ITIL-SOA practice question 4 of 10

Scenario A retail company has enjoyed significant growth in profit over the past year due to negotiating lower buying costs from its suppliers. The…

Full set: 14 questions
Scenario A retail company has enjoyed significant growth in profit over the past year due to negotiating lower buying costs from its suppliers. The organization wishes to reinvest some of this profit to fund a program of change to optimize the use of IT services. They hope this will support revenue growth in the next financial year whilst maintaining profitability. The program consists of two main initiatives: • An expansion of the on-line retailing services to offer more functionality • Enhancement of the marketing service to allow greater targeting of promotional offers. There are various options for providing these services that involve use of the current infrastructure or the new virtualization technology, which is slowly being deployed across the organization. The board of directors wishes to conduct a financial review over the next 3 months to compare the cost of providing each service. Projected business revenues will allow the return on investment (ROI) of each option to be calculated. This review will provide an input to the IT organization’s service portfolio management process, allowing the various investment options to be considered and an informed decision to be made. The organization has a good appreciation of its IT costs along with a mature service catalogue and configuration management system (CMS). Refer to the Scenario. Which one of the following options would be the BEST approach to providing the information for the financial review of the service options?
Answer options
A: Appoint an IT finance manager to implement budgeting and accounting for IT services. Create a cost model that takes into account direct and indirect costs, as well as fixed and variable costs. Use the cost model to calculate the cost of providing the IT services and provide the information to service portfolio management (SPM).
B: Produce a summary of current costs, apportioning all costs directly to the appropriate service. Any investment in virtualization or new infrastructure should be shared equally between the two services. This creates a baseline for comparison with the anticipated business revenues and ROI that will enable a business case to be developed for each option.
C: Produce a summary of current costs, recognizing that the resources are shared across services. Use service level agreements to understand how the services are used and create a model for the services, ensuring that both current and projected costs are shared appropriately. These costs can then be compared with the cost of outsourcing the service and with the anticipated business revenue.
D: Produce a summary of current costs, recognizing that the resources are shared across services. The various options for providing the service, including those requiring investment in new infrastructure, can then be costed. Using the projected revenues supplied, a calculation can establish the ROI for each option. These costs and ROI for each option can then be compared through the service portfolio management process and used as an input to develop a business case for the most advantageous options. Correct answer
Correct Answer:
D. Produce a summary of current costs, recognizing that the resources are shared across services. The various options for providing the service, including those requiring investment in new infrastructure, can then be costed. Using the projected revenues supplied, a calculation can establish the ROI for each option. These costs and ROI for each option can then be compared through the service portfolio management process and used as an input to develop a business case for the most advantageous options.
Explanation

This option provides the most comprehensive and strategically aligned approach according to ITIL principles. It correctly recognizes that IT resources are shared and require a sophisticated costing model. It directly addresses the board's request by costing the various service provision options, calculating the Return on Investment (ROI) using projected revenues, and feeding this crucial financial analysis into the Service Portfolio Management (SPM) process. This enables an informed, value-based decision on which options to pursue and provides the foundation for a robust business case, which is the primary purpose of these activities.

Why Incorrect

A: The scenario states the organization has a "good appreciation of its IT costs," implying that foundational financial management processes already exist, making this option redundant. B: Sharing investment costs equally is an arbitrary and inaccurate method of cost allocation that would lead to a flawed ROI calculation and poor investment decisions. C: This option incorrectly introduces outsourcing, which is not mentioned in the scenario's scope, and misidentifies Service Level Agreements (SLAs) as the primary tool for usage-based costing.

References

1. AXELOS, ITIL® Service Strategy: 2011 Edition, TSO (The Stationery Office), 2011.

Section 4.3.5.3 (The Analyze phase): This section of the Service Portfolio Management process describes how potential services are analyzed to understand their value proposition. It states, "The business case is updated with more detailed cost/benefit information... This includes a detailed risk, resource and financial analysis." This directly supports costing options, calculating ROI, and using it for comparison within SPM, as described in option D.

Section 5.5 (Business Case): This section details the structure of a business case, emphasizing the inclusion of "financial analysis (costs, benefits, ROI)." This confirms that calculating ROI for different options is a standard and necessary step for making investment decisions.

Section 5.4.3.2 (Cost models): This section explains that cost models are used to calculate the cost of services, especially in environments with shared resources. This refutes the simplistic "equal sharing" approach in option B.

2. AXELOS, ITIL® Foundation, ITIL 4 Edition, TSO (The Stationery Office), 2019.

Section 5.2.11 (Portfolio management): This practice guide states that portfolio management involves "deciding where to invest" and "reviewing the active portfolio" to ensure it aligns with strategic objectives and provides value. The process described in option D is a core input to this practice.

Section 5.2.16 (Service financial management): This practice guide notes its purpose is to support "strategies and plans... by ensuring that the organization’s financial resources and investments are being used effectively." This includes activities like "funding" and "costing," which are central to the financial review described in the scenario and option D.

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