A Time-Driven Activity Cost Approach for the Reduction of Cost of IT Services: A Case Study in the Internet Service Industry

This study aims to show that application of Time-Driven Activity Based Costing (TDABC) to the management of cost of Information Technology (IT) Services operations and how it can be used to achieve significant cost reduction. To achieve this; a case study organization was used and the scope of activities was limited to Technical Services department Operations units. Interviews were conducted with the unit managers and their operations staff. These units are the Network Operations Centre, Data Centre, Service Desk and Field Services units. These units provide support to existing services and satisfy requests that involve modification of these services. From the interview, a list of services were developed and linked to activities and time to execute each was provided by the operational staff. Time equations were developed from the activity groups that supported each type of service. Capacity cost rates were derived per unit by obtaining a ratio of the monthly cost of running each unit and the practical time resource capacity of each unit. A TDABC model was then simulated with Microsoft Excel; which incorporated the activities, the time to deliver each and the capacity cost rate to derive the cost of delivering a service. Data for six months of service request, incident and change orders were obtained to simulate a test scenario. The result of the test showed that two variations (out of six) of that incident type cost more than 75% of the overall cost of that incident type, though they constitute about 30% of the incident type. This study showed that TDABC is an effective tool in identification of costly processes which may then allow IT operations managers and supervisors to take critical decisions about cost control, charge-back or costing of services.