Quality of service versus cost of service

Service Operation is required consistently to deliver the agreed level of IT service to its customers and users, while at the same time keeping costs and resource utilization at an optimal level.

Figure 3.3 represents the investment made to deliver a service at increasing levels of quality.

Figure 3.3 Balancing service quality and cost

In Figure 3.3, an increase in the level of quality usually results in an increase in the cost of that service, and vice versa. However, the relationship is not always directly proportional:

• Early in the service’s lifecycle it is possible to achieve significant increases in service quality with a relatively small amount of money. For example, improving service availability from 55% to 75% is fairly straightforward and may not require a huge investment.
• Later in the service’s lifecycle, even small improvements in quality are very expensive. For example, improving the same service’s availability from 96% to 99.9% may require large investments in high-availability technology and support staff and tools.

While this may seem straightforward, many organizations are under severe pressure to increase the quality of service while reducing their costs. In Figure 3.3, the relationship between cost and quality is sometimes inverse. It is possible (usually inside the range of optimization) to increase quality while reducing costs. This is normally initiated within Service Operation and carried forward by Continual Service Improvement. Some costs can be reduced incrementally over time, but most cost savings can be made only once. For example, once a duplicate software tool has been eliminated, it cannot be eliminated again for further cost savings.

Achieving an optimal balance between cost and quality (shown between the dotted lines in Figure 3.3) is a key role of Service Management. There is no industry standard for what this range should be, since each service will have a different range of optimization, depending on the nature of the service and the type of business objective being met. For example, the business may be prepared to spend more to achieve high availability on a mission-critical service, while it is prepared to live with the lower quality of an administrative tool.

Determining the appropriate balance of cost and quality should be done during the Service Strategy and Service Design Lifecycle phases, although in many organizations it is left to the Service Operation teams – many of whom do not generally have all the facts or authority to be able to make this type of decision.

Unfortunately, it is also common to find organizations that are spending vast quantities of money without achieving any clear improvements in quality. Again, Continual Service Improvement will be able to identify the cause of the inefficiency, evaluate the optimal balance for that service and formulate a corrective plan.

Achieving the correct balance is important. Too much focus on quality will result in IT services that deliver more than necessary, at a higher cost, and could lead to a discussion on reducing the price of services. Too much focus on cost will result in IT delivering on or under budget, but putting the business at risk through sub-standard IT services.

Special note: just how far is too much?

Over the past several years, IT organizations have been under pressure to cut costs. In many cases this resulted in optimized costs and quality. But, in other cases, costs were cut to the point where quality started to suffer. At first, the signs were subtle – small increases in incident resolution times and a slight increase in the number of incidents. Over time, though, the situation became more serious as staff worked long hours to handle multiple workloads and services ran on ageing or outdated infrastructure.

There is no simple calculation to determine when costs have been cut too far, but good SLM is crucial to making customers aware of the impact of cutting too far, so recognizing these warning signs and symptoms can greatly enhance an organization’s ability to correct this situation.

Service Level Requirements – together with a clear understanding of the business purpose of the service and the potential risks – will help to ensure that the service is delivered at the appropriate cost. They will also help to avoid ‘over sizing’ of the service just because budget is available, or ‘under sizing’ because the business does not understand the manageability requirements of the solution. Either result will cause customer dissatisfaction and even more expense when the solution is re-engineered or retro-fitted to the requirements that should have been specified during Service Design.

Figure 3.4 Achieving a balance between focus on cost and quality

Table 3.3 outlines some examples of the characteristics of positions at extreme ends of the cost/quality spectrum. The purpose of this table is to assist organizations in identifying to which extreme they are closer, not to identify real-life positions to which organizations should aspire.

Table 3.3 Examples of extreme focus on quality and cost

Achieving a balance will ensure delivery of the level of service necessary to meet business requirements at an optimal (as opposed to lowest possible) cost. This will require the following:

• A Financial Management process and tools that can account for the cost of providing IT services; and which model alternative methods of delivering services at differing levels of cost. For example, comparing the cost of delivering a service at 98% availability or at 99.9% availability; or the cost of providing a service with or without additional functionality.
• Ensuring that decisions around cost versus quality are made by the appropriate managers during Service Strategy and Service Design. IT operational managers are generally not equipped to evaluate business opportunities and should only be asked to make financial decisions that are related to achieving operational efficiencies.

Date: 2014-12-29; view: 1441