Financial Management

Total Service Cost

How To Calculate Total Service Cost

How much are you spending on your IT services?

Why Breakdown Service Costs

It is important to understand where the IT budget is being spent in order to be able to make informed and effective strategic decisions. Understanding the cost of running an on premises service allows a comparison against cloud services. Overspending in some areas may be starving other, more important areas, of vital funding.

The Basics

Large organisations often find it difficult to work out how much they are spending on IT services.

The cost of running an IT service can be broken into two categories:

  • Staff costs working on the service
  • Other costs such as licenses or infrastructure

Staff should have their position cost classified and start and end dates to ensure accurate costings.

One Off Costs & Recurring Costs

Costs can be one off or recurring periodically. The initial implementation project may be a one off cost, and ongoing maintenance will repeat annually. License costs will also recur annually, and infrastructure replacement costs may occur every 3 or 5 years.

The Cost of Underpinning Services

IT services depend on many other underpinning services. The cost of these should be included. Typical underpinning services include:

  • Storage & Backup
  • Authentication & Directory Services
  • Virtual Server farms
  • Data Centres & Networks
  • Database Server Farms

Underpinning services may be used by many client facing services. Their cost should be split and passed onto the services using them.

Useful Tips

When determining how much time staff spend of a particular service it is best if they breakdown their time over all the services they work on, ensuring all services are taken into account.

Averaging time over 3 years or more may be more accurate than a snapshot in time as services typically require more attention when they are first implemented. Once they are up and running they may not require as much staff time until they need upgrading or replacing.

Calculating Service Cost Using ServiceView