The purpose of the Service Financial Management practice is how to support and help to the organization’s strategies and plans for Service Management to ensure that the organization’s financial investments and resources are being utilized and used effectively and aligned with Business Strategy, Financial Planning, and Business Vision & Mission in long-term. Let us see below which Management Practices are available in ITIL 4 before discussing more on Service Financial Management.
ITIL 4 Management Practices
Service Financial Management
General Management Practices
Information Security Management
Measurement and Reporting
Organizational Change Management
Service Financial Management
Workforce and Talent Management
Service Management Practices
Capacity and Performance Management
IT Asset Management
Service Catalogue Management
Service Configuration Management
Service Continuity Management
Service Level Management
Service Request Management
Service Validation and Testing
Technical Management Practices
Infrastructure and Platform Management
Software Development and Management
Introduction & Purpose of Service Financial Management
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Financial Management for IT Services in ITIL 3 and ITIL 4 Service Financial Management supports the decision-making by the governing body and management of the organization about where to best distribute financial resources. It supplies visibility into budget management, cost management, and accounting activities related to the products and services.
To be effective in the context of the Service Value System (SVS), this practice must be aligned with the organization’s practices and policies for Portfolio Management, Project and Program Management, and Business Relationship Management.
Finance is a common language that allows organizations to communicate effectively with business stakeholders. Service Financial Management handles managing the budgeting, accounting, costing, and charging for the activities of an organization or business, acting as both service consumer and provider consumer.
Let us see below how ITIL 4 Service Financial Management Practice can help and support to organizations.
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IT Budget Management / Cost Management
This is an activity focused on how to predict and control the expenditure and income of money within the business organization. Budgeting consists of a periodic negotiation cycle to set the budgets and ongoing monitoring and control of the current budgets.
To carry out this goal, it focuses on how to capture, forecast, and actual service demands. It translates these demands into predicted operating and project costs used for setting the budgets and rates to ensure adequate funding for products and services.
The service-based budgeting process model looks at how to understand the budget and prove the funding models based on the full cost of supplying or consuming a service.
Account Management / Accounting
This is the activity that enables the organization or business to account fully for the way its money is going to spend, allowing it to compare forecast vs actual expenditures (particularly the ability to find usage and costs by customer, service, and activity/cost center) and costs. It usually involves accounting systems, including charts of accounts, ledgers, and journals.
This activity how must formally invoice to the service consumers (usually have external) for the services we are provided to them. It is especially important to note that when charging is an optional practice, all services require a funding model because all costs need to be funded by an agreed practice and method.
Service Financial Management Contribution to Value Chain Activities
Plan: The Plans at all levels when need funding based on information, including finances. Service Financial management supports the planning with budgets, forecasts, reports, and other relevant valuable information.
Improve: All improvements must be prioritized with the return on investment (ROI) in mind. Service Financial Management supplies tools and information for improvements based on evaluation and prioritization.
Engage: Financial considerations are particularly important for supporting and setting up service relationships with service supplies, consumers, and partners. For many stakeholders (sponsors, investors) the financial aspect of the relationship is the most important. This practice supports value chain activity by supplying and perfecting financial information.
Design and Transition: Service financial Management helping to keep this activity very cost-effective by supplying the means for financial control and planning. It also ensures the transparency of costs for services and products for the service providers, accounting for the design and transition expenditures/expenses.
Obtain / Build: Service Financial Management obtaining the resources of all types is supported by budgeting (Ensuring sufficient funding) and accounting (ensuring transparency and evaluation).
Deliver and Support: Service Financial Management’s ongoing operational costs are a significant part of the organization’s expenses/expenditures. For commercial organizations, ongoing service delivery activities are also an important source of income.
Service Financial Management helping and ensuring a sufficient understanding of both. Charging (if applicable) supports the service provider and the service consumer in their business relationships with the billing and reporting.
Evolution of the Service Financial Management with the New Technology
Financial Management always refers to the effective and efficient management of money in the most important and proper ways to carry out the financial goal and aims of the business/organization. Since the start, the Financial Management discipline has been gone through various degrees of change, innovations, and improvements. An important and key part of this change has been the emergence of innovative technologies.
