- Define Service-Based IT Financial Management Activities
- Implement the IT Financial Management Maturity Model
- Develop a Roadmap for Improving IT Financial Management Practices
- Improve IT Financial Management Practices to Improve Service and Lower Cost
- Improve IT Accounting to Value Services
- Improving IT Charging Based on Services
- Improve IT Budgeting Based on the Service Lifecycle
- Improve Value-Added Financial Management Activities
- Next Steps
This chapter is from the book
This chapter is from the book
This chapter is from the book
Implement the IT Financial Management Maturity Model
Government, commercial, and nonprofit organizations vary significantly in the maturity of their IT financial management practices. Some organizations have highly-evolved, mature IT financial management practices, whereas other organizations are just beginning to apply leading financial management practices to their IT organizations. Organizations can be divided into four levels of IT financial management practice maturity. The four levels are best described by the organization's view of IT: the reactive organization, the cost center, the profit center, and the business partner. Figure 4-3 summarizes these four phases and shows that improved accounting, charging, and budgeting are the foundation for more effective IT financial management.
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Figure 4-3 Increasing IT financial management maturity will improve service and lower costs.
The IT financial management maturity model identifies an organization's current IT financial management practices as one of these four maturity phases based on the current financial management practices and tools applied to IT resources. This IT financial management maturity model will help you to identify your current stage of maturity, establish a goal for improvement, and identify which practices to target for improvement activities. These decisions will help your organization develop a company-specific roadmap to develop your IT processes, focused on accounting, charging, and budgeting.
The four phases of the IT financial management maturity model reflect industry best practices, evidence from industry and academic research, and a range of industry case studies. The following list summarizes each of these four phases and the next section discusses each in detail:
- The reactive organization is the least mature IT financial management organization and views IT as an unpredictable cost. These reactive IT financial management organizations have little visibility or accountability for IT costs. These organizations lack effective accounting, charging, and budgeting for most IT expenditures.
- The cost center views IT as an expense. It is the most common maturity level for IT organizations. These organizations generally do not value services or seek to optimize their investments. Within these organizations, IT is viewed as a cost recovery organization, and its budget is designed to match revenue with costs, with no profit. Internal IT organizations recover these expenditures through charging a tax or fee across business units to recover IT funding. Most organizations that serve external customers do not fall into this category because they charge for a service.
- The profit center 6 views IT as a positive return on investment. Within these organizations, the IT budget is evaluated based on its business impact, similar to any other capital expenditure. This organization aligns its financial management activities with its customers and services. The IT department works closely with the business units to develop a transparent charging methodology, which may be based on actual utilization of IT resources.
- The business partner is the most mature IT financial management organization, viewing IT as a contributor to the achievement of the organization's strategy. These organizations use service investment analysis to evaluate alternatives for the IT budget. Service provisioning optimization is used to benchmark current services and determine alternatives. The IT organization charges internal or external customers through automated resource-based tools that identify the specific asset and services that use this asset. This organization can effectively value its services by considering a range of benefits related to the IT resources and significant risks.