Search This Blog

Monday 5 March 2012

ITIL Financial Management


Financial Management for IT is one of five components in the ITIL Service Delivery area and part of Service Strategy process.
 It determines the costs of services and provides financial accounting support to ensure expenditures fall within approved plans and that funds are well-spent.
The role of Financial Management varies depending upon the view of IT within the company. Some companies view IT as an expense center, some as a profit center, and some as a cost-recovery center. However, in all cases, Financial Management supports the "business" of IT.



Financial Management activities include:
•         Providing oversight of all IT expenditures
•         Ensuring funds are available for planned events
•         Providing detailed financial information for proposed initiatives
•         Influencing the use of IT assets to maximize the return on IT investments through chargeback systems
•         Tracking current expenditures against the budget

Why should I implement Financial Management?
Financial Management processes allow you to:
•         Plan and predict IT expenditures required to maintain or improve services
•         Ensure expenditures fall within approved plan guidelines and that money is well-spent
•         Assist senior management in understanding the ongoing total cost of a proposed IT initiative
•         Promote a better understanding of the costs associated with providing specific services
•         Foster an environment of control to ensure IT services are effectively and efficiently used


Follow these steps for implementing ITIL Financial Management for IT:
1.     Gather the data. Identify a finance manager with substantial IT knowledge to ensure proper oversight of IT expenditures and assign additional staff as required. The team must perform several duties:
•         Perform a current-state assessment
•         Perform a gap analysis to reveal areas that require process improvements, training or software.
2.     Build the plan. The implementation plan should:
•         Establish the three major components of Financial Management - people, processes and tools.
•         Outline the costs necessary to sustain the new organization and build a preliminary budget.
•         Describe workflow, including data inputs, information outputs, and work processes.
•         Plan the resources and train them
Once the project plan and budget are complete, they should be submitted for approval.
3.     Execute the plan. You will want to execute the project plan in a series of steps:
•         Assign the staff.
•         Document and publish the processes.
•         Build the accounting and budgeting framework.
•         Identify, define and implement chargeback systems.
•         Define metrics to measure success.
4.     Implement reporting and exception processes and procedures.
5.     Initiate the ongoing work of Financial Management.
6.      Perform post-implementation review. Document lessons learned and identify any changes that should be made to the process to facilitate future process migrations. Perform a post-implementation audit 6-12 months after completion to determine if the new processes are being adhered to and if you're getting expected results.


Financial management for IT services contains 3 sub-processes:

  • Budgeting
  • IT Accounting
  • Charging

Budgeting
Budgeting enables an organization to plan future IT expenditure, thus reducing the risk of over-spending and ensuring the revenues are available to cover the predicted spend. Additionally it allows an organization to compare actual costs with previously predicted costs in order to improve the reliability of budgeting predictions.


IT accounting
IT accounting is concerned with the amount of money spent in providing IT services. It allows an organization to perform various financial analyses to gauge the efficiency of the IT service provision and determine areas where cost savings can be made. It will also provide financial transparency to aid management in the decision making process.
Several cost elements can be used to control your accounting:
Capital costs: Any type of purchases which would have a residual value as hardware and building infrastructure
Operational costs: Day to day recurring expenses cost like rental fees, monthly electrical invoices and salaries.
Direct costs: Any cost expenses which are directly attributed to one single or specific service or customer. A typical example would be the purchase of a dedicated server which cannot be shared and is needed to host a new application for a specific service or customer.
Indirect costs: One specific service provision which cost needs to be distributed in between several customers in a fair breakdown. A fair example is the cost associated to overall Local Area Network on which every customer are connected to. Breakdown could be done using total amount of users per customer or total amount of bandwidth usage per customer to accurately distribute the cost of providing this service.
Fixed costs: Any expenses established for long periods of time like annual maintenance contracts or a lease contracts. These expenses do not vary in the short-term.
Variable Costs: Any expenses that vary in the short-term based on the level of services provided, resources consumed, or other factors. For example, energy costs are variable based on the amount consumed.


Charging
Charging provides the ability to assign costs of an IT Service proportionally and fairly to the users of that service. It may be used as a first step towards an IT organization operating as an autonomous business. It may also be used to encourage users to move in a strategically important direction - for example by subsidising newer systems and imposing additional charges for the use of legacy systems. Transparency of charging will encourage users to avoid expensive activities where slightly more inconvenient but far cheaper alternatives are available. For example, a user might browse a dump on screen rather than printing it off.
Charging is arguably the most complex of the three sub-processes, requiring a large investment of resources and a high degree of care to avoid anomalies, where an individual department may benefit from behavior which is detrimental to the company as a whole. Charging policy needs to be simultaneously simple, fair and realistic.
Charging need not necessarily mean money changing hands (full charging). It may take the form of information passed to management on the cost of provision of IT services (no charging), or may detail what would be charged if full charging were in place without transactions actually being applied to the financial ledgers (notional charging). Notional charging may also be used as a way of piloting full charging.


The Critical Success Factors (CSFs) are:
•         Effective stewardship over IT finances


The key activities for this process are:
•          Perform budgeting for IT services and activities.
•          Perform IT accounting activities.
•         Perform IT charging and billing activities.
•         Provide management information about Financial Management quality and operations.