Many technological developments have been affected by Financial Management, but the three most important and key innovations are the introduction of a greater number of Digital Technologies, Blockchain, and IT Budgets and the Payment Models.
Major financial institutions are now analyzing, implementing, and using the latest technologies such as Cloud Computing, Big Data, Analytics, and Artificial Intelligence (AI) to gain, or even just to support, competitive advantages in the marketplace. However, new financial businesses or organizations are also using these technologies and starting the operations without any legacy IT, Technical Debt, or Bureaucratic Business Processes, which means they tend to be more Agile ways of working.
Big Data and Analytics
Big Data and Analytics are being implemented and used by financial organizations to gain a deeper insight into, and understanding of, their customer’s behaviors and demands.
The amount of data that is being captured is phenomenal. It requires scalable computing power to process the data perfecting the cost-effectively and efficiently. In return, this deeper customer understanding is causing financial organizations to develop new and innovative services and products. Data is now being referred to as the ‘new oil,’ as an organization is scrambling to analyze and capture and exploit it.
Another big evolution in Financial Management is happening through a specific innovation called Blockchain, again enabled only through cloud-based services.
In past, initially, blockchain was developed to enable the decentralized management of cryptocurrencies, allowing transactions to be verified and audited automatically and inexpensively.
Blockchain Technologies are used to manage the public digital ledgers. These digital ledgers record transactions across many globally distributed computers.
The distribution of the records ensures that each record cannot be changed without the alteration of all next records (also known as blocks) and without the consensus of the entire distributed ledger (also called the network).
Financial Institutions globally are researching how this blockchain technology can support and provide them with competitive advantages with streamlining back-office functions and reducing the settlement rates for transactions of banks. New Financial businesses and organizations are investigating blockchain to deliver alternative banking functions at a fraction of the cost and overheads of traditional banks.
IT Budgets and Payment Models
The emergence of new innovative technology has not just affected financial organizations, but also the way that every organization manages its IT services from the financial perspective.
Much of the current wave of technological evolution has been enabled by cloud computing, and this seems likely to continue for the near future. This has led to a major change in how IT services are obtained, funded, and paid for by organizations.
Traditionally, IT resources are obtained using upfront Capital Expenditure (CAPEX). However, under the cloud computing model, the provision of IT Infrastructure, Platforms, and Software are provided ‘as a service.’ This model uses and manages a subscription-based or pay-as-you-use charging model or mechanisms which are paid for the out of Operational Expenditure (OPEX).
Another critical area that has seen change is the organization’s approach to setting and managing the IT budgets. Flexible IT budgets must meet the costs of scaling the cloud-based services in an Agile and on-the demand way. Fixed IT budget approaches often forecast months in advance and struggle to account for the scaling of IT resources in this way.
The Procurement rules within the organizations are also having to change. There remains a place for fixed-price IT projects and services; however, cloud-based digital services are sold under the variable-price model, i.e. the more you will use and consume, the more you will pay, and vice versa.
Therefore, these organizations that have not updated their procurement rules and policies to allow them to purchase the variable-priced IT resources faced a large self-made barrier that is preventing them from using cloud-based digital services.
To be as effective as possible, organizations must update their policies and educate their resources/staff ensuring that they can buy IT under a variable-pricing model.
IT Service Financial Management in ITIL 4 is used to support the organization’s plans and strategies for service management by ensuring that the organization’s Financial Investment and Resources are being used effectively and efficiently.
Financial Management for IT Services in ITIL 3: The process where the company identifies the clear objective of the ITIL, which are the cost-effective ownership and handling of IT resources to provide IT services. The Financial Management process tends to decrease or reduce the overall long-term costs and actual costs of services provided.
So, the purpose of IT Service or Practice Financial Management is to control the IT Budgeting, Accounting, and Charging for the Projects, Product, and Services. This will define the cost of availing the current and future service needs of the organization and ensure that expenditures are with the planned budget.
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