At the core of IT Service Management is the ability of the
service provider to align capabilities to meet business requirements. Not only is it expected that the service
provider does this but today’s market requires that we provision faster than
ever before for the least amount of cost. This requires a shift from looking at
costing models that focus primarily on components such as HW, SW, or other
infrastructure costs to a model that looks at what is it costing us to
provision the end-to-end service. When
we think of Financial Management most will immediately think of number
crunching, bean counters, and all those mathematical formulas that go along
with that. It is all of that. We need to be able to create business cases
and to justify the cost of new or changed services in our environment. Financial
Management for IT services will certainly include calculations for Return on
Investment and Internal Rate of Return as well as assistance in assessing the
overall Value on Investment.
In addition to understanding portfolio management and
creating service catalogs, the ITIL Service Offerings and
Agreements class discusses best practices for Financial Management and the
three sub-processes that are required for success. These include:
A)
Accounting
It is through
standardized accounting methods, ledgers and procedures that we can track our
IT spend. We must account for where did the money go? Accounting activities will also ensure a cost
model framework that will allow the service provider to determine costs and
also ensure that they are allocated correctly.
Cost models are utilized to understand the impact of new or changed
services from a financial perspective. ITIL Best Practice states “Knowing where money
has been spent does not explain why the money was spent, which services it was
used for and whether the customer received value. “ Accounting will ensure a cost framework where
direct and indirect charges can be allocated to a service/customer and assist
in understanding not only where the money was spent but most importantly why.
B)
Budgeting
Truly Financial
Management is all about funding and overall financial stewardship. Budgeting process activities allow the
service provider to predict and control the allocation of funds to the
organization. Budgeting is a forecast while accounting is actual. You could say that through the periodic
negotiation and budget cycles the determination is made for “What money will be
made available” and then through accounting activities we track “Where did that
money go”.
C)
Charging
Charging is the only one of these three sub-processes that
is optional. All invoicing for charges must
be clear and concise and not ambiguous to the customer being billed. If you are
provisioning a service to an internal business unit there may be some notional
charging (funny money) but perhaps no real or hard charging is taking
place. Charging creates a sense of value and greater
appreciation for the IT services delivered to internal customers. Charging for services provides the business
with more accurate information and allows business leaders to make informed
decisions about the use of their technology.
So there you have it! Financial Management for IT Services
is not only comprised of the (one’s, two’s and three’s) or the number crunching,
it is really all about the A, B, C’s of Financial management. Accounting, budgeting and charging process
activities ensure good overall financial stewardship for service providers.
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