BMC Software

BMC Software

Part A:

Introduction

This paper is divided into two parts: part A and Part B; Part A of the paper contains cost analysis of the BMC Software and part B discusses how ration analysis, decision making technique and planning and budgeting add value to the financial management of the organization. BMC Software, Inc. (NYSE: BMC) sells software that helps IT departments run more efficiently by automating database and systems management tasks. These software products proactively monitor the performance and stability of computer systems and other networked devices. (Aghion, 1997, 1-29) They also cut down on repetitive, manual tasks such as applying updates. The company makes most of its money by charging license and maintenance fees for its software products. BSM also offers consulting services to help clients implement these products although these services only amounted to 5.8% of revenue in 2007. Once focused exclusively on mainframe systems, BMC entered the distributed systems management market in the 1990s with the introduction of its Business Service Management Strategy (BSM). Distributed systems take advantage of the growth of the internet and networking by connecting a number of computers together to perform the same task. (Aghion, 1997, 1-29) BSM approaches IT management from a business standpoint by finding the most cost-effective method of running an IT department; as many tasks as possible are automated to decrease the cost of hiring operators. BMC software not only monitors IT systems to decrease downtime but also uses predictive intelligence to help clients decide which systems are redundant or need upgrading. The shift towards BSM, combined with cost cutting measures employed over the last 3 years (2004-2007), has more than doubled the company's operating margins. (Aghion, 1997, 1-29)

Despite the company's efforts to diversify, however, its mainframe business still represented 43 percent of total revenue in 2007 and close to 50 percent of total operating income. Mainframe systems are losing ground to distributed computing systems and smaller servers. The pace at which BMC is able to continue to grow BSM will determine whether or not this trend is a boon or detriment to the company in the future. The company also faces increased competition from companies such as IBM and HP. These companies are able to offer bundled hardware and software products and can also take advantage of their installed customer bases to cross-sell their software products. At the most basic level, cost allocation is simply part of good program budgeting and accounting practices, which allow managers to determine the true cost of providing a given unit of service (Kettner, Moroney, & Martin, 1990). At the most ambitious level, well-publicized cost-benefit studies of early intervention programs have claimed to show substantial long-term social gains for participants and cost savings for the public (Berreuta-Clement, Schweinhart, Barnett, et al., 1984). Because these studies have been widely cited and credited with convincing legislators to increase their support for early childhood programs, some practitioners advocate making more use of cost-benefit analysis in evaluating social programs (Barnett, 1988, ...