The Bottom Line Per ... Ray BarnardBy Anna Maria Virzi | Posted 2003-02-01 Print
The $9 billion Aliso Viejo, Calif.-based company that provides design, engineering, procurement and construction services signed a seven-year, $351 million deal with IBM in January to obtain so-called on-demand computer services—paying only for servi
Q. What assurances did you get that there will be a bottom-line benefit over the contract's life?
A. It's not just an outsourcing deal. I'm taking advantage of new on-demand services. It's infrastructure, networking, office mail, help-desk support. We're going to upgrade the entire infrastructure and do server consolidation. It's a 12-month transition in which we'll begin to put specific applications into the on-demand center.
Q. What types of applications?
A. Everything from financial applications, HR (human resources) and some of our engineering applications.
Q. And, the bottom-line benefit?
A. When I took over as CIO, we did a blueprint of the enterprise, laying out the entire infrastructure, and I had a third-party independent firm validate it—we modeled all recommendations in the new service and on-demand offerings.
Q. What metrics did you use in that assessment?
A. Everything from server consolidation to improvements in the global hosting centers, resource requirements, potential platform changes. I still own the [software] licenses so I have all of my license and application costs. I used Lockheed Martin's comparison benchmarking tools to run the entire model through and do comparative pricing.
Q. What does that translate to in dollars?
A. About 45% of my overall information technology budget will be part of this on-demand strategy.
Q. Does that include your capital budget?
A. That includes capitalization. What's attractive is that as you move into on-demand sourcing strategies, you need to own less hardware because hardware is provided to you.
Q. How can you be sure you're not simply transferring employees and costs without realizing any savings?
A. I have guaranteed savings from IBM. It's between 10% and 15%. It's over seven years, but I have immediate savings [in] year one.
Q. How will you verify those cost calculations from IBM? Will you perform audits?
A. Yes, audits are performed quarterly and once a year. Remodeling activity will occur. We have licensed usage of the Lockheed tools and will definitely use them for a baseline. [We] also have a few new financial modeling tools that we are putting in place.
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