ITIL Financial Management also called Financial Management for IT Services is a complex process. It’s used for organizations as a basis for conducting business and manage IT Services. It is usually owned by a Senior Leadership and Executive Team. Managed by an IT Financial Management Function in partnership with Corporate Financial Management Function and focused on the following.
- Financial Management for IT Services is the process responsible for managing an IT Budgeting, Accounting, and Charging requirements.
- IT Financial Management process, is used to quantify the value of IT services contributing to the business.
- IT Financial Management enables the organization to manage its resources ensuring that resources are being used to achieve the organization’s goals and objectives.
- Financial Management for IT Services refers to how IT has applied the process for Services to the Business.
- Enterprise Financial Management refers specifically to the process as it is used by the ‘corporate’ Financial Department.
- Financial Management enables IT to play a strategic role in the business.
- This process helps to quantify ITs value and contributions and quantifies the business opportunities that IT services enable.
- IT Financial Management in terms of a strategic tool is equally applicable to all types of three service providers.
- Internal service providers are increasingly asked to operate with the same levels of financial visibility. As Business Units Accountability for their external counterparts.
- Moreover, technology and innovation have become the core revenue-generating capabilities of many companies.
- IT Financial management is the process of overseeing IT expenditures. It’s intending to provide both business units and IT departments to evaluate services and plan investments to optimize IT expenses.
People who do not respect money do not have any.J. Paul Getty
IT Financial Management provides the business and IT with the quantification. In financial terms, the value of IT services, the value of the assets used to provide those services, and the qualification of operational forecasting.
Talking about IT in service terms is a crucial aspect of changing the perception of IT and its value to the business.
- #1 What are the Objectives of ITIL Financial Management for IT Services?
- #2 Activities & Scope of ITIL Financial Management for IT Services
- #3 The Terminology of Financial Management for IT Services
- #4 Benefits of IT Financial Management ITIL & Value-Addition to Business
- #5 IT Financial Management Critical Success Factors and Key Performance Indicators (KPIs)
- #6 Challenges and Risks of ITIL Financial Management for IT Services?
- #7 ITIL Financial Management Integration with other IT Processes?
- #8 Impacting Triggers to ITIL Financial Management for IT Services?
- #9 Major Inputs of ITIL Financial Management for IT Services
- #10 Major Outputs of ITIL Financial Management for IT Services
- #11 Information Management for ITIL Financial Management?
- #12 CIOs Essential IT Financial Management Principles
- #13 ServiceNow IT Financial Management Overview
- #14 IT Budget Management Insight / IT Budgeting and Forecasting
- General Situation
- CIOs Most Common Challenges when managing their IT Budgets
- What are the General Complications?
- Resolution and IT Budgeting Best Practices
#1 What are the Objectives of ITIL Financial Management for IT Services?
- Providing cost-effective stewardship of the IT Assets and Resources providing in IT services
- Maintaining after Defining a framework to identify, communicate, and manage the cost of providing IT Services.
- Evaluation of the financial impacts of changed or new strategies on the service provider.
- To secure the funding to manage the provision of services.
- Facilitating good stewardship of customer assets and services to ensure the organization meets its objectives. It should be done with Service Assets, Configuration Management, and Knowledge Management.
- Knowledge and understand the relationship between income and expenses ensuring that the two are balanced according to the organization’s financial policies.
- On the behalf of the organization’s stakeholders, managing and reporting expenditure on service provisioning’s
- In the provision of services, execute financial policies and practices.
- IT Accounting for money expenses on the creation, delivery, and support of services.
- Meet the service commitments to its customers by forecasting the IT Financial requirements for the organization and compliance with legislative and regulatory requirements.
- Defining a framework where appropriate, to recover the costs of service provisioning from the customers
When a feller says “It ain’t the money, but the principle of the thing” — it’s the money.Kin Hubbard
The aims of any IT services organization can be included:
- To be able to fully account for the expenses on IT services and to be able to assign these costs to the services delivered to the customers of the organization’s
- Providing a detailed cost analysis to assist management decisions on IT investment regarding changes to IT services
#2 Activities & Scope of ITIL Financial Management for IT Services
In an IT context, Financial Management is often a separate function either reporting to the Chief Financial Officer (CFO) or Chief Information Officer (CIO), but between the two areas in some forms of functional reporting. No matter where the function is situated in the organizations. Financial Management for IT services is a specialized knowledge area that requires an understanding of the world of Finance and Business Management as well as the world of Technology Management.
