IT organisations striving to reach financial maturity (page 1 of 2)

By Stephen Mann

This corporate focus on IT value was inevitable, given the growing total cost of IT provision. However, many IT organisations are too financially immature to properly respond to this increased business scrutiny.

Indeed, Ovum considers there to be a reticence within IT to unearth the true cost of IT service provisions and believes that IT organisations cannot continue to ignore the fact that for some IT services, the cost of provision will be seen as disproportionate to the business's perceived value.

There are several ways that IT shops can tackle this problem.

Enterprises must ensure IT addresses financial management shortcomings

The speed of business change and the requirement for all enterprise functions to 'do more with less' is dictating a more structured and granular approach to IT budgeting and accounting in particular. As a minimum, IT functions need to take on board the IT financial management principles espoused by management methodologies and frameworks to ensure that IT services are delivered in an optimal manner, with the cost-effective stewardship of IT assets and financial resources.

IT organisations need to get the IT financial management basics right (budgeting and accounting) before moving on to more complex ways of analysing and controlling IT expenditure.

There is, however, an absence of freely available IT financial management maturity models. In response to this, Ovum has designed a matrix-like maturity model that can be used by an IT organisation both to establish current standing and to plot a route to greater IT financial maturity in its pursuit of increased IT-to-business alignment and business value delivery.

IT organisations need to undertake service costing activity

Service costing has become a mandatory requirement in achieving greater IT financial management maturity for the modern IT landscape. A higher level of service strategy development and execution can be enabled by the availability of service-oriented accounting information, with it dramatically changing the dynamics and visibility of service management.

Importantly, this IT accounting information allows organisations greater control over costs created by changes - whether it be the incremental costs associated with adding new users or the change in unit costs caused by IT service volumes falling below critical pricing points. IT managers also need to be better able to explain to the business how budget cuts will impact IT service provision, and the associated risks.

Most organisations would benefit from the introduction of IT chargeback, even if notional, to demonstrate usage and to improve demand. The introduction of charging allows internal customers to fully appreciate their usage and cost of IT, allows IT demand to be managed more effectively (including encouraging internal customers to use high-demand IT services at non-peak times), and helps to identify business-driven opportunities to either kill or cut back on existing IT services.

Enterprises should review funding in line with the shift in IT delivery models

IT funding models need to change in line with the shift in IT delivery models, particularly given recent constraints on its availability. New focus areas for IT should include asset lifecycle management, asset utilisation, cash flow, and working capital management. Given the growing prominence of IT in the overall corporate budget, the CFO and finance function need to play an increasingly significant role in IT planning.