Demand Management

Demand Management was previously an activity found within Capacity Management, and now within Version 3 of ITIL® it has been made a separate process found within the Service Strategy phase. This is because before we decide how to design for availability and capacity, decisions must be made regarding why demand should be managed in a particular way. Such questions asked here include:

 When and why does the business need this capacity?

 Does the benefit of providing the required capacity outweigh the costs?

 What level of capacity and performance should we support?

 How can we influence demand to reduce our excess capacity needs?

 How do our IT strategic objectives affect our approach? Are we focused on cost-effectiveness?

Poorly managed demand is a particular source of risk for service providers, with potential negative impacts being felt by both the IT organizations and customers. If demand is not accurately predicted and managed, idle (excess) capacity will generate cost without creating associated value that can be appropriately recovered. From the customer

perspective most would be highly reluctant to pay for idle capacity unless it provides some value for them.

On the other hand, insufficient capacity can impact the quality of services delivered, potentially limiting the growth desired for services and for the organization as a whole.

Accordingly, Demand Management must seek to achieve a balance between the

prediction and management of demand for services against the supply and production of capacity to meet those demands. By doing so both the customers and IT can reduce excess capacity needs while still supporting required levels of quality and warranty in agreed services.

Keep in mind that Demand Management plays an integral part in supporting the objectives of an organization and maximizing the value of the IT Service Provider. This means that the way in which Demand Management is utilized will vary greatly between each

organization. Two examples showing these differences are:

 Health Organizations: When providing IT Services that support critical services being offered to the public, it would be unlikely that there would be many (if any) demand management restrictions that would be utilized, as the impact of these restrictions could lead to tragic implications for patients being treated.

 Commercial Confectionery Organizations: Typically a confectionery company will have extremely busy periods around traditional holidays (e.g. Christmas).

Demand Management techniques would be utilized to promote more cost-effective use of IT during the non-peak periods; however leading up to these holidays the

service provider would seek to provide all capacity to meet demand and support higher revenue streams for the business units involved.

6.7.1 Goal and objectives

The primary goal of Demand Management is to assist the IT Service Provider in understanding and influencing Customer demand for services and the provision of Capacity to meet these demands.

Other objectives include:

 Identification and analysis of Patterns of Business Activity (PBA) and user profiles that generate demand; and

 Utilizing techniques to influence and manage demand in such a way that excess capacity is reduced but the business and customer requirements are still satisfied.

6.7.2 Activity-based Demand Management

The primary source of demand for IT services comes from the execution of business

process within the organization(s) being served. With any business process, there will be a number of variations in workload that will occur, which are identified as Patterns of

Business Activity (PBA) so that their affect on demand patterns can be understood. By understanding exactly how the customer‟s business activity operates, the IT organization can improve the way in which capacity is planned and produced for any supporting services.

Demand occurs at multiple levels. Increased workload in the business can translate to a higher utilization of services by existing employees. At the same time, additional staff members that are employed by the organization can be translated into additional demands to the IT service provider (especially the Service Desk) in terms of service requests and incidents. To manage this, regular communication is required so that the business plans of the customers and business units are synchronized with the service management plans of the service provider.

Financial Management works closely with the process of Demand Management to anticipate usage of services by the business and the associated financial implications of future service demand. This assists in identifying the funding requirements for services, as well as input into proposed pricing models, including any incentives and penalties used.

Strategically, financial input can be gained from key times such as product launches, entry into new markets, mergers and acquisitions, which all generate specific patterns of

demand. From a customer perspective, the Service Catalogue should provide the

capability to regulate their demands for IT services and prepare budgets, avoiding the problem of over-consumption.

Figure 6.19: – Activity-based Demand Management

© Crown Copyright 2007 Reproduced under license from OGC

Over time, Demand Management should be able to build a profile of business processes and the patterns of business activity in such a way that seasonal variations as well as specific events (e.g. adding new employees) can be anticipated in terms of associated demand. Using this information will help various elements of the Service Lifecycle, including the following:

 Service Design: Particularly Capacity and Availability Management, who can optimize designs to suit demand patterns;

 Service Transition: Change Management and Service Validation and Testing can ensure that appropriate levels of warranty can be provided;

 Service Operation: Can optimize the availability of staff based on patterns of demand; and

 Continual Service Improvement: Can identify opportunities to consolidate

demand or introduce improved incentives or techniques to be utilized in influencing demand.