Key Process Performance Indicators (KPIs) for this process are:
Examples of KPIs are shown in the list below. Each one is mapped to a CSF.
•         Overall cost of delivery per customer
•         Percentage of IT costs not accounted for
•         Dollar value of budget variances/adjustments
•         Percentage of IT financial objectives met
•         IT Service Headcount


Role of Financial Manager are:
The Financial Manager is responsible for managing an IT service provider's budgeting, accounting and charging requirements.

21 comments:

  1. Very nicely shown about finance management. Its very useful. Thanks for sharing.

    ReplyDelete
  2. If you have acne and you want to get rid of the lesions and blemishes, it will be best if you wash your face regularly and avoid going to places with too much dirt and smoke. You should also watch your diet. However, if simple skin care tips don't work and you want to be acne-free in just a short period of time, it is best to get acne treatment products right away. Online Accredited Financial Portfolio management advisor

    ReplyDelete
  3. Thank you for sharing! This article is very informative and helpful. I hope other articles will be as good as this article.

    ReplyDelete
  4. You might ask, are tattoos art designs appropriate for a woman? You may see women with a lot of tattoos in their skin and you would immediately judge them. Some people may say which may include your own family members especially the older ones, and people from church, among other members of a conservative society that tattoo art designs for woman give you the impression that you are a bad woman or a woman with loose morals, which have no consideration at all for decency and cleanliness. 
    Online Accredited Financial Portfolio management advisor

    ReplyDelete
  5. Native African religions greatly influenced the art objects rather than the architectures. They do not require the use of religious buildings for prayer but they professed their faith more through religious objects such as statues, mask, or other objects especially during rituals and ceremonies.
    Financial Portfolio management advisor

    ReplyDelete
  6. There are so many body art designs available for anyone to choose from for those who are thinking of getting a tattoo. To many, tattoos have become a medium of self expression, a way to make a statement, and to some it has become an art on its own.
    Online Accredited Financial Portfolio management advisor

    ReplyDelete
  7. As a hunter, there are many essential skills that you should have. However, these skills do not only involve shooting, accuracy and stalking skills. One very important skill that you should learn would be the art of skinning. Although it can be scary for first timers, a hunter that doesn't know how to skin their catch would not be considered as a hunter at all. So, here are the basics of how to skin animals, particularly foxes, rabbits and kangaroos.
    Portfolio management advisor

    ReplyDelete
  8. Thank you for sharing such valuable and helpful information and knowledge. This can give us more insights! Keep it up. I would love to see your next update.

    Small business Accountant Melbourne

    ReplyDelete
  9. https://consultantsfactory.com/siam-training-siam-certification
    siam certification
    https://consultantsfactory.com/verism-training-online
    verism training, verism certification

    ReplyDelete
  10. VeriSM online training delivery is a specialty of Consultants Factory. We’re among the best to offer it. We’ve trained 5000+ candidates across India, UAE & Saudi Arabia.
    verism training cost in bangalore

    ReplyDelete
  11. It is a known fact that ILLUMINATI consist of Multi Millionaires,Billionaires who have major influence regarding global affairs, and planning of a New world order. Many world leaders, Presidents, prime ministers, royalty and senior executives are members of ILLUMINATI. follow the steps to Excel in Life. you'll have numerous benefits,for the FIRST TIME IN HISTORY, we are opening our doors to those who believe. If you would like to join ILLUMINATI , to sign up Text: leovincey08@gmail.com or whatsapp +2349033667873 now if you are really serious to help your self

    ReplyDelete
  12. Fantastic post, very informative. I wonder why the other specialists of this sector do not notice this. You must continue your writing. I'm confident, you have a great readers' base already!trance healing opleiding

    ReplyDelete
  13. Thanks for sharing information. it will help to gain knowledge. Finance controller services reflect the true nature of cash flow in the organization through general ledgers and other financial statements such as balance sheets and income statements. Especia Associates provide Finance controller services . Controllers provide accurate ledgers and smooth accounting systems. They stabilize the recurring variance and maintain your balance sheets smoothly. if you need Finance controller services call at 9310165114 or visit us Finance controller services

    ReplyDelete
  14. I enjoyed reading your post. Technology has changed the way tasks are reported, with the Employee Automated Timesheet Software solution leading the way. Thank you for this informative article.

    ReplyDelete
  15. It enables organizations to make informed financial decisions. VPN Best Streaming This practice fosters transparency, accountability, and helps maximize the value of IT investments.

    ReplyDelete
  16. Thanks for sharing this information. Surat accounting software for startups serves as an invaluable tool for emerging businesses in the region, offering an efficient way to manage finances, maintain compliance, and pave the way for long-term success. By leveraging these specialized solutions, startups can focus on their core operations and growth, knowing that their financial management is in capable hands.




    ReplyDelete
  17. Thank you for sharing such comprehensive information about ITIL Financial Management. It provides valuable insights into the role and functions of financial management in IT services. For those seeking Financial manager service in dubai , this post offers a clear understanding of the responsibilities involved in managing IT budgets, accounting, and charging requirements.

    ReplyDelete