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Benefiting from the IT Financial Management Process

The IT Financial Management Process has been considered a 'back office' procedure. Now, with a focus on the bottom line, we need to learn how to capture our costs and implement Internal Billing or Charging.
Feb 28, 2005

Jan Vromant


4. Focus on meaningful metrics and practice extensive benchmarking
Typically, IT departments provide reports of a dazzling variety on a monthly or quarterly basis and only the "techies" understand the sometimes-obscure metrics. Take control of these reports and analyze them from the perspective of business management goals.


Throw out reporting requirements meaningful only to the IT department and concentrate on reports that reflect the progress made in a few clearly defined areas toward established goals (e.g. the achievement of predicted returns on project investments).


Look at industry analysts or internal sources to provide benchmarking information across industries, time periods, or subsidiaries to validate the soundness of your financial management. Find out the prices for outsourcing services. This can be a great help in managing your IT department, by comparing the outsourcers' prices to your own costs and budgets.


5. Invest in Activity-Based Management (ABM)
Take an ABM approach. Traditional cost systems allocate costs based on direct labor, material cost, and revenue or other simplistic methods. ABM, measures the cost of the value employees add to customers. ABM focuses on what your employees actually do and includes specific work activities, tools and processes, and levels of responsibilities.


This approach will allow you (a) to identify the real drivers of IT spending, (b) to identify savings opportunities, (c) to make budget changes explainable and controllable, and (d) to enable billing or charging.


The result of ABM is a better understanding of the impact of IT services on the profitability of the business, and hence more accountability and responsibility. Another advantage in certain cases is that ABM nicely fits in Balanced Scorecard or similar initiatives.


6. Acquire financial knowledge in your IT department
It is not easy to break down the traditional barrier between IT and the "bean counters." One reason is it is hard to find people with a dual background in IT and finance or accounting. Creative solutions are called for.


One possibility to enhance the knowledge about Financial Management in your IT department is to educate your IT people. ITIL Foundation classes, particularly focusing on Financial Management, are a good start for such training. Another is to physically move accounting people to the IT floor. The interaction and the mutual learning and appreciation can be beneficial to both sides.


These improvements and the permanent monitoring of the financial results of your IT department will help increase the quality perception and ensure the satisfaction of business end-users - and make the "bean counters" feel welcome again within the IT organization.



Want to discuss this topic and/or controlling costs further? Visit our IT Service Management Forum .