ASIRT EVOLVE's Service Cost Analysis Tool

Today IT system integrators & retailers offer a wide range of products, services and solutions. It has been noticed that many Sis make the cardinal mistake of clubbing operational costs at the organizational level. Another major operational goof up is that most SIs charge for services, based on notional or perceived direct costs for that service. Some even base their own service rates on general industry standard rates & generally acceptable rates. This has resulted in some shocking revelations.

Some of them are that many SI service offerings are not as profitable as originally perceived. SIs don't even know if some of their major service heads are actually contributing positively to their bottom line.

This puts them at a disadvantage as they do not know as to which areas to focus on, bargaining bottom lines & revenue sapping areas of their business. Many Sis have failed to make a strategic shift in their business policies & pricing as costs evolved. Hence they tend to run costly service operations on thin margins & eventually end up fighting liquidity crunch frequently.

A SI working in this scenario seldom affords industry standard pay to their employees. Hence their ability to attract & retain good talent is very low. As a corollary, SIs can not allocate enough resources for trainings & skillset upgrades.

The first steps to truly evolving your business to the next level are :
1) Clearly segregate your major revenue areas & know exactly the contribution of each vertical to your overall revenue pie. Ofcourse this is easily done using any standard accounting solution. However these analysis should be done on a monthly basis to get a clear picture of where you business is heading.

2) Next step is to apportion your costs correctly to each business vertical. E.g. AMC, Deployment, chargeable services etc. This is a very tricky issue. While it is easy to segregate some costs easily to different business verticals, there could be many common costs that accrue through all your business verticals. E.g. Rent, Telephones, admin staff salaries etc. this has to be done across your entire expense sheet to give a clear picture about that business vertical.

Major costs to be apportioned
Office rent : if your business premises is taken on rent & your entire sales & services operations operate out of this premises, then you should apportion your total rental costs to your various business verticals - based on area consumed. i.e. if your service dept used 50% of your premises, then you should apportion 50% of your rental cost to services & then further break it down amongst your various services.

If your premises are self owned, then take a notional market rent & apportion it based on above formula.
Telephones
Costs for Common phone line can be divided, based on approximate usage by each dept. direct costs for mobile phones for your support business is easily assigned to the respective head.
Salaries
Salaries for people engaged directly in specific service operations can be easily assigned to the respective service verticals.
Salaries for common staff such as backend, admin, HR & delivery staff can be apportioned approximately - based on the verticals they serve.
Hidden costs
Don't forget to include unseen costs such as internal consumables, IT usage, spares, test eqpt, stationery & apportion it according to your business verticals specific use.

Key business analysis parameters

Cost per Service call
This is one of the most common cost analysis that Sis need to perform. However most prefer to use only direct call costs as the basis of arriving at such figures. E.g. A SI may include only the direct costs related to the service calls such as field engineer's time & cost of company, conveyance etc. this gives them just a partial cost. Because they have omitted costs such as rentals, telephones, backend costs, trainings etc.
Using the sheets given with this white paper, Sis will get a realistic view of their support call costs & hence will be able to charge appropriately or make costings accurately.

Cost per system AMC once you know the total number of PCs, notebooks & other system under AMC & you have got the total costs for your AMC business, you can divide the total AMC apportioned costs by total AMC system nos to arrive at a cost per system AMC. For eg if the total number of systems under AMC is 500 & the total costs apportioned to AMC business vertical is Rs. 1200000/- then the avg total cost per system AMC per year is Rs. 750000/500 - which comes to Rs. 1500/- per system per year.

Another recommended way of doing the above working is to find the avg number of calls being done per month by your company for the total number of systems under AMC. E.g if a company has 500 systems under AMC & they are doing a average of 175 calls per month then they are doing a total of 2100 calls per year for a base of 500 systems. So they are doing an average of 4.1 calls per system per month. If the avg cost per call is calculated by method given in point no 1 and is Rs. 325/- then this company is spending Rs. 1332.5/- per system AMC (325 x 4.1)

Field engineer efficiency & avg call costs
This analysis allows you to find out the efficiency of each support engineer. You simply take the total of all calls performed by the person. Get a avg number for a month. This analysis helps you to determine your most efficient employees, identify problems & take steps to resolve them. Also this analysis helps you to devise incentive programs & thus drive up efficiency.

CRM 7 ERP systems
While basic excel can give you detailed insights & analytics about your business & help you to identify problem areas & thus take corrective steps.

ASIRT recommends that SIs implement CRM software to really get their entire sales & support operations streamlined & get incredible insights and reports about your business. A CRM can help you increase sales, productivity & reduce costs in the long run.

With regard to your services operations, you will get analytics such as profitable customers, profitable contracts and much more.