Demand Management Tutorial

6.1 Demand Management

Welcome to learning unit 6 which focuses on the Demand Management process. Let’s look at the agenda of this unit in the next slide.

6.2 Demand Management

Here we will discuss about the purpose, objectives, scope, activities, key concepts, triggers, inputs & outputs, challenges, risks, CSFs and KPIs of Demand Management process.

6.3 Demand Management and service lifecycle

Demand management is a critical aspect of service management. Poorly managed demand is a source of risk for service providers while Excess capacity generates cost without creating value that provides a basis for cost recovery. Service production cannot happen without the concurrent presence of demand that consumes the output. It is a pull system in which consumption cycle stimulates production cycle. Demand pulls capacity. Demand cannot exist simply because capacity exits Demand management through lifecycle • Forecast demand and communicate to design & Support SPM • Confirm service assets are designed to meet capacity & availability requirements • Testing & validating services for forecast utilisation & PBA • Technical, application & operations management functions will monitor services to ensure demand is within normal levels • Identify trends in PBA and to initiate changes in capabilities of provider/customers In the next slide let us understand the purpose and objective of Demand Management.

6.4 Purpose and Objectives of Demand Management

The purpose of demand management is to understand, anticipate and influence customer demand for services and to work with capacity management to ensure the service provider has capacity to meet this demand. Demand management works at every stage of the lifecycle to ensure that services are designed, tested and delivered to support the achievement of business outcomes at the appropriate levels of activity. This is where the service provider has the opportunity to understand the customer needs and feed these into the service strategies to realize the service potential of the customer and to differentiate the services to the customers. The objectives of demand management are to: • Identify and analyse patterns of business activity to understand the levels of demand that will be placed on a service • Define and analyse user profiles to understand the typical profiles of demand for services from different types of user • Ensure that services are designed to meet the patterns of business activity and the ability to meet business outcomes • Work with capacity management to ensure that adequate resources are available at the appropriate levels of capacity to meet the demand for services, thus maintaining a balance between the cost of service and the value that it achieves • Anticipate and prevent or manage situations where demand for a service exceeds the capacity to deliver it • Gear the utilization of resources that deliver services to meet the fluctuating levels of demand for those services. In the next slide we will look at the scope of Demand management.

6.5 Scope of Demand Management

The scope of the demand management process is to identify and analyse the patterns of business activity that initiate demand for services, and to identify and analyse how different types of users influence the demand for services. Demand management activities should include: • Identifying and analysing patterns of business activity associated with services • Identifying user profiles and analysing their service usage patterns • Identifying, agreeing and implementing measures to influence demand together with capacity management. This is sometimes called the ‘management of demand’. This could be in situations where service demand exceeds capacity, and where capacity increases are not feasible (e.g. differential charging, incentives, penalties). It could also be in situations where a new service has been launched and IT wishes to encourage users to use it more. Also, it could be used to reduce demand in peak utilization times and shift it to less active times – thus more efficiently balancing overall utilization levels. Demand management is active in every stage of the service lifecycle, and works closely with several other processes. One of the closest of these is capacity management. It is important to note the difference in scope between these two processes. At first glance the scopes of capacity and demand management seem to overlap, and it might appear that demand management is just one aspect of capacity management. However, this is an oversimplification of both processes. Both are concerned with achieving the same business outcomes, and both are concerned with optimizing investment, but the processes themselves are different. To generalize, demand management focuses primarily on the business and user aspects of providing services, whereas capacity management focuses primarily on the resourcing and technology aspects. Like any other process, let’s see how demand management adds value to business in the next slide.

6.6 Value to the Business

The main value of demand management is to achieve a balance between the cost of a service and the value of the business outcomes it supports. The other service strategy processes define the linkage between (and the investment required for) business outcomes, services, resources and capabilities. Demand management refines the understanding of how, when and to what level these elements interact. This enables executives to evaluate the real investment required to achieve business outcomes at varying levels of activity. Moving ahead, let us learn about the challenges in managing service demand.

6.7 Demand Management - Basic Concepts 1of4

From a strategic perspective, demand management is about matching supply to demand. Consumption produces demand and production consumes demand in a highly synchronized pattern as mentioned in the figure. Unlike goods, services cannot be manufactured in advance and stocked in a finished goods inventory in anticipation of demand. Demand and capacity are far more tightly coupled in service systems even when compared with just-in-time (JIT) manufacturing.

