IT Service Strategy: Financial Management
Department of Information Technology and ManagementApartment 1107
3001 S. King Drive
This paper covers the objective of the Financial Management in ITIL to manage the IT services effectively. Finance, Budget, Resources are the key factors playing important role in benefiting any IT service organization. For any IT Services organization to function with maximum ROI, it is important to decide the budget, or the cost factor required to give out the services i.e. to analyze the funding required. After the funding is decided the resource allocation to deliver the best as per industry standard is a must for which the financial management plays a vital role. Detailed cost analysis of these various factors as well as the change in the IT services due to evolving technologies, financial management is very important to the overall success. This paper further discusses the sub-processes that are being part of the Financial Management and their overall impact on service delivery with to the end customer in the most economical way.
Financial Management; Information Technology Infrastructure Library (ITIL); Return of Investment (ROI); Service Level Agreements(SLA)
Over the past few years to provide the IT services economically and with the maximum efficiency to the stakeholders or client becoming a very tough task. With the evolving technologies and infrastructure, the number of corporate financial investors and related agencies are growing day by day. Due to this a rise in the expectations from the IT services to contribute more towards the business value of the organization. To tackle such a high expectation from the IT services and strategies made it essential to use the best practices in the industry such as frameworks like Information Technology Infrastructure Libraries- ITIL. Purpose of the Financial Management for IT services is to assure the balanced funding options to design, implement, and deliver the services that are meeting the strategical goals of the organization 1. Part of this ITIL framework includes the ITIL Financial Management which identifies, manages and communicates the overall cost associated with the provision of the services, evaluation of the overall impact on service provider’s budget due to the change in the IT strategies due to the client’s demand or under any other circumstances, secure the enough funds to provide the services and balancing the expenditure and profit ratio.
Financial Management process under the IT service strategy phase of ITIL framework consists of the three main processes:
Accounting facilitates the IT services organization to completely account the expenditure. It gives out the ability to identify the costs by the customer, cost due of the various services and the activities. This complex area of the which often requires the expertise of the financial department. Accounting aids in the evaluation of the areas where the cost saving can be done. There are various cost terminologies that are being used in the Accounting such as Capital Cost- the cost of financial asset of the organization such as any server, infrastructure or services etc., Operational Cost-cost due to the running of the services, Direct Cost-cost allocated to provide particular service, Indirect Cost-cost which isn’t directly allocated to provide but essential to provide the service such as software licenses, Fixed Costs such as annual contract cost, Variable Cost-cost that is dependent completely on the extent of the resource consumption such as power consumption to run the servers.
Budgeting is the prediction about the expenditure and the income of the IT services organization. Budgeting is done usually for the complete financial year. Budgeting is very important because as it avoids the overspending in near future avoiding the loss. In budgeting, the monthly costs and income being monitored are compared with the budgeted cost and income (budget forecasting). After the comparison insights are drawn where the spend is more and preventive measure are taken accordingly to keep the budget on track.
Figure 1. ABC’s of Financial Management
Charging is the process in which the customers are being charged for the services provided to them. Accounting Procedures should be in place for charging process to run smoothly. The decision to charge the customers for the services provided is taken strategically rather than taking it internally within the IT department.
There are various sub-processes which are part of the Financial Management:
Financial Management Support defines the required structures for the management of the financial plans, allocation of the cost and services etc.
Financial Planning determines the financial resources or the IT budget generally for a complete financial year for maximum profit.
Financial Analysis and Reporting takes the advantage of the Service Portfolio Management to make the decisions while making changes in IT service portfolio.
Service Invoicing issues the invoices for the services provided to the customer.
Figure 2. ITIL Financial Management for IT Services
3. Methodologies and Related Work
There are various tools and techniques uses to do the Financial Management within the IT services organization. Excel is one of the powerful tool used to do the financial analysis. Powerful formulas and data processing and analytical excel functions more easily solve the financial management. Examples of such functions are SLOPE, TREND, FORECAST etc. It does the predictive analysis regarding the financial decisions to identify the risks 2.
There are various functions that have been proposed up till now to improve the business strategically using the proper allocation of the finances and one such methodology is the usage of the financial loss function to estimate the impact the SLAs have on the business process performance. In this research work the quantitative approach is being used where there is SLA threshold, objective and supporting budget is defined for each of the business processes within the IT organization. Each SLA violation would have the associated loss factor contributing towards the total loss within that financial year. In this way, this method establishes the framework through which the IT Business Relationships and the loss due to the IT malfunctions such as SLA violations can be captured and thus it proposes the fact that the business processes (BPs) and their dependencies which are critical towards the business success should be identified first 1.
IT plays the significant role contributing towards the overall business due to its innovation and advancement, still, it is the least understood company asset. Successful Organization requires the management of IT services in the most strategic way. Financial Management is one of the most important aspects of the IT services strategy, one of the research that has been done in financial industry is that the KPI metric is maintained which showcases the KPI % in terms of time/cost before and after implementation of ITIL framework 3. After implementation of ITIL framework for this financial industry the results have been improved significantly.
For the successful IT Services Organization, the IT and business should align and thus the effective IT management framework should be in place and ITIL serves this purpose by providing various IT strategies and Financial Management is one of its processes. This paper emphasizes on this process explain its contribution and impact towards the successful IT Organization.
1 A Quantitative Approach to IT investment Allocation to Improve Business Results
2 Excel under the information technology application in the financial management research
3 IT and Business Process Performance Management: Case study of ITIL Implementation in Finance Service Industry