Financial Management for IT services requires a good understanding of cost accounting between the accountants with – a discipline often found in the manufacturing environments. When hiring a person to manage the IT finances, the correct skills must be specified carefully.
IT Budgeting: IT Budget Management Process is the core and most important process in Financial Management for IT Services. Effective IT Budgeting identifies all future IT expenses related to operations, a specific service, or customer for a given period. Budgeting on the IT expenses combines previous commitments, such as recurring software or hardware maintenance, and new expenses, such as additional staff to determine the resources for a given activity or service. Generally, IT Budgets is created on yearly basis and required careful monitoring of agreed budgets on the actual spending on Accounting.
- There is a time value to money. IT budgeting is primarily based on discounted cash flow methods.
- Make long-term investments utilizing organizational resources, and these investments must generate a positive outcome on financial return for the organization.
- Financial returns for investments (ROI) are typically projected out for several years, and projected Financial Returns (ROI) in future periods are discounted to the current value using a discount rate that is determined by the organization.
- To generate positive Net Present Value (NPV), IT expenditures being required, or positive value using other discounted cash flow methodology utilized by your organization.
- Net Present Value (NPV) and other discounted cash flow methodology are generally common methods for determining the financial value resulting from the investment of the organizational resources.
IT Accounting: IT Accounting process enables the IT organizations effectively to account fully for the way how its money is spent (the practices allow identifications of costs by customer, activity, and/or service). The activity is not so simple, and this is the one area that should involve some outside expertise that is usually provided from within the Finance Department.
IT Accounting is the process of collecting financial information with both costs and benefits and for IT services and organizations. The IT accounting process helps the organization determining the financial cost, risks and benefits, and of an IT service. IT accounting differs from the traditional financial accounting in that it collects the information based on an IT service or customer.
IT accounting translates financial accounting information regarding liabilities, assets, expenses, and revenue, in a framework that helps both the IT department and the business units identify and track expenses and benefits related to specific customers and IT services. ITIL and other frameworks provide a range of guidance into grouping expenses; the three basic characteristics of an IT accounting framework can be as follows:
- Cost and the Benefit Types: The category of expenses (such as software, hardware, and staff) and benefits (such as contribution to net income)
- Cost Classification: The end use or purpose of the expenses, such as capital expense, indirect or direct cost
- Customer/service recording: The assignment of expenses or cost to a specific customer or service
With the use of these three characteristics, IT accounting assigns a cost classification, type, and service to each IT expense. Many different areas within the organization consume and generate IT financial information. For example, IT accounting for an IT service may draw information from the business units, an IT Project Management organization, corporate accounting departments, and the IT department.
As the IT accounting process becomes now more mature. it brings together expense information from a range of sources within the organization to capture the actual benefits and costs of a given IT service.
Types of accounting methods may include as following:
- Direct Cost vs Indirect Cost
- Capital Cost (CAPEX) vs Operational Cost (OPEX)
- Fixed Cost vs Variable cost
- Cost Types (e.g. hardware, software)
- Cost Elements (e.g. PC, Local Service within the cost type hardware)
- Cost Unit (Chargeable Unit)
IT Charging: Charging is the activity of billing external or internal customers for the IT services. In many cases, the business units, government organizations, or nonprofit absorbs these costs through the organizations as a line item in its budget or overhead. However, organizations improve IT accounting practices, they develop a range of different methods to bill or charge for IT services to achieve priority goals and identify the costs of a specific IT Service. The IT charging activities combines the service’s rate and the measure of the consumptions or utilization to create a charge or bill for the external or internal customers.
Together, the measure of consumption and the rate help the organization to develop assessments or charges to recover the total costs of providing an IT service or achieve the target profit goals.
There are several charging policies (pricing):
- Cost Price (Recovery of costs associated with the provision of services)
- Cost Price Plus (Cost price plus – a percentage markup value)
- Going Rate (Deriving charges based on other departments charges)
- Market Price (Price charged by third-party providers)
- Fixed Price (Agreed price independent of actual usages of services)
Valuation of Service: IT Financial Management for IT services provides the most common language with which to communicate with the business. To make mutual agreements with the business what service is, what its components are, and the actual cost or worth, Service valuation teams up with Service Level Management.