6.8 Demand Management - Basic Concepts 2of4

In the Figure, customer assets present a pattern of demand to the service provider. Each time a user consumes a service demand is presented to the service provider, and this consumes capacity of the service assets. This, in turn, results in the service being supplied to meet the consumer’s demand. The greater the consumption of the service, the higher the demand, the higher the consumption of capacity, and the more of the service is supplied. This cycle of demand and supply will only function effectively while the service assets have available capacity. As soon as capacity is no longer available, the service provider will not be able to supply enough of the services to satisfy customer demand. For this reason, a major part of demand management is to understand the potential demand, and the impact of the demand on the service assets. This allows capacity management to manage service assets (and investments) towards optimal performance and cost. The productive capacity of resources available to a service is adjusted according to demand forecasts and patterns. Some types of capacity can be quickly increased as required and released when not in use. The arrival of demand can be influenced using pricing incentives. However, it is not possible to produce and stock service output before demand actually materializes.

6.9 Demand Management - Basic Concepts 3of4

Gearing service assets The balance of supply and demand is achieved by gearing the service assets to meet the dynamic patterns of demand on services. This is not just a case of responding to demand as it presents itself, but it involves anticipating the demand, identifying the signals of increasing or decreasing demand and defining a mechanism to scale investment and supply as required. Managing service assets according to demand involves a number of service management actions, including the following: • Identifying the services (through service portfolio management) • Quantifying the patterns of business activity • Specifying the appropriate architecture to deal with the type and quantity of demand (for example, deciding on dedicated versus virtualized processing environment) • Capacity and availability planning to ensure that the right service assets are available at the right time and are performing at the right levels • Performance management and tuning service assets to deal with variations in demand.

6.10 Demand Management - Basic Concepts 4of4

Demand management through the lifecycle To be fully effective, demand management needs to be active throughout the service lifecycle. It might be tempting to assume that processes that are active in each stage of the lifecycle will address demand issues. However, if demand management is not consciously coordinated and managed, this will only tend to happen on an ad hoc, reactive basis. The activities of demand management in each stage of the lifecycle will include: • Service strategy Identify the services and outcomes, and the patterns of business activity that are generated by achieving these outcomes. Forecast demand based on service utilization scenarios and communicates to design teams. Support service portfolio management by estimating activity levels to achieve specific outcomes. • Service design Confirm customer requirements regarding availability and performance, and validate that the service assets are designed to meet those requirements. In this stage the primary process interfaces are capacity management and availability management, although demand management will also contribute to sizing of service continuity options. • Service transition Demand management is involved in testing and validating services for forecast utilization and patterns of business activity. The ability to influence and manage demand for a service should also be tested. • Service operation Technical, application and operations management functions will monitor service assets and service utilization levels to ensure that demand is within normal levels and, if not, will initiate performance tuning or corrective action. • Continual service improvement Demand management will work to identify trends in patterns of business activity and to initiate changes to the capabilities of the service provider, or changes to the behaviour of customers where appropriate.

6.11 Challenges in Managing Service Demand

Here are Challenges encountered in Managing Service Demand • Source of Risk • Poorly managed demand because of uncertainty of demand • Excess capacity generates cost without creating value • Customers are reluctant to pay for idle capacity unless it has value for them • Certain amount of unused capacity is necessary to deliver service levels • Insufficient capacity impacts quality of services delivered and limits the growth of the service • Techniques such as off-peak pricing, volume discounts etc can influence demand.

6.12 Management of Operation Demand

Management of Operational Demand One of the activities of demand management during service operation is to manage or influence the demand where services or resources are being over-utilized. Typically this would occur in the following situations: • The patterns of business activity were inaccurate, resulting in over- or underutilization of the service. Demand management could assist by providing penalties or incentives for users to reduce service usage, to use it at off-peak periods or (where the service is being under-utilized) to increase utilization. An example of a measure to influence demand is differential charging, where customers are billed higher rates for using the service during peak times. This is normally done in conjunction with capacity management, service level management and financial management for IT services. • The business environment changed, resulting in a change to the pattern of business activity. This should be dealt with in conjunction with service level management and capacity management to understand the new utilization patterns, and to gear the resources and capabilities of the service provider appropriately. The new service requirements should also be reflected in the service portfolio. • The service provider’s forecast for resources was inaccurate, and there is insufficient budget to increase capacity. It is important to note that demand management does not work in isolation when influencing demand. This is a complex situation involving changes to services, the service provider’s ability to meet customer demand and the achievement of business outcomes. As a result, demand management always works in conjunction with capacity management, service level management, service portfolio management and financial management for IT services.

