Published: ServiceTalk - The Journal Of itSMF Forum - February 2004 - in column:

Ask The Experts - Leading industry figures respond to questions received in the itSMF office

Problem Management Value

Karen Ferris

Question: How can I demonstrate the business value of Problem Management to my finance director?
 

One of the objectives of Problem Management is to identify the root cause of incidents, thus preventing reoccurrence and to remove known errors affecting the ICT infrastructure. Therefore if we can calculate the cost to the organisation of these recurring incidents, we can demonstrate the business value in monetary terms to management including the finance director.

To do this, I have leveraged upon a model from Bruton Consultancy.

Firstly, you have to find out the financial impact in terms of lost business productivity (LBP) of recurring incidents. This will rely on a good incident categorisation structure and cause code structure to enable analysis of repetitive incidents for which no Problem Management has been conducted. It also has a reliance on good non-availability or down-time statistics for the incidents.

1. Find out company turnover.
2. Divide that by number of employees.
3. The result is the average contribution to turnover made by each employee, each year.
4. Divide that by typical number of working days per year (eg. 220).
5. Divide that by typical number of working hours in the day (e.g. 8).
6. The result is the contribution to turnover made by each employee – each hour.
7. Multiply this by the average dependency of the employee on IT. This allows for the fact that whilst IT is unavailable, employees can usually do something else. This percentage will depend on the nature of the organisation (eg. 25% or 50% or more).
8. The result is the LBP figure. This is how much the organisation loses in turnover contribution per employee, per hour, when IT is not working.

Now you need to analyse your recurring incidents. Select one type of recurring incident that appears to have the same cause code. Determine the lost hours for this type of incident.

When you have these figures, you can multiply the number of hours lost by the LBP figure giving you a financial impact of these incidents.

If Problem Management was put in place to get to the underlying cause of these incidents and remove the known error, this would be the financial saving to the organisation.

 Example:

Based on large UK food retailer with an annual turnover of 26 billion UKP and 300,000 employees.

Assumptions: Average working days per year: 220. Average working hours per day: 8. Reliance on IT: 50%

26 billion UKP / 300,000 = 86,666.66 UKP (av. contribution per employee per year)

86,666.66 UKP / 220 = 393.93 UKP (av. contribution per employee per day)

393.93 / 8 = 49.24 UKP (av. contribution per employee per hour)

49.24 UKP x 50% = 24.62 UKP (lost business productivity per employee when IT not available)

Analysis of recurring incidents for the payroll application being unavailable over a 6 month period reveals 150 incidents (one per user) with an accumulative down-time of 200 hours for all users.  

This is LBP of 4,924 UKP over 6 months for one incident type.

Do this for a few more recurring incident types and the figures start to become quite revealing!!

Karen Ferris Copyright © 2004 KMF Advance. All rights reserved.