Control Instead of Cancellation

Process-oriented IT controlling
Process-oriented IT controlling

Neither costs nor their distribution are transparent in many IT departments. That’s why it’s difficult to cover savings opportunities strategically and red ink often tends to flow arbitrarily. But unnoticed cancellations can put a company’s future in danger. What’s needed? Effective IT controlling as part of a company’s controlling – IT controlling that optimizes costs at the operative level and that drives IT according to the company’s goals.
Sensibly establishing IT controlling in a company requires a comprehensive design, which can be divided into the following five tasks:

  1. Portfolio management (PFM): Prioritizing IT projects and plans according to the company’s strategy
  2. Project controlling (PRC): Project management and quality-oriented project work that comes in on time and on budget
  3. Product and infrastructure controlling (PIC): IT product training, service level agreements and service level management, requirements planning, resource planning, and internal cost allocation
  4. Risk management and controlling (RMC): IT-specific project and operational risks; IT security
  5. Balanced scorecard (BSC) for IT: A controlling instrument for IT that is based upon key figures

The first three modules map the main processes of IT controlling. Projects are prioritized according to their benefits, carried out professionally, and released to production. They are then allocated to (internal) customers in user departments proportionally by service rather than as a blanket allocation per employee. The fourth and fifth modules flank the main process.

ERP systems with built-in IT controlling

A coherent design is the prerequisite for IT controlling. Many companies want an out-of-the-box solution, which often leads to an inability to deal adequately with the IT department in terms of individual requirements. A turnkey solution also requires integration into the existing system landscape.
Modern ERP systems minimize the effort required for training, interfaces, and data retrieval; they already contain all the functions required for IT controlling. The functions include structures for cost centers and cost types, dealing with assets and projects, and various types of allocation procedures, including activity-base costing. And the data from ERP applications also serves the needs of IT controlling. Assuming the presence of suitable structures and account assignments, the data can be used to generate plan-actual comparisons or trend reports for IT.

SAP assists with portfolio management

Dimensions of project prioritization
Dimensions of project prioritization

The task of portfolio management is to prioritize project ideas and orders for the company according to their cost-benefit relationship. Doing so first requires the design of an evaluation schema that represents the strategic and economic benefits along with the real risks of a project. The schema mirrors the strategy of upper management and is valid for all areas of the company. This feature enables evaluation of project requests according to uniform and reproducible criteria. Second, a concrete request, evaluation, and prioritization process must be determined. The process shows who requests projects, what information is required, and what criteria will be used for evaluation.
The product scope of SAP can map a portfolio management process with individual evaluation schemas for any company. The standard functions of the project system (PS) component and SAP Business Information Warehouse (SAP BW) are combined in a manner that fulfills both transactional and analytical requirements. An integrated PFM solution based upon SAP offers additional advantages. The data entered for evaluation and prioritization does not have to be reentered after the project has been approved. It simply remains available to monitor and control the project. This feature saves time and avoids transmission errors.
The portfolio can also reprioritize existing and requested projects if and when the basic parameters of the decision-making process change – the weightings in the evaluation dimensions and of the dimensions to each other. For example, if the costs of the project should be amortized quickly, economic considerations become more important. But if the company wants to lay the cornerstone for future success, it gives more weight to the strategic components of project evaluation. A change in company leadership might lead to more emphasis on the risks posed by projects. Appropriate support from computers can adjust the project portfolio to the new evaluation preferences.

Transparent prices mean more awareness of costs

Planning IT needs
Planning IT needs

Product and infrastructure controlling maps IT controlling in a stricter sense. The task here is to manufacture IT products, just like other industries manufacture traditional goods. This analogy enables realization of the design with the standard functions of an SAP solution, such as work plans or bills of material. The first task here is to define saleable products with concrete benefits, including service level agreements, for user departments. Next, IT resources are estimated based upon requirements planning in user departments. The prices of IT products result from commercial product costing.
Transparent prices of IT products and settlement that is fairer according to the input involved produce a greater awareness of costs in user departments, which order and pay for only the products that produce actual benefits. Companies are simultaneously in a position to adjust IT capacities to internal cost allocation for IT and to the planning process oriented toward material requirements – and lower costs in a sustainable manner.
Internal cost allocation for IT also provides more exact control of information on the company’s market services because IT costs can be assigned directly to various products. This ability can determine profit margins more exactly – to make fact-based decisions on product offerings, for example. This feature is a significant advance from an unclear and often inequitable allocation of overhead.

IT service management with mySAP CRM

The standard functions of SAP solutions can also help implement the planning, calculation, controlling, and settlement procedure of product and infrastructure controlling. Various options are available, depending upon the preference of the company. The options can be oriented toward cost centers (CO-OM) or processes (CO-ABC). We recommend the use of profitability analysis (CO-PA) if the IT products will not be invoiced explicitly in sales and distribution (SD).

Even the simple transparency of the resources required helps IT management. After all, professional IT service management, such as that required by the ITIL standard, today demands almost all the functions found in a CRM system: from incident management to installed base management. The integrated design of mySAP CRM makes it most appropriate to support IT service management in the cycle of engage, transact, fulfill, and service. These actions range from the help desk, the acceptance of repair requests, and to the planning of maintenance measures.

Early warning system for IT risks

RMC clarifies the existing risks and the costs they engender. Modern controlling in a company considers these costs when designing the palate of marketable goods.
The use of SAP solutions, such as SAP BW or SAP Strategic Enterprise Management (SAP SEM), can establish a risk management and early warning system in a company. The use of RMC becomes particularly stringent when SAP Business Workflow automates monitoring functions and escalation procedures.

Balanced Scorecard for IT

In the context of IT, a BSC is a management instrument based upon key figures. It does not create any new information; it simply compresses information from the relevant source systems. Before companies implement a BSC, they must set the controlling goals for the IT department and the cause-effect relationships among the control quantities. They must also determine the data sources for the key figures. Doing so in an integrated ERP system, such as mySAP ERP, is relatively simple and must be effected with a secure quality of data. SAP BW and SAP SEM represent two components for the creation of key figures and BSC formats.
In the long term, there’s really no alternative to IT controlling to manage valuable IT resources correctly. Experience shows that the companies with long-term success are only those that have a handle on the business-management aspects of IT and develop them further as part of the company’s strategy.

Horst Santihanser
Horst Santihanser
Dr. Robert Brun
Dr. Robert Brun