CIO's Guide to Managed Services

As a CIO, do you know what the cost is for each of your employees? If you think that it is simply the amount of their salary, you are missing the bigger picture. Employees come with many additional hidden costs that are often managed by HR or Payroll but are nonetheless real and tangible financial impacts to the organization.

When looking at the total cost of each employee in the US, you need to take these factors into consideration:

• Employer share of payroll taxes: 15 percent of an employee's salary is paid to the government for Social Security, Medicare, and FICA.
• Paid time off (PTO):?10 percent of an employee's salary needs to be budgeted for vacation, holidays, sick time, and jury duty.?
• Health insurance:?Roughly 10 percent of an employee's salary goes to health insurance. It has become traditional now for the employer to split the cost 50-50 with the employee.?
• 401K:?Many employers match up to 6 percent of an employee's salary in a defined benefits plan depending on their contribution amount.
• Other perks:?These can account for about 5 percent of an employee's salary and represent benefits such as company cars, tuition reimbursement, meals, concierge services, and holiday bonuses.
• Indirect overhead: Other costs such as office space, supplies, cell phones, and computer equipment can add up quickly.

When added together, the total cost of an employee can vary from 1.25 to 1.4 of their annual salary.

This is not to say that your employees are not worth all of these benefits or that they are not great resources, but it is important for a CIO to understand the economics of having full-time employees on the payroll supporting services and capabilities that the business needs. Having the fuller picture allows a CIO to make judgment decisions when it comes to the business value that IT provides.

Managed Services

There is an alternative that is growing in popularity. This is the concept of managed services. Managed services entail outsourcing the responsibility for developing, maintaining, and forecasting a range of processes and functions to a third-party provider. With many managed services, you have the luxury of sharing skilled resources with other clients and taking advantage of economies of scale. This can increase the scalability of the service (both up and down), accommodate for services that are not required 100 percent of the time, and take advantage of highly skilled expensive resources on an as-needed basis.

When considering managed services, it is important to understand that there are many different cost models on the market, depending on the service and depending on the risk that the managed service provider is assuming. The managed service provider is still responsible for salary, benefits, insurance, taxes, equipment, and workspace for their employees and will build this into the pricing model. They will also factor in costs associated with downtime, training, and internal management activities. When comparing the hourly costs of managed services to the hourly costs of internal resources, a wise CIO will take into consideration all the relevant factors to make knowledgeable decisions as to what is in the best interest of the company.

In the past, companies have often looked at managed services such as technical support or help desk, but today's market has many more options for managed services than at any time in the past. Many functions that had to be performed in-house are increasingly being offered as managed services with optimized scaling and burstable pricing models.

Data & Analytics Managed Services

Data and analytics is an area that is in demand across many industries. Organizations are striving to become data-driven and they know that they need to have both a solid data and analytics infrastructure and analytically-driven resources to extract and expose key patterns and insights.

Some of the capabilities offered by managed service providers include:

• Performing data integration development and maintenance. This includes building out data pipelines from a variety of different sources (e.g. relational databases, NoSQL databases, streams, IoT data, files, etc.), establishing processes and mechanisms to monitor system telemetry, and leveraging these telemetry indicators to ensure that exceptions are being caught, managed, and properly escalated.
• Executing data engineering activities includes the extrapolation of features from within the data and establishing data quality processes within the ETL flows. They can also monitor the on-going health of the data pipelines and raise alerts when exceptions arise or thresholds of data quality are exceeded.
• Performing artificial intelligence (AI) and machine learning (ml) model development and maintenance. These models can require deep mathematics and the utilization of complex algorithms. MLOps is an upcoming field that can be offered as a managed service and includes the productionalization of models and ongoing maintenance to ensure that the models are running effectively and efficiently in production. These services can also be tasked with monitoring the output of the models to identify when the models are becoming stale and outdated and need to be revisited.
• Completing advanced analytic pilots and prototypes used to build out business cases. This can be incredibly advantageous when you want to evaluate the business value of an idea without having to procure and employ long-term resources. This provides a risk mitigation strategy in case the pilot projects don't reap the forecasted benefit and don't pass the financial viability gate of the project.
• Developing and managing reports, scorecards, and dashboards to deliver timely and usable information to key decision-makers.