Critical to the effective application of Demand Management is a forward-looking Capacity Plan, which should identify how capacity will be produced to meet the predicted demand patterns, including the level of excess capacity deemed appropriate in accordance with the business requirements for service value.

6.7.3 User Profiles

Like Patterns of Business Activity (PBA), User profiles should be identified and analyzed for their relationship to the patterns of demand generated in the business. User profiles are defined in the context of the roles and responsibilities within the organization for people, functions, processes and applications. In some cases a user profile will be defined for an automated process, which will have its own demand for supporting services.

When defining user profiles, they will be associated with one or more PBA, which requires both customers and the service provider to have a clear understanding of the business activities and how various roles are related.

The following table is an example of User profiles defined by Demand Management:

User profile Applicable pattern of business activity PBA code

Senior Executive (UP 1)

Moderate domestic and international travel, highly sensitive information to be protected, high urgency for service requests, communication services need to be highly available.

33B 17D 21A Office-based

managers

Low domestic and international travel, medium sensitive information, medium urgency for service requests, communication services need to be highly available.

33D 17B 21A Office-based staff No domestic and international travel, low sensitivity information, low

urgency for service requests, communication services require medium availability.

33A 17E 21C

In the above table, the PBA code would be referencing previously defined patterns of business activity, which helps clarify when will each type of user will typically generate demand for IT services and what level of demand will there be. This is valuable information which can be used for then predicting the potential impact that adding or removing staff members (users) may have on the demand for IT services and the ability of the IT service provider to meet those demands.

6.7.4 Developing differentiated offerings

Demand Management needs to work closely with the other Service Strategy processes (Financial Management & Service Portfolio Management), as well as Service Level Management in ensuring the appropriate development of Service Packages (see section 4.1.3) that suit identified patterns and types of demand.

A Service Package contains

(Defines level of utility and warranty provided by Service Package)

(Defines level of utility and warranty provided by Service Package)

Figure 6.20: – Activity-based Demand Management

In a basic approach, this may be as simple as Gold, Silver and Bronze offerings to

influence the adoption and use of IT services. To clarify how the different processes work together, the following is a summary of the various responsibilities:

 Service Portfolio Management responsibilities – to assess, manage and

prioritize investments into IT, identifying underserved, well served and over served demand. Manage Service Portfolio, including the definition of services in terms of business value.

 Demand Management responsibilities – identify, develop and analyze PBA and user profiles. Build capabilities for predicting seasonal variations and specific events in terms of the associated demand generated. Strategically package services to reduce excess capacity needs while still meeting business requirements. Design and apply techniques where necessary to influence demand.

 Financial Management responsibilities – to work with Demand Management to determine value of services (and understand the effect on value by varying levels of capacity and performance), and to develop appropriate chargeback models to be used in influencing demand.

 Service Level Management responsibilities – to maintain regular communication with customers and business units, identify any potential issues, promote service catalogue, negotiate and agree relevant SLAs (including the charging mechanisms used to influence demand), ensure correct alignment of Service Packages and Service Level Packages. Generally measure the success of IT and quality of service delivered from the customer perspective, providing feedback to the other processes on issues and potential improvements.

6.7.5 Challenges affecting Demand Management

While integrating Demand Management appropriately with all other aspects involved in Service Offerings & Agreements is challenging in itself, some other specific challenges typically faced include:

 When little or no trend information regarding PBAs and demand is available. It is not possible to produce and stock service output before demand actually materializes;

 Aligning capacity production cycles to PBA, especially when funding of IT has not been adequately planned and synchronized with business plans;

 Customer resistance to Demand Management restrictions, especially in the case of additional costs incurred; and

 Loss of user productivity and business growth by too much restriction applied when managing demand.

6.7.6 Key Performance Indicators (KPIs) of Demand Management

Like the rest of Service Offerings & Agreements, the measurement of success should be assessed using balanced perspective that takes into account the relationships and sometimes conflicting demands between the different processes involved. Some of the specific KPIs for Demand Management include:

 Increased utilization of IT infrastructure;

 Decrease in idle capacity;

 Reduction in capacity and performance related incidents;

 Decrease in number of capacity related incidents;

 Percentage accuracy in predicted demand cycles; and

 Reduction in cost of IT service provision with stable quality levels.

6.8 Challenges, critical success factors and risks of service