Financial Management Overview
How does your organization…
- Determine the value of IT services?
- Weigh financial risk and return to understand the value IT provides?
- Strike the desired balance between risk and expected financial contribution to the business?