SaaS Application Hypercare Managed Services

Oftentimes, companies will contract with an implementation partner to configure and deploy their SaaS-based business applications. These service providers usually focus on the project's implementation phase and are not a cost-effective option for long-term hypercare. Although leveraging a SaaS-based solution removes much of the day-to-day operational work associated with the maintenance and operations of the system, it does not completely eliminate the need for application support. This is where a SaaS-based application hypercare managed service comes into play.

The services offered by these providers can include:

• Managing operational system configuration tasks. Examples of this would include user management and system parameter maintenance and modification.
• Performing ongoing training and end-user support, including answering questions and managing basic and escalated help desk issues.
• Handling basic system performance issues, including correcting stuck processes and optimizing business process inefficiencies.
• Managing system updates, scheduling code releases, and providing end-user support for transition activities.
• Supporting the ongoing deployment of new features that are not large enough to require engagement from an implementation partner.

Security Monitoring Managed Services

With the increased necessity of cybersecurity in an organization and the difficulty in finding mature resources on the market, the area of managed detection and response (MDR) is becoming increasingly important. Leveraging security monitoring services can provide breadth to your cybersecurity program without having to employ multiple specialists with hard-to-find skills.

Managed detection and response services can include:

• Monitoring the technical stack (endpoints, network, logs, and cloud) to detect, analyze, investigate, and respond to threats and perform initial containment activities. This can include escalating critical threats to the internal team and collaborating on the next steps needed in the remediation plan.
• Acting as a 24/7/365 security operating center (SOC). Many of these managed service providers leverage global networks of resources to provide a follow-the-sun support model so that they always have someone available to respond. This can provide your internal staff with a better work-life balance and increase their loyalty and commitment to the organization.
• Providing guidance and support as an organization goes through regulatory audits, such as PCI, HIPAA, Sarbane-Oxley, or SOC 2. Full audit support could require a specialized consulting partner, but a managed service provider can offer up support and help to gather data and metrics and perform investigatory system analysis.
• Helping to identify areas of improvement to reduce the system attack surface. This can include system configuration recommendations and patching strategies and plans.

Pricing Models

As these managed services grow and mature in their capabilities, they also get more refined in their pricing models. Their pricing models will be a representation of their costs and their risk profile. They rely on economies of scale to keep pricing low while at the same time optimizing their profit margins.

Per User - Some managed services establish a monthly cost per user. They leverage formulas that establish expected demand based on the size of the user base. With many of these models, they will categorize users and charge varying amounts depending on the type of user and the expected demand for the services from that user type.

Flat Monthly Fee - Some services are more attuned to having a flat cost per month and then providing users unlimited service for that monthly cost. Service providers will equalize these costs across multiple clients with the expectation that some clients will consume more than average and others less.

Per Device / Model - When dealing with services that are monitoring specific attributes of your ecosystem, a per-device cost may be leveraged. This relies on the concept that some devices will need more care and attention than others and establishes costs based on anticipated average demand. With data and analytics managed services, this concept can expand from device to the number of models in production. The concepts behind the per model pricing work in a very similar manner to per device.

Tiered - As with per-user pricing that uses different prices for different types of users, some managed services have tiers of service. This can entail different levels of service level agreements (SLA), different levels of offered services, and different response and escalation timeframes at each tier.

A la Carte - With managed services that are less frequently utilized and more specialized, such as piloting or prototyping, an a la carte model can be employed where each invocation of the service is charged independently.

Final Thoughts

As a CIO, you have many trade-off decisions. You have to determine whether you are going to build teams of resources with all of their associated costs or whether you are going to leverage managed services. Each option comes with advantages and disadvantages and you have to weigh these out to determine what is the optimal path forward for your organization and for your specific circumstance. In the end, either option can be a sound strategy going forward and get deliver valuable services and capabilities to drive your organization forward.

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Each year, Gartner releases a number of Hype Cycles that forecast coming trends, their impacts on organizations, and when they will become mainstream. One of these is the IT Managed Services Hype Cycle. This can give you additional ideas of where you can be looking to further expand the utilization of IT managed services in your organization. Gartner also has experts who can speak to clients about the specifics of their organization and what managed services would be optimal for them. These experts include Brett Sparks , Danellie Pe?a Young , Alan Stanley , and Andrew Davies .