CHAPTER 17
Cost Control
Cost control is nothing new for project management. With any project, it is important to accurately track and control the actual project’s expenditures in accordance with the approved budget. In this regard, there is not that much of a difference with maintenance.
However, at the lower level, maintenance has some specific characteristics. While a project’s expenditures are combined in order to produce one price for the customer, maintenance costs should be associated back to the types of services the customer is receiving and what customer the service was for (assuming multiple budget authority customers). Chapter 7, “Cost Estimate,” provided several methods for estimating how much the maintenance effort should cost. Now we will look at how to track the actual costs and analyze the results.
With effective tracking, you will be able to better control the process for delivering basic keep-it-running maintenance and enhancements. You will also have better control over the process for managing external contracts, contractors, licenses, and purchases (including conferences and training). Tracking allows the mining of a wealth of information to use for improving processes, communicating a clear picture to the customer, and decreasing staff when possible and necessary.
Tracking Costs
To achieve this level of knowledge mining, you need to set up a system for capturing all the costs as they occur. The systems for capturing labor hours and expenditures probably already exist in your company. But it will be up to you to determine the actual cost breakdown and the granularity.
Varying terminology exists for this cost breakdown. Different professions use different terms. Project managers use the term “work task.” Accountants use the term “chart of accounts.” The slang term “buckets” is also used by some. We use this slang term to refer to a specific amount of money budgeted for or actually spent on specific work. Buckets can match specific individual budgeted line items, or roll up into one budgeted line item.
Figure 17-1 shows the cost breakdown: the sources of information, how they can be divided into a conceptual two-bucket model, and how they can be further divided into a more detailed bucket model. Figure 17-1 assumes that the maintenance team supports two separate businesses, each one having its own budget funding. That is why the same work tasks are duplicated for each business.
The approach you take for tracking labor will depend in part on how your work is funded. If there is only one budget (one bucket of money), there is less demand on you to separate the costs. However, it is recommended that enhancements and other discretionary work be tracked separately from the non-discretionary (Keep-It-Running) maintenance. Doing this makes understanding and controlling the maintenance process easier for the business and allows it to make informed decisions.
The first step in tracking labor costs is setting up a labor time-tracking breakdown that enables the appropriate granularity. All tasks that your team performs should have a bucket that contains the funding amount. One bucket could cover many tasks as long as there is somewhere for team members to charge each of their tasks.
The first resource to check when designing your buckets is the Service Level Agreement (SLA). Determine what it specifies as financial reporting requirements. The second resource to check is the Work Tracking Tool described in Chapter 11, “Work Tracking.” The time-tracking tool should capture the labor hours spent on each Ticket Type. Lastly, for more granular information, review the SBS from Chapter 6, “Service Breakdown Structure.” A word of caution: the SBS will most likely provide too much detail.
The following are the Ticket Types for work tracking:
Customer-Driven Costs
• Calls with Basic Questions
• System Administration Changes
• Data Fixes or Changes
Preventive Costs
• Preventive Maintenance Tasks
• Performance Tuning Changes
• Disaster Recovery Drills
Defect Fix Costs
• Fixing Defects and Production Incidents
• Vendor Release Changes
• Defect Fix Migrations
Enhancement Costs
• Enhancement Requests
• Enhancement Migrations
Miscellaneous Costs
• Other
Labor-reporting granularity has to be carefully balanced with the time it takes to enter your time into the system. Detailed breakdowns of hours spent are great for reporting, but the more detailed the breakdown, the harder it is for your team to figure out where to charge their time and the longer it may take to enter the time into the system. The smallest number of buckets possible should be used to meet the reporting requirements and your management needs.
After setting up your buckets, your team members can accurately enter their time. A process for entering time most likely already exists in your department. If not, you can create a simple spreadsheet on a shared drive for team members to use to enter their time. You, as the manager, must clearly communicate to your team the importance of accurately tracking and entering time.
Because you don’t want your team members annoyed and confused, keep your setup as simple as possible. If team members are confused and feel they are spending too much time trying to figure out how to charge their time, they might be tempted to circumvent the system and select general or erroneous tasks. If they do that, you might have no useful information for future analysis. So you don’t want to unduly burden team members with the necessity of performing time-consuming time entry, which pulls them away from real maintenance tasks.