Provisioning Value: Related to provisioning service with the actual underlying cost to IT. Input comes from Business Financial Systems and consists of payment for the actual resources consumed by IT in the provisioning of a service. Cost elements include e.g. software and hardware license, costs and maintenance fees, personnel resources to support these values.
Potential of Service Value: The value-added component is based on the customer’s perceptions of the value from the IT Service, in comparison with what is possible with using the customer’s assets. Provisioning value provides the baseline from which the service value potential is determined.
#3 The Terminology of Financial Management for IT Services
Service Asset: A servicing asset is any capability or resource of a service provider. These types of assets are generally used by organizations to create value in the form of services and goods. Service Assets are relatively easier to acquire resources compared to capabilities.
Service Valuation: Service valuation provides the business and IT with the measurements to agree on the value of IT services (Benefit vs Cost Analysis). By combining warranty and utility, you can create the Value.
Service Warranty: The Warranty ofService for a service provides the customer with a level of reassurance and guarantee to meet agreed requirements.
Service Utility: The utility of Service defines the functionality of an IT Service from the customer’s perspective (i.e. what the service does).
Accounting Center: Costing inputs with some elements of budgeting (no billing).
Recovery Center: Account fully for all IT expenses or spends and recover costs from the customer.
Profit Center: The IT organization operates as a separate business unit to work as a profit center.
Notional Charging: If we are going to charge you, this is how much you would have to pay. Notional charging creates cost awareness without the physical exchange of the money.
Differential Charging: To try to influence behavior use of services at peak times may attract penalty fees, and likewise use of services at non-peak times, attracts overall lower charges for the customer.
#4 Benefits of IT Financial Management ITIL & Value-Addition to Business
Today, the landscape of IT Changing as strategic business and delivery models evolve rapidly. Product development cycles are shrinking, and disposable designer products become ubiquitous. These dynamics create what often appears to IT professionals as a dichotomy of priorities increasing demands on performance and strategic business alignment and partnership. Combined with greater demand for superior operational visibility and control. Like much of their business counterparts, IT organizations are increasingly incorporating IT Financial Management in the pursuit of:
- Enhanced Decision Making
- Speed of Change
- Service Portfolio Management
- Financial Compliance and Control
- Operational Control
- Value Capture and Creation
Specific benefits to the business include:
IT Budgeting Best Practices, IT Budgeting and Planning, IT Budgeting and Forecasting are the terms used in Business that are derived from ITIL Financial Management for IT Services and have below benefits.
- In a financially responsible manner, the ability to conduct business and to comply with regulatory and legislative requirements and general accounting principles acceptance. This will allow businesses to operate legally and avoid heavy penalties for non-compliance. Accurate planning and forecasting of the budget needed to cover the cost of IT Services.
- An understanding of the cost of IT to business units will allow IT service providers to recover the costs through their IT services and (for Type III service providers) maintain profitability. Many organizations failed to account for IT costs when doing businesses and find their profit margins shrinking regularly and uncontrollably when IT costs are allocated at the end of each Financial Period.
- Better matching of IT services to business outcomes will result in more appropriate and controllable spending models and more predictable and accurate profitability.
- The ability to make sound business decisions effectively regarding the use of and investment in IT.
#5 IT Financial Management Critical Success Factors and Key Performance Indicators (KPIs)
Let us discuss the Critical Success Factors (CSFs). These are the conditions that have to be in place or things that need to happen if the Financial Management for IT Services process is to be considered as successful. Each CSF below will include examples of Key Performance Indicators (KPI).
These are the metrics that are used to evaluate factors that are very crucial to the success of the process. KPIs, as differentiated from normal metrics, should be related to Critical Success Factors (CSFs).
- CSF IT Financial Management is an enterprise-wide framework to identify, communicate and manage financial information, and includes the cost of and associated return (ROI) on IT Services
- KPI Enterprise’s financial management has established policies, standards, and charts of accounts that it requires all business units to comply with and use them. Audits will indicate the extent of compliance for IT Services.