6.13 Activities

The Activities of demand management is; To identify Patterns of business activity (PBA), coded and shared across process for clarity and completeness of detail. One or more attributes such as frequency, volume, location and duration describe business activity. They are associated with requirements such as security, privacy and latency or tolerance for delays User profiles (UP) are based on roles and responsibilities within organizations for people, and functions and operations for processes and applications. As suggested earlier, business processes and applications are treated as users in many business contexts. Let us understand demand and capacity in the next slide.

6.14 Activity based Demand Management

Business processes are the primary source of demand for services. Patterns of business activity (PBA) influence the demand patterns seen by the service providers . It is very important to study the customer’s business to identify, analyse and classify such patterns to provide sufficient basis for capacity management. Visualize the customer’s business activity and plans in terms of the demand for supporting services. For example, the fulfilment of a purchase order (business activity) may result in a set of requests (demand) generated by the order-to-cash process (business process of customer). Analysing and tracking the activity patterns of the business process makes it possible to predict demand patterns for services in the catalogue that support the process. It is also possible to predict demand for underlying service assets that support those services. Every additional unit of demand generated by business activity is allocated to a unit of service capacity. Demand patterns occur at multiple levels. Activity-based demand management can daisy-chain demand patterns to ensure that the business plans of customers are synchronized with the service management plans of the service provider. Let us understand this better with a help of a diagram in the next slide.

6.15 Activity based Demand Management

For example in the figure of activity-based demand management, if a business plan calls for the allocation of human resources, the addition of an employee can be translated into additional demand for the service desk function in terms of service requests and service incidents. Similarly, new instances of business processes can be used as predictors ofdemand for the service demand in terms of incidents and requests. After validating the activity or demand model it is possible to make adjustments to account for variations such as new employees, changes to business processes and technology upgrades on the customer’s side. Some of the benefits for analysing PBA are in the form of inputs to service management functions and processes such as the following: • Service design can optimize designs to suit demand patterns. • Capacity management translates the PBA into workload profiles so that the appropriate resources can be made available to support the levels of service utilization. • Service catalogue can map demand patterns to appropriate services. • Service portfolio management can approve investments in additional capacity, new services or changes to services. • Service operation can adjust allocation of resources and scheduling. • Service operation can identify opportunities to consolidate demand by grouping closely matching demand patterns. • Financial management for IT services can approve suitable incentives to influence demand. In the next slide we will look at the benefits of analysing patterns of business activity in the next slide.

6.16 Benefits for analysing PBA

PBA can benefit a company in many ways. Some of the benefits with the implementation of PBA are: • Service Design can optimize designs to suit demand patterns • Service catalogue can map demand patterns to appropriate services • Service portfolio management can approve investments in additional capacity, new services, or changes to services • Service Operation can adjust allocation of resources and scheduling • Service Operation can identify opportunities to consolidate demand by grouping closely matching demand patterns • Financial Management can approve suitable incentives to influence demand Let us now proceed to understand coding patterns of business activity.

6.17 Codifying of PBAs

Coding patterns helps in: • Multidimensional Analysis. • Uses criteria such as likeness and nearness. • Develops a simple and standard catalogue of patterns • Reduces the number of patterns, make analysis easier, and avoid complicated solutions In the next slide let us understand User profiles.

6.18 User Profile

User profiles (UPs) are based on roles and responsibilities within organizations. As suggested earlier, business processes and applications are treated as users in many business contexts. Many processes are not actively executed or controlled by staff or personnel. Process automation allows for processes to consume services on their own. Processes and applications can have user profiles. Each UP can be associated with one or more PBA, as shown in the Table . This allows aggregations and relations between diverse PBAs connected by the interactions between their respective UPs. User profiles are constructed using one or more predefined PBA. They are also under change control. UPs represent patterns that are persistent and correlated. Therefore lets understand PBAs and user profile relation in the next slide.

6.19 PBA and User Profile

PBA and User Profile relation ensures that: • Pattern matching using PBA and UP ensure a systematic approach to understanding and managing demand from customers. • Customers better understand their own business activities and view them as consumers of services and producers of demand. • Service providers have the information necessary to sort and serve the demand with appropriately matched services, service levels, and service assets. • This leads to improved value for both customers and service providers by eliminating waste and poor performance. Moving on, in the next slide let’s understand the differentiated offerings.