Besides labor, the following non-labor costs must be tracked:
Purchases
• Hardware purchases
• Software purchases
• Development tool purchases
Fixed Costs
• Computer capacity costs
• Vendor maintenance agreements
• Facilities costs
Other
• Business travel
• Conferences and training
Cost Analysis and Control
Cost control starts with a solid understanding of the budget and the actual monthly expenses. Simply approving invoices and completing minimum time tracking does not constitute control. Cost control ensures that all costs are proper and in alignment with the goal of delivering business value and that the annual budget will be met.
Having a conservative attitude toward maintenance costs will increase your effectiveness and value to your company. You will discover problems more frequently than someone who isn’t watching costs closely.
The four sections that follow suggest that you use the cost areas of Labor, Purchases, Fixed Costs, and Other Costs in your cost analysis and control.
Labor
Labor is a major area to address in controlling costs. How labor time is spent indicates what services are being delivered, which is why you need an appropriate accounting of where your team is spending time.
Start by reviewing the total labor time and asking the following questions to confirm that it matches what you expected:
• Is this month’s total driving you over or under budget?
• Are all of your team members reporting their time?
• Is anyone outside your area charging time to your effort inappropriately?
Next, review time spent on enhancements. You don’t need to look at how much time each enhancement took; move your view up a level. Look at how many enhancements were worked, whether they were all approved to be worked on, and how much time was spent, and ask the following questions:
• Do these numbers make sense?
• Does the percentage of time spent on enhancements make sense when compared to all the other percentages of time spent?
• Are there any unauthorized enhancement requests?
Then compare each of the other labor categories as a percentage of the whole. Ask these questions:
• Are these percentages in line with past months?
• Is any category increasing?
– If so, why?
– Is an improvement needed
to lessen the trend (such as more user training or updated user job aids to address increased user help calls)?
• Is the amount of time spent addressing defects and incidents in alignment with the number of defects and incidents reported? If the amount of time appears greater than that needed, check to see if some of the incidents were not recorded appropriately.
Lastly, review and verify your contractor expense, which is a major area to control. Contractor time and cost tracking could be combined in your employee time-tracking system or handled separately. Ask the following questions:
• Is the invoice appropriate?
• Is contract labor being used effectively?
It is important to approve contractor invoices on time, and also important for you to control these costs by following up on anything that suggests the existence of a contractor issue.
Purchases
Purchases are typically budgeted for the following year, but events and changing business needs can make previous purchasing plans obsolete. Control of purchases involves ongoing analysis of business and system needs so that the dollars available are used appropriately. The timing of purchases also needs to be addressed. Business needs should be met in a timely fashion, and there should be no major spending spree at the end of the budget year when managers realize they have a budget surplus that must be spent or lost. Rushed spending tends to be on purchases having a lower business value.
Fixed Costs
Little control can be exerted on fixed costs. It’s not usually practical to decrease the cost of a vendor license. In most cases, fixed costs will be known at the beginning of the year and budgeted accordingly. Controlling fixed costs requires less attention than controlling labor costs. Control is limited to verifying that the amounts match the budget and ensuring that invoices are paid on time.
Other Costs
Ensure that other budgeted costs do not go over budget, and control the amounts distributed to team members equitably. Carefully consider the ramifications of any cutbacks to Business Travel, Conferences, and Training. Although reductions can produce short-term savings, there can be negative long-term consequences, including dissatisfied team members and stagnant skills sets.
Reporting Cost
The following will want to see your financial reports:
• The business customer
• IT leadership
• You
The business customer will want to see the roll-up of all IT’s financial reports that pertain to its business. The customer will use them to confirm that budgets will not be exceeded, and in a subconscious way, to validate the business value of IT. These reports will provide the customer with solid information about what Keep-It-Running maintenance costs and what a discretionary demand for enhancements costs. The customer will understand the financial significance of cutting back on discretionary enhancements and will develop an understanding of what services will be lost.
The business owner and payer may be expecting a flat rate of demand for discretionary enhancements and may have specific controls in place to approve the requests. The financial report can be a good indicator that an amount of unauthorized enhancements are being worked. Even though the business owner and maintenance manager understand the need to limit enhancements to strict business value, the users and their maintenance team member friends may not fully appreciate this control need.
IT management will also want to see the high-level reports as part of its normal work. Your reports will be consolidated with all the other financial reports that show the department’s overall financial picture.
As indicated in the Cost Analysis and Control section in this chapter, you will use the detailed reports for overall cost control. They will add more information to your picture of what is really happening on your team. Applying that knowledge will drive continuous improvements that increase your team’s value proposition.