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Cost Allocation: Maximize Your Mainframe Value

Background

In many organizations, the mainframe is often perceived as an expensive ‘black box’. Questions about usage, costs, and impact loom large: Who is using how much capacity, when, at what cost, and for what purpose?

These questions extend beyond technical concerns; they also hold significant importance for decision-makers across the organization. Understanding the nuances of mainframe usage and costs empowers leaders to make informed decisions that drive efficiency and optimize resource utilization.

What is Cost Allocation?

With cost allocation it’s possible to demystify the mainframe and empower stakeholders across the organization to leverage data-driven insights and drive value creation. At its core, cost allocation within mainframe management involves the translation of technical metrics into actionable insights that resonate with strategic business objectives.

It entails mapping measurable entities – such as MIPS per job, transactions, users, or gigabytes per dataset – onto usage patterns per business area. This process enables organizations to allocate costs accurately, equitably, and transparently, fostering a deeper understanding of resource utilization and driving strategic decision-making.

Cost allocation serves as an instrument for aligning technical metrics with business imperatives, enabling organizations to make strategic investments, optimize resource allocation, and drive operational efficiency.

Who Should Care about Cost Allocation?

As mentioned, mainframe cost allocation isn’t just an IT concern; various stakeholders, each with unique responsibilities and objectives, rely on accurate cost allocation to drive informed decision-making and optimize resource utilization.

• Capacity Managers: Translate business plans into capacity projections and relate anomalies to applications or business units.
• IT Operations: Prioritize workloads and address performance issues, ensuring stable operations.
• Application Development: Understand the impact of application changes on capacity costs and identify opportunities for optimization.
• IT Finance: Allocate costs accurately, build better budgets, and understand cost drivers and anomalies.
• Vendor Management: Understand usage of vendor products and forecast changes in usage based on business plans.
• Senior Management: Quantify the relationship between capacity costs and business volumes, holding teams accountable for costs and creating reliable plans.

Tradeoffs and Pitfalls

There’s a careful balance to consider when doing mainframe cost allocation. When considering the tradeoffs and pitfalls there’s three concerns to keep in mind: what’s technically correct, what is fair, and what’s simple to implement. Let’s explore the nuances and considerations associated with each model:

Technically Correct:

Achieving technical accuracy in cost allocation entails grappling with the complexities inherent in real-world costs. Key considerations include:

• Handling peaks in usage patterns and factoring in pricing discounts, such as those for mobile or containerized workloads.
• Accounting for event-based data at the appropriate time to ensure accuracy in cost attribution.
• Differentiating allocation for various software products across different LPARs, applications, or pricing models.
• Allocating overhead costs accurately to real users and accounting for the cost of zIIP processors and other hardware components.

Fair, or Politically Acceptable:

Ensuring fairness in cost allocation is crucial for fostering trust and buy-in from stakeholders. Key considerations include:

• Ensuring that business units, regardless of their peak usage, contribute a fair share of costs.
• Defining overhead costs as shared expenses rather than unallocated items, promoting transparency and equity.
• Providing self-service reporting capabilities to enhance the perception of fairness and prevent hidden costs.
• Recognizing the challenge of changing billing models once implemented and striving for stability and predictability.

Simple to Implement and Manage:

Simplicity is vital in ensuring that cost allocation processes remain efficient and effective. Key considerations include:

• Maintaining focus on the ultimate goal of driving better decisions and behavioral correction.
• Avoiding unnecessary complexity that detracts from value generation.
• Leveraging robust data and tools to simulate and evaluate various cost allocation models easily.
• Identifying usage patterns to establish simple rules for cost allocation.
• Securing strong management sponsorship to champion streamlined and effective cost allocation processes.

By carefully balancing these considerations and understanding the dynamics at play, organizations can navigate mainframe cost allocation.

Making It Happen

In conclusion, mainframe cost allocation is a strategic imperative for organizations seeking to maximize value from their mainframe investments.

By embracing transparency, collaboration, and continuous improvement, organizations can navigate mainframe cost allocation, drive informed decision-making, and unlock the full potential of their mainframe infrastructure.

Get started with ITBI™ today.