6.20 Differentiated Offerings

When analysing the PBA, it may become apparent that different levels of performances are required at different times, or different combinations of utility. In these cases, it is important to work with service portfolio management to define service packages that meet the variations in PBA. For example, a company that produces seasonal goods may vary its sales process during periods of peak demand. During quieter times, sales staff may complete the entire order process (log the sale, check for inventory, initiate shipping and bill the customer), thus using all the utility of the service each time an order is placed. During periods of peak activity, the sales people may only log the sale and check for inventory, passing the order to temporary staff for shipping and billing, and then moving to the next order. In this case there might be two differentiated offerings to reflect the two PBA.

6.21 Triggers Inputs and Outputs

Now let us discuss about the Triggers, inputs and outputs of demand management. Firstly the triggers are: • A request from a customer for a new service, or change to an existing service. This will be initiated through business relationship management and service portfolio management. • A new service is being created to meet a strategic initiative – this will be initiated through service portfolio management. • A service model needs to be defined, and patterns of business activity and/or user profiles must be defined. • Utilization rates are causing potential performance issues, or a potential breach of an SLA. • An exception has occurred to forecast patterns of business activity. Inputs Inputs to demand management include: • Initiative to create a new service, or to change an existing service. These inputs can come from service portfolio management or from change management. • Service models need to be validated and patterns of business activity associated with each service model will need to be defined. • The customer portfolio, service portfolio and customer agreement portfolio, all of which will contain information about demand and supply for services. • Charging models will be assessed to ensure that under- or over-recovery does not occur in internal service providers; or that pricing will be profitable for external service providers. • Chargeable items will need to be validated to ensure that customers actually perceive them and use them as defined. • Service improvement opportunities and plans will need to be assessed in terms of their impact on demand. Let us understand the outputs in the next slide.

6.22 Outputs

Outputs of demand management include: • User profiles • Patterns of business activity will be formally documented and included in the service and customer portfolios • Policies for management of demand when resources are over-utilized • Policies for how to deal with situations where service utilization is higher or lower than anticipated by the customer • Documentation of options for differentiated offerings that can be used to create service packages. In the next slide we will discuss about the interfaces of Demand management.

6.23 Interfaces

Major interfaces with demand management include: • Strategy management for IT services will identify the key business outcomes and business activities that will be used to establish patterns of business activity and user profiles. • Service portfolio management uses information from demand management to create and evaluate service models, to establish and forecast utilization requirements and to identify the different types of user of the service. In addition, SPM will be able to develop service packages based on the information about patterns of business activity and user profiles. • Financial management for IT services will help to forecast the cost of providing the demand based on forecast patterns of business activity. In addition, it will work with demand management to identify measures to regulate demand when there is over-utilization of the service (e.g. through differential charging). Financial management for IT services will also identify the relative costs of each differentiated offering. • Business relationship management is the primary source of information about the business activities of the customer. Business relationship management will also be useful in validating the user profiles and differentiated service offerings before they are confirmed in the customer and service portfolios. • Service level management will help to formalize agreements in which the customer commits to levels of utilization, and the service provider commits to levels of performance. Actual levels of performance and utilization will be reviewed at the regular service level review meetings (using information from demand management and capacity management) and any deviations noted. Demand management will work with service level management to define policies for how to deal with variances in supply and demand. • Capacity management will work closely with demand management to define exactly how to match supply and demand in the design and operation of the service. Capacity management will monitor the actual utilization of service and work with demand management to understand trends of utilization and how to adjust the services for future use. • Availability management uses information about patterns of business activity to determine when service availability is most important. This information is also helpful for performing service outage analysis and project service availability reporting. • IT service continuity management will use demand management information to perform business impact analysis. It will be able to determine which workloads are impacted, and what volume of work is impacted by major outages at different times. Demand management information is also helpful in sizing recovery options to be able to deal with the minimum levels of business activity to ensure business continuity. • Change management will work with demand management and capacity management to assess the impact of changes on how the business uses services. This is helpful in confirming the impact of the change and also in evaluating the true cost of changing the service (a ‘simple’ change may push demand over a threshold where significant additional investment is required). • Service asset and configuration management will identify the relationship between the demand placed on services and the demand placed on systems and devices. This is an essential link in ensuring that operational teams are able to execute what was anticipated during strategy and design. • Service validation and testing will ensure that the service has correctly dealt with patterns of demand, and that measures taken to prevent over-utilization are effective. • Event management, if instrumented correctly, can provide information about actual patterns of service utilization and validate the anticipated patterns of business activity for a service. Any deviation can be assessed and adjustments made to the service through service portfolio management. In the next slide, we will look at the information management of demand management process.