- KPI The financial management for IT services framework specifies how IT services will be accounted for, and regular reports are submitted, and how used as a basis for measuring the service provider’s performance.
- KPI Accurate and Timely submission of financial reports by each organizational unit.
- CSF Financial management for IT services is a key component of evaluating IT Strategies
- KPI IT strategies have a comprehensive analysis of investment and returns. Conducted with information from the financial management for IT services.
- KPI Review of IT strategies indicates that financial forecasts were accurate to within an acceptable percentage.
- KPI Accurate and Timely provision of financial information for IT Service Analysis during Service Portfolio Management.
- CSF Funding is available to support the provision of IT services
- KPI Internal IT service providers who receive the funding required to provide the agreed on IT services. IT showing a break-even at the end of each financial planning period.
- KPI External IT Service providers can sell services at the required levels of profitability.
- KPI Funding is made available for development and research of new IT services, or improvements to existing IT services.
- CSF Configuration Management and IT Service Asset work together with financial management for IT services. It should ensure good stewardship of service and customer assets
- KPI Service assets and Customers are recorded in the configuration management system, and all required financial information is complete.
- KPI Regular reports are produced on the costs and utilization of service assets. Customers with action plans are targeted for any deviations from required performance or utilization.
- CSF The service provider must understand the relationship between income and expenses. They should ensure that the two are balanced according to the organization’s financial policies
- KPI Internal IT service providers: the expenditure of the service provider is recorded in an accurate and timely fashion, according to enterprise / Business financial management requirements.
- KPI For external IT service providers: the expenses and income of each business unit are reported in an accurate and timely fashion, according to enterprise/business financial management requirements.
- KPI The cost of each service is reported on an annual, monthly, and/or, quarterly basis. IT compared with the return achieved by that IT service (either in terms of income or in terms of meeting some other business goals & objectives).
- CSF To make sound decisions and to comply with regulatory reporting requirements, Financial management for IT services must provide reporting to the organization’s stakeholders accordingly to enable them.
- KPI Standard financial reports (as determined by regulation or policy) are produced on time and provided to the appropriate stakeholders.
- KPI Deviations in expenses or income above a specified percentage that must be reported to the appropriate level of management. Together with a massive action plan to rectify the situation. Action plans will be measured by whether they achieved the agreed results.
- KPI No fines or penalties are incurred due to non-compliance with legislative or regulatory requirements.
- KPI Following the forecast, Each major decision will be reviewed in terms of the accuracy of the outcome compared.
- CSF The IT service provider must be able to account for the money spent on the creation and delivery, and support of services
- KPI The IT service provider uses such an accounting system. This is configured to report on its costs by services.
- KPI Regular reports are provided on the costs of IT services in design, transition, and operation.
- CSF Financial management for IT services can be reported on, and accurately forecasted. The financial requirements to meet IT service commitments to customers
- KPI Financial reports are structured according to the IT service in the service portfolio management.
- KPI Financial forecasts to be accurate to within an agreed percentage of the forecasted amount.
- CSF The IT Service provider can charge for services where appropriate
- KPI As per agreement with customers (accurately and on time), Charging for IT services is conducted.
- KPI Queries or Complaints about charges raised occur below an agreed percentage that is resolved within an agreed time.
- KPI Charges are calculated to allow the IT service provider to meet its recovery targets (break-even or profitability).
#6 Challenges and Risks of ITIL Financial Management for IT Services?
Challenges of IT Financial Management
ITIL IT Financial Management for IT services challenges include:
- Generally, IT Financial Reporting and cost models that are focused on the cost of infrastructure and applications rather than the cost of services. Sometimes, this will make it very difficult how to communicate the value of services. And customers will often demand higher levels of service than the service provider can provide the service. Many times External service providers will not be able to price their services accurately.
- While ITIL Financial Management for IT services needs to comply with enterprise policies and standards, IT Service chart of accounts and reporting should be appropriate for an IT service provider. Categories should be meaningful and structured to the IT organizations, but should also be mapped to the enterprise Financial Systems.
- If the organization only focuses on cost-savings rather than cost optimization. Financial Management for IT Services will find itself having to identify cost-cutting measures and actions rather than demonstrating the Return on Investment (ROI) and value co-creation. Generally often resulting in demands to cut costs in this situation even further or customers choosing other service providers since there is a very low perception of the value of the service provider.
- When Financial Management for IT services is first formalized or introduced. it may be difficult to find where financial data is located and how it can be controlled. Especially if IT organizations have operated independently and relatively of one another. Financial management for IT services relies on planning information provided by other business or IT processes. Both within and outside of IT Service Management, which may not be available routinely.
- Internal IT Service providers may find it difficult to introduce the charging method to Business. This will require a change in culture and peoples, changes to how IT’s success is measured and the need to articulate the value of alternative service providers. Besides the IT organization may not be able to respond to changes in users. Demands resulting from being charged – although the behavior can be changed, the basic cost of providing the services remains the same.
- External IT Service providers will need to balance the cost of IT Services with the perceived value of those services ensuring the correct pricing models. Getting the balance right always is not just about ensuring that the price is higher than the cost. The service has to be priced to reflect the value to the business or customer (what the customer or business is prepared to pay for the service).
Risks of IT Financial Management
Financial Management for IT services risks can include:
- Introducing new dedicated Financial Management processes for an internal IT Service provider, when finances are already being managed at an enterprise or corporate level. It may be viewed as a waste of money and time and unnecessary responsibility. However, there is an estimated real risk that a lack of dedicated financial management for IT services. IT shall result in poor decisions about the type and level of IT services offered to the business. The cost of bad investment decisions and planning can far outweigh the costs of implementing financial management for IT services.
- Organizations without having adequate Financial Management Processes for IT services may find themselves exposed to penalties for non-compliance, legislative or regulatory requirements.
- Dedicated resources or Staff needs to be available who understand and have the skills the world of the IT service provider (in this case IT), as well as the world of IT Cost Accounting.
#7 ITIL Financial Management Integration with other IT Processes?
Financial Management for IT Services include with other Major Interfaces:
- All other Service Management Processes use Financial Management to determine the benefits and costs of the process itself. Besides many of them use financial management activities or information to support the execution of their process activities.
- Strategy Management for IT Services works with enterprise Financial Management to determine the financial objectives and goals of the organization. In Internal IT Service Providers, Financial Management for IT Services is used to translate the organizational strategy into specific objectives or goals for the service provider. Strategy management for IT services also defines expected returns on investment (ROI), based on the information and tools provided by IT Services of Financial Management, and financial management for IT services in turn shall be expected to track and report on the achievement of these.
- Service Portfolio Management provides the service structure which will be used to define accounting, cost models, and budgeting systems, and the basis for the charging.
- Business Relationship Management provides the information to financial management for IT services about how the business measures the value of IT services. What they are prepared to pay for IT services. This is especially important in external IT service providers, where service management processes will use this information to define services that provide a good balance between functionality, price, and cost. Besides, business relationship management is the most valuable channel of communication to customers about financial pricing and policies. In internal IT service providers, business relationship management can help to arbitrate on which customers shall provide funding for services that are shared across the multiple business units, each with different requirements for the performance.
- Capacity and Availability Management can provide valuable information to financial management for IT services about the various options of the technology and IT service performance. This in turn shall be used to calculate costs and to provide costing reports to various IT processes, and ultimately to the customers themselves.
- Change Management used financial management for IT services helping and determine the financial impact or requirements of the changes.
- Service Asset and Configuration Management records the financial data about assets and configuration items. This data is used as the basis for financial reporting and analysis. Enterprise financial management also provides the policies that can be used as the basis for managing financial assets of the organization (such as depreciation).
- Continual Service Improvement using financial management for IT services to determine whether the return of a proposed improvement (ROI) is worth the investment required to improve the services.
#8 Impacting Triggers to ITIL Financial Management for IT Services?
Triggers of Financial Management for IT Services can be estimated as follow:
- As an example, of a regular triggered financial process is budgeting. Annual, Monthly or quarterly financial reporting cycles are mandatory and is the part of the standard financial management standards and policies of any organization.
- IT Audits will indicate actions that have to be taken to adjust some aspects of the budgeting, accounting, or charging system.
- Other Service management processes requesting financial information. For example, return on investment (ROI) information for IT services in the service portfolio, or information to determine the cost of making changes.
- An investigation for a new service opportunity, either during the definition of an IT strategy (high-level financial value of the opportunity) or in the process of service portfolio management where a more clear specific financial assessment is required with business.
- The introduction of charging for IT services (Internal IT Service Provider) or the need to determine the price of IT service (External IT Service Provider).
- A change request shall trigger the need for the financial information about the cost of making changes, and the ongoing financial impacts of the changes.
#9 Major Inputs of ITIL Financial Management for IT Services
The major inputs to financial management for IT services Inputs include:
- Standards, Policies, and practices defined by regulators, legislation, and enterprise financial managers
- Generally Accepted Accounting Practices (GAAP) and locally available variations
- All data sources where financial information is recorded or stored, including the supplier database management, configuration management system, the customer agreement portfolio, the Service Portfolio, Application Portfolio, and Project Portfolio.
- The service portfolio provides the structure of IT services that will be provided. Which in turn shall be the basis for the accounting system. Since all costs (and returns) will ultimately be expressed in terms of the IT services provided.
#10 Major Outputs of ITIL Financial Management for IT Services
The major outputs of financial management for IT services are included for your reference.
Service Valuation This is the ability to understand the costs of a service that is related to the business value. This involves a combination of accounting methods that are described above and returns on investment (ROI) approaches
Service Investment Analysis Financial management for IT services provides information and history to enable the service provider to determine the value of the investment in service. This information is used by the business demonstrating the value they have realized in using the IT service to achieve their desired outcomes. It is important to note that financial management for IT services must be able to track and compare both IT Financial Data. That of the business unit to perform service investment analysis.
Compliance Regardless of the location of an IT Service Provider, or whether they are external or internal, financial data is subject to legislation and regulation. Financial management for IT services helps implement and enforce policies that ensure the organization can store and archive financial data, secure and control it, and make sure that it is reported to the appropriate people.
Cost Optimization opportunities should not always be equated with cost savings. The main goal of cost optimization is making sure that the investments are appropriate for the level of IT service that the customers demanded, and the level of returns that are being projected. In different words, cost optimization may result in increased levels of spending if demand and potential returns increase.
Business Impact Analysis (BIA) Business impact analysis (BIA) involves understanding the effect on the business if a service were not available. This can enable the business to prioritize investments in IT services and IT service continuity. Financial management for IT services contributes to Business Impact Analysis (BIA) by providing financial information and data to quantify the potential effect on the businesses.
Planning Confidence is not a tangible output or plan. Rather it refers to the level of confidence that service stakeholders have in the service provider being able to accurately forecast costs and returns. A lack of planning confidence results in a lack of confidence in the service provider. In many cases an unwillingness by the business to invest in IT unless necessary.
#11 Information Management for ITIL Financial Management?
The information and documentation required for effective ITIL Financial Management for IT services overview of the main sources are as follows:
- Financial Management systems, such as budgeting, accounting, and charging systems
- Financial management policies, regulations, and legislation defined by external parties, as well as the internal corporate finance managers
- Financial reporting structures, templates, and spreadsheets (e.g. budgets), as well as the reports themselves, which are the basis of compliance and a major output to other service management processes
- The organization’s chart of accounts
- The service knowledge management system (KMS) (Integral part of Financial Management for IT Services).
#12 CIOs Essential IT Financial Management Principles
Following the discussion with many CIOs, I can conclude below the most essential IT Financial Management principles.
- IT Finance is that it is business finance because the language of business finances and it’s fundamental to conduct of business is finance. In this case, we need to see IT Finance from a business perspective. Evaluate the efficiency of processes how technology is contributing to the growth of the economy. So, finance is the primary tool that we use in business and we need to talk technology or IT finance in the language of Business Finance to understand better the benefits of Technology Investments, budgeting, and planning.
- I have learned about IT Finance comes with preparation, polish, and presentation. To initiate and get the fund of IT Investment, first, we should prepare to show the reality and return on the investment to the business and documents in accounting terms and polish it in a structured way how we can present them to get the desired results.
- Technology enablement and digital transformation creates a tremendous benefit for businesses and is increasingly becoming a material cost line in company P & Ls. However, effective management and measurement of technology ROI remain an elusive challenge. To overcome this gap, technology leaders not only have to be the focus on cutting-edge technologists, but they also need to have a piece of strong knowledge about the commercial and financial acumen.
#13 ServiceNow IT Financial Management Overview
IT Financial Management ServiceNow is my favorite Cloud Application following IT Service Management (ITSM) Framework on ITIL. The financial management application is used to allocate, track, and report on expenses in your organization.
In ServiceNow, The Financial Management application is available starting with the release of the Fuji version. The modules in the Financial Management application before the Fuji release was called IT Cost Management.
Demand Management and Project & Portfolio Management contribute to IT Financial Planning (Planning, Tracking, and Reporting) in ServiceNow effectively.
#14 IT Budget Management Insight / IT Budgeting and Forecasting
In this section, I am going to explain the general situation in IT or with CIOs to manage the IT Budget and how they can resolve this problem partnership with Business and present the IT Value to Business.
Business stakeholders generally think that IT is not managing its budget effectively and viewed IT is viewed as a cost center without a clear understanding of the value it can provide to Business. The business thinks IT is wasting the money and does not understand why it’s always demanding more budget.
CIOs Most Common Challenges when managing their IT Budgets
- There is no formal mechanism developed to manage your IT Budget to track from where data is coming, ensure the accuracy and keep control, and monitoring past expenses and upcoming expenditures enabling the budget to manage and control effectively.
- Business Units deferring projects and lack of IT Resources due because of this over budgeting happening. If IT failed to deliver what initiatives forecasted in the budget, the credibility of IT will be damaged, your ability will be impacted negatively security the IT Budget in the future.
- Unanticipated expenses and last-minute projects are responsible for under budget. Sometimes many forecasted projects discarded and replaced with new ones, in this case, Injections require the flexibility to re-allocate the funds and political astuteness to request IT Budget increases.
As the result, Business Leadership and stakeholders think that IT is not managing IT Budget effectively and wasting the money and don’t understand why asking for more money. Finally, IT will be viewed as a cost center without having a clear understating of Business Value provided to Business.
What are the General Complications?
After completing the budget, the CIOs are facing with changing expectations, disruptions, new potential risks, and new threats. IT departments often lack a reliable Budget Management Process to keep on the track itself towards its budget goals and objectives. Sometime over budgeting risks credibility if projects are not all delivered, while under budgeting risks not being able to execute important projects for the Business.
Resolution and IT Budgeting Best Practices
Implement a formal Budget Management Process that documents your planned budget and actual expenditures, tracks the variances, and responds to those variances to stay on track towards budget goals. Manage and control the expectations of business stakeholders by communicating the links & partnership between IT spend and business value in a way that is easily understandable by the business. Control for under or overspending by using Internal budget management tools and tactics created as Budget Management Process.
IT Budget Insights
Managing your IT Budget is about People and Processes not just about numbers.
Better Business Relationships and a proper process lead to better Budget Management. Understand how your Business Partnership and current processes might be leveraged to manage your IT Budget.
Over budget or being under budget, is not good for IT Value to Business.
If you are coming under budget, may mean that you are not accomplishing the initiatives that you have promised you would, or reflecting poor job performance.
Follow the documentation, tracking, and controlling the It Budget as IT Budget management process.
IT Financial Management (ITFM) is the oversight of expenses and expenditures required to deliver IT Products and Services to Businesses and customers. ITIL Financial Management for IT Services is the most important element of the Service Delivery Process Area in the Information Technology Infrastructure Library (ITIL) and ITSM (Information Technology Service Management) Framework.
The ITIL Best Practice framework is designed to standardize the selection, planning, delivery, and support of IT Services to the business. The IT Financial management component of the service delivery framework provides best practices and cost-effective oversight of IT Assets and Resources.
The Most Important Goal of IT Financial Management is providing to the business an accurate and complete view of spending for all IT Resources and Services. Spend Analysis for the ITFM process involves collecting, categorizing, and evaluating expenditure-related data. The end purpose is the optimization of IT spending and increased profitability and visibility.
ITIL Financial Management for IT Services is an essential and important component of IT Procurement as well, a series of procedures and activities, necessary to acquire IT Services and Products. To Management of IT Budgeting and Planning are integrated parts of IT Financial Management with IT Accounting and IT Charing to balance the services and Resources costs & expenditures.
I would like to ask you what you want to add here? How you are managing your finance, please share your comments below.