Financial options and IT demand management
IT demand management is the art of understanding, and potentially influencing, IT demand by business unit or area. (If you’re interested in learning more about ITIL’s demand management, please see ITIL Demand Management: why August is a bad time for a presentation.) One simple way to approach IT demand management is simply to make a spreadsheet of business units by month, and ask them which months are the most busy. For example, Advancement is typically busy in December and Finance is typically busy around fiscal year-end. This chart can then be used by change management, business relationship management, end-user testing and release management, or anyone else working with stakeholders.
Financial options are ways to reserve the right to do something later. Options are commonly used with stocks, but they also show up in other places. Some housing markets use “option periods,” where a potential buyer pays $500 for the option to buy a house for 3 weeks; they can walk away for whatever reason. Travel services sometimes provide options, too, where you can pay $10 to reserve a flight’s price for 24 or 72 hours and it’s guaranteed to stay the same through the end of the option period.
What if we put the two together, and create an options market for IT?
First, let’s think about why financial options exist, and let me be the first to say that I am not an expert. As I understand it, financial options exist to help markets make better decisions. Options give you flexibility to plan but also the freedom to walk away. The people who hold the resources can set options prices based on how likely they think the resource will be available.
Second, let’s note that options are often used for tangible goods, like a house. We are talking about an intangible–time.
Third, let’s think about the three wastes of Lean, particularly waste due to unevenness in demand. Perhaps there is a way for options markets to help smooth out that demand.
Fourth, let’s think about ways to create interfaces that clearly define zones of control: how can we provide IT consumers with “levers” that they can use to influence demand and resource availability, without them needing to know the particulars of how IT runs or having to control IT resources themselves?
I am not aware of any IT options markets. If one were to be created, I’d guess it would be used initially for project and portfolio management.
Options and Project Portfolio Management
Let’s say that a business unit wanted an IT project to commence in January 2017.
Without an options market, IT might make resource estimates for the project and then make those resources available per a complex resource allocation process. Perhaps this process might shift the project start to February or March 2017. The business unit would then be told that the project would start in March, and they could appeal to an IT governance group to shift schedules around. Or, IT might provide an estimate for purchasing contractor time to supplement any constrained resources.
With an options market, IT might show the going options rate for a given resource. If DBA resources are constrained one month, the options price might be very high; if systems administrator resources are not constrained that month, the options price might be low. Conceptually, IT might be able even to trigger hiring staff or contractors if the options price exceeded a certain threshold. Or, business units might better be able to see constrained resources and shift demand themselves to other, less-constrained times.
The value in my mind of creating an options market here would be to shift demand towards less-constrained resources, move work to times of year that are less in demand, or to create incentives to hire additional staff.
Options and IT service management
Trying to influence demand for services is very dangerous. For one, you may significantly reduce the perceived value for a service to the point where it is no longer cost-justifiable. I am therefore trying to be very conservative in thinking about how financial options could be used.
Options might potentially be used for an anticipated one-time need, such as when a department knows that it will hire a group of employees and they will need much faster turnaround time than is provided by the existing service level.
Options could be used as well for resources needed for IT service changes, for example if it’s expected that a new integration might require a change to extract/transform/load (ETL) processes.
Options could potentially be used to influence any “anti-batching” processes in place, such as kanban-based or capacity-based processes. Again, ideally options would help in smoothing demand.
There’s a lot more to this idea that needs refining, and I appreciate any comments about whether this might work and if so, how. I do feel like options, even shown via notional pricing (i.e. not using actual money), might help organizations better smooth demand and advocate for resources.
The only example I can think of where options exist for someone’s time is a legal retainer. Some lawyers and law firms sell retainer contracts where they promise to be available a certain number of hours per month if needed at a reduced rate. If the firm is not used, they pocket the money. If they are used, their client gets a reasonable rate for the first X hours.
Amazon Spot instances
Amazon Spot instances are a special type of Amazon Compute Cloud server. A Spot instance will run as long as the current going rate is under a certain threshold. SPOT instances must be designed so that they can be cut off at any time–Amazon will start and stop the SPOT instances as demand changes over the course of a day.
4/29/2016 update: added reference to Amazon SPOT instances and moved legal retainers to the bottom