6.24 Information Management

The documentation and information required for effective demand management have been described earlier, but an overview of the main sources is as follows: • The service portfolio • The customer portfolio to obtain information about customers and the opportunities that they represent • The project portfolio to ensure that all projects have included demand management as a component • Minutes of meetings between business relationship managers and customers • Service level agreements are used to set a baseline for previous demand levels, and to define limits and policies for future utilization • The configuration management system to map service assets, customer assets and business outcomes. Let us now proceed to learn about the CSFs and KPIs of Demand management.

6.25 Critical Success Factors

The Next two slides provides examples of critical success factors (CSFs). These are the conditions that need to be in place, or things that need to happen, if the demand management process is to be considered successful. Each CSF will include examples of key performance indicators (KPIs). These are metrics that are used to evaluate factors that are crucial to the success of the process. KPIs, as differentiated from general metrics, should be related to CSFs. The following list includes some sample CSFs for demand management. Each organization should identify appropriate CSFs based on its objectives for the process. Each sample CSF is followed by a small number of typical KPIs that support the CSF. These KPIs should not be adopted without careful consideration. Each organization should develop KPIs that are appropriate for its level of maturity, its CSFs and its particular circumstances. Achievement against KPIs should be monitored and used to identify opportunities for improvement, which should be logged in the CSI register for evaluation and possible implementation. • CSf The service provider has identified and analysed the patterns of business activity and is able to use these to understand the levels of demand that will be placed on a service. • KPI Patterns of business activity are defined for each relevant service. • KPI Patterns of business activity have been translated into workload information by capacity management. Next CSF: The service provider has defined and analysed user profiles and is able to use these to understand the typical profiles of demand for services from different types of user. • KPI Documented user profiles exist and each contains a demand profile for the services used by that type of user.

6.26 Key Performance Indicators

Next CSF as A process exists whereby services are designed to meet the patterns of business activity and meet business outcomes. • KPI Demand management activities are routinely included as part of defining the service portfolio. Let’s take one more CSF which states that There is a means to manage situations where demand for a service exceeds the capacity to deliver it. • KPI Techniques to manage demand have been documented in capacity plans and, where appropriate, in service level agreements. • KPI Differential charging (as an example of one such technique) has resulted in a more even demand on the service over time. Now let us look into the challenges of demand management.

6.27 Challenges

Challenges for demand management include: • The availability of information about business activities – especially if demand management is not included in the overall set of requirements and has to be collected separately. Customers have a limited tolerance for how many people gather information about their service requirements. • Customers might find it difficult to break down individual activities that make sense to the service provider. Business relationship management should be able to assist in making this translation. • Lack of formal service portfolio management process or service portfolio. This will make it difficult to understand the business requirements, relative value and priority of services, and will mean that demand management information might be recorded on an ad hoc basis, often with little coordination and duplicate effort. In the next slide we will look at the risks of demand management.

6.28 Risks

Demand management risks include: • Lack of, or inaccurate, configuration management information, which makes it difficult to estimate the impact of changing demand on the service provider’s infrastructure and applications. • Service level management is not able to obtain commitments to minimum or maximum utilization levels, and it is therefore difficult to commit to levels of service. This situation often results in higher than necessary levels of investment to enable the service provider to keep ahead of demand – even when not essential. With this we come to the end of learning 6, let us recap in the next slide.

6.29 Demand Management Summary

In this learning unit we looked at the purpose, objectives, scope and value to business of demand management. We also discussed about the concepts of PBA & UP, challenges in managing demand, triggers, inputs, outputs, interface, CSFs & KPIs, challenges and risks of demand management. Now quickly take up the quiz and then proceed to the learning unit 7.

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  • PMP, PMI, PMBOK, CAPM, PgMP, PfMP, ACP, PBA, RMP, SP, and OPM3 are registered marks of the Project Management Institute, Inc.

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