GOAL: The goal of Financial Management is to provide cost effective stewardship of the IT assets and the financial resources used in providing IT services. Primarily this is to enable an organization to account fully for the financial resources consumed by the IT service provider and to attribute these costs to the services delivered to the organization’s customers.
Financial Management is focused on providing both the business and IT with improved insight (in financial terms) into the value of IT services, supporting assets and operational management and support. This translates into improved operational visibility, insight and superior decision-making at all levels of the organization.
Figure 4.H – Financial Management managing conflicting perspectives
When implemented effectively, Financial Management provides the understanding and management of the distance and (sometimes) conflicting perspectives between the Business Desires/Opportunities and the Capabilities of the IT organization. It enables the business to be more IT conscious and IT to become more business-aligned.
As businesses evolve, markets change and the IT industry matures, Financial Management is becoming increasingly adopted by IT organizations, with typical benefits including:
- Enhanced decision making
- Increased speed of change
- Improved Service Portfolio Management
- Financial compliance and control
- Improved operational control
- Greater insight and communication of the value created by IT services.
There are three fundamental activities for Financial Management for IT Services. These are:
- IT Accounting
Funding: Predicting the expected future requirements for funds to deliver the agreed upon services and monitoring adherence to the defined budgets. This ensures that the required resources to fund IT are made available and can improve the business case for IT projects and initiatives.
IT Accounting: Enables the IT organization to account fully for the way its money is spent. The definition of Cost Models can be used to identify costs by customer, by service, by activity or other logical groupings. IT Accounting supports more accurate budgeting and ensures that any charging method utilized is simple, fair and realistic.
Chargeback: Charging customers for their use of IT Services. Charging can be implemented in a number of ways in order to encourage more efficient use of IT resources. Notional charging is one particular option, in which the costs of providing Services to customers are communicated but no actual payment is required.
|Cost Types:||These are higher level expenses identified such as hardware, software, people, accommodation, transfer and external costs.|
|Cost Elements:||The actual elements making up the cost types above e.g. for the hardware cost type it would include the elements such as CPUs, Servers, Desktops etc.|
|Direct Costs:||Cost elements identified to be clearly attributed to only a single customer or service.|
|Indirect Costs:||Often known as overheads, these are costs that are shared across multiple customers or services, which have to be shared in a fair manner.|
|Cost Units:||A cost unit is the identified unit of consumption that is accounted for a particular service or service asset.|
Financial Management assists in the role of Service Valuation, which is used to help the business and the IT Service Provider agree on the value of the IT Service. It determines the balance demonstrating the total cost of providing an IT Service against the total value offered to the business by the Service. As previously described in chapter 4.2, value in services is created by the combination of Service Utility and Service Warranty.
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 Catalog should provide the capability to regulate their demands for IT services and prepare budgets, avoiding the problem of over-consumption.