjustments not applied to
Resource Units
$1,169,690
$1,096,795
Total
$6,252,353
$6,013,213
Tower
Teradata
ACME total as a percentage of Peer Group total

Percentage Delta for Monthly Total
103.98%
3.82%
Intermediate
The Role of Contractual Benchmarking
Traditional view is
changing
to the
Transformational
view
An accepted
management
tool for clients to
gauge the costand qualitycompetitiveness
of service
delivery
but also a
strategic tool for
clients and
service providers
to mutually
enhance the
sourcing
relationship
Win-win situations occur when all parties work together

transparently and coherently.
Must demonstrate to their client
the full value of their services
and quantify opportunities
where changes to technology,
processes or business
requirements would
enhance the value they
deliver, or allow the
service provider to
deliver more
profitably
Must ensure they obtain a

holistic view of the services
they receive, and
understand the root
causes of any gaps
identified
Need to have a detailed methodology, broad reference data

and experience to analyse complex environments and handle
unique features
Using Benchmarks to Drive Change

Efficiency
improvements
Effectiveness
improvements
Efficiency and
effectiveness savings
A standard services-based transformation model is characterised by pay-as-you-go utility

computing, transparency into billing and consumption, and effective demand management.
Service providers leverage the ability to deliver economies of scale.
Building a Benchmark Price

Remaining opportunity with
unidentified cause
Benchmark
Price
Uncontracted
Constraints
Historic
Investment
Contracted
Constraints
Total Spend
Client Specific
Services
Each constraint which cannot be identified in

the contract but which is accepted as a cause
for an increase in delivery cost
Any charges still to be paid for services already
delivered by the service provider
Each constraint identified in the contract which
causes an increase in the cost of delivery
CLIENT
Standard Service
(normalised for
scope, size,
complexity &
service level)
Any service not commonly found in other

organisations, and therefore no comparator
prices exist. Valued through discussion of the
costs with the service provider and client.
The most efficient and effective environments
in the market relating to the scope that is being
benchmarked described purely in output
terms.
Setup + do it
Right
No one is
Left Out
Get the data
Right
In Summary
Negotiate benchmark clauses where it makes sense
Contract benchmarking can be a positive experience if the client,
service provider and bench-marker all work together transparently
and coherently.
Change initiatives based on standard service delivery models can
deliver significant client savings and allow service providers to improve
margins by leveraging economies of scale.
Clients can reinvest savings with service provider on other initiatives
Use of well classified, and detailed benchmark data
uncovers the source of performance issues and defines the
potential scope of the improvement opportunity.
Discussion
Questions?

Benchmarking Market Pricing

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Benchmarking Market

Rawdon Simon - ISG

Copyright 2012 Information Services Group, Inc. All Rights Reserved