Aurizon Network – IT Services Market Price
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Aurizon Network – IT Services Market Price 8 December 2014 Final – v3-0 This document is ITNewcom proprietary information and has been provided for the engagement agreed with ITNewcom. specialists in Spend Optimisation Benchmarking Research 1 Table of Contents 1. Introduction Appendix A - Notes and Assumptions a. Background and Requirements Notes and Assumptions b. The IT Supply Chain – Overview Appendix B - ITNewcom c. IT Supply Chain – Key IT Functions ITNewcom 2. Executive Summary a. Benchmarking Peer Group b. Market Price - By IT Service Category c. Market Price - By IT Cost Category d. Market Price - By IT Service Category and IT Cost Category 3. Staff a. Run Services by Service Group b. Run Services by Service Category 4. Key Volumes a. Resource Units b. Organisational 5. Software a. Business and Enterprise Applications b. Desktop Applications c. System Software 2 Section 1 Introduction 3 Introduction ► Background, Scope and Objectives Aurizon Network operates the Central Queensland Coal Network. Access to the Central Queensland Coal Network is regulated by the Queensland Competition Authority (QCA). Aurizon Network sources and deploys a range of IT services to meet the needs of the Aurizon Network business. Aurizon Network is required to demonstrate to the QCA that the forecasted UT4 spend for the run IT services is efficient when compared to the Australian market for similar IT services. Background Scope Objectives • Aurizon Network operates the Central • Prepare a report which estimates • The objective is to provide an Queensland Coal Network. the cost of Aurizon Network independent view, validation and providing the in-scope run IT explanation of the cost of the run • Access to the Central Queensland Coal services on an efficient and IT services for the in-scope IT Network is regulated by the Queensland stand-alone basis when services. Competition Authority. compared to the Australian • The report will be provided by • Aurizon Network sources and deploys a market for similar IT services. Aurizon Network to external range of IT services to meet the needs of • The report will include a parties such as the QCA, and be the Aurizon Network business. volumetric estimate of the cost made publicly available to • Aurizon Network is required by the of the run IT services (ie. the demonstrate the make-up of the regulator to demonstrate that the costs of ‘business as usual’ costs) based IT cost structures and to make providing the ‘run’ IT services is efficient on current practices for all in- transparent the methodology when compared to the Australian market scope IT services including and assumptions used to for similar IT services. Service Desk, End User determine the industry standard Computing, Servers, Storage, cost estimates for the Network (LAN / WAN), Telecoms volumetrics and in-scope (voice and data), Data Centres services. and in-scope Applications. 4 Introduction ► The IT Supply Chain - Overview The IT organisation delivers IT products and services to the business. ITNewcom’s IT supply chain groups these IT products into 3 major service delivery groups, ie. application services, infrastructure services and telecommunication services. The service delivery groups are supported by a range of cross-functional management services. Management Management Services Management Services Services IT Management Application Services IT Strategy & IT Service Architecture Business Enterprise Desk Applications Applications Infrastructure Services Data End-user Data Mainframe Servers Storage Centre Computing Network IT Program IT Service Management Telecommunication Services Management Data Voice Voice Carriage Networks Carriage ITNewcom’s IT Supply Chain, Release 18.6.2 © ITNewcom Pty Limited, 2003-14 5 Introduction ► IT Supply Chain – Key IT Functions The IT organisation delivers each of these products and cross-functional management services through a standard set of IT services during the IT ‘life cycle’. ITNewcom groups these IT services by IT function, product and lifecycle phase to identify key IT functions. The functions highlighted in red below are the in–scope IT services. Application Services Infrastructure Services Telecom Services Centralised Computing Voice & Data Networks Voice & Data Carriage Business Enterprise End-User Data Data Voice Data Voice Applications Applications Mainframe Servers Storage Computing Centre Networks Networks Carriage Carriage IT Strategy and Architecture Plan IT Program Management Requirements, Analysis and Requirements and Solution Design for Computing Requirements and Network Design for Voice and Design for Applications Platforms Data Networks Build Develop, Integrate, Test and Build Computing Platforms Build Voice and Data Networks Deploy Applications Support and Maintain Support and Maintain Computing Platforms Support and Maintain Voice and Data Networks Applications Run IT Service Desk IT Service Management IT Management Organisational and Benchmark Scope IT Services Scope • All in-scope hardware, software, staff, facilities and carriage services. • Currently Aurizon Network shares its IT services with other business units of Aurizon Holdings. The analysis has assumed that Aurizon Network is sourcing and deploying its IT services on a stand-alone, insourced and non-shared basis. Geographic Scope • All Aurizon Network locations in Australia. Measurement Period • FY14 6 Section 2 Executive Summary 7 Executive Summary ► Benchmarking Peer Group The composite peer group for this benchmark comprises a total of 16 deals and observations, with at least 6 observations for each IT Service Category. Peer Group Statistics Building the Peer Groups, Normalisation and Adjustments When selecting members of the peer group, ITNewcom seeks to include 6-8 IT environments with similar operational characteristics, including: Selecting Scale of IT environment; Peers Complexity of IT environment; and Transportation 3 Countries of operation. Industrials 7 3 Utilities Manufacturing It is accepted that the IT environment of an organisation being benchmarked will never 3 be identical to the IT environments of the peer group and that the benchmarker must consider and normalise for differences between these IT environments. The normalisation process requires careful comparison of how each difference affects the IT costs of the organisation’s environment and the peer group organisations must be normalised to reflect any such differences. Normalisation Specific normalisation factors will vary from IT service to IT service, however examples of Peer Group of normalisation factors include differences in: Data Volumes; Scope; Service Delivery Locations; 29% Tier 1 Technology; Tier 2 Service Levels; and 71% Tier 3 Hardware Refresh Periods. The IT benchmarking industry typically sets ‘ efficient’ pricing in the market at the average of the peer group. Market Price It is generally accepted IT benchmarking industry practice that a reasonable margin of error for the average of the peer group is plus or minus 5%. 8 Executive Summary ► Market Price - By IT Service Category In order to estimate an efficient price for the Aurizon Network IT function, ITNewcom derived the resource unit volumes for each major IT service group, and then multiplied these resource unit volumes with the market price for the relevant resource unit. A summary of the market price for the run IT services is detailed below. Annual Market Price for Run IT Services by Service Group Definitions $20 Application pricing covers the cost of licensing, supporting and Applications maintaining the business, $2.4 enterprise and desktop application software. $15 $2.9 Infrastructure pricing covers the cost of licensing system software, supporting and maintaining the Infrastructure servers, storage, end-user ($M) $10 $5.2 computing, data network devices and the data centre. $18.1 Telecoms pricing covers the cost of supporting and maintaining the $5 Telecoms voice network devices and $7.5 providing the data and voice carriage services. Management pricing covers the $0 cost of providing IT service desk, IT Management Applications Infrastructure Telecoms Management Total Service Management (ITSM) and IT management services. 9 Executive Summary ► Market Price - By IT Cost Category The table below gives a breakdown of the Market Price by IT Service Category into the major IT cost categories. Annual Market Price for Run IT Services by Cost Category Definitions $20 In-scope Hardware costs include the rental of the server, storage and end-user computing devices. This may be in the form of a Hardware $2.7 leasing stream or depreciation. It excludes all costs associated with $15 $0.4 solution design and build. Software costs include the licensing of application and system software, Software including on-going licence support costs. $8.3 ($M) It excludes all costs associated with $10 application design and build. $18.1 Personnel costs include the support and maintenance of all applications, infrastructure and networks, and Personnel providing the IT Service Desk, IT Service $5 $4.8 Management and IT Management services. It excludes all application, infrastructure and network projects. Facilities costs include the lease and $1.8 Facilities $0 support of the data centre facilities. Hardware Software Personnel Facilities Carriage Total Carriage costs include all data, voice and Carriage mobile carriage services. 10 Executive Summary ► Market Price - By IT Service Category and IT Cost Category The table below gives a breakdown of the Market Price by IT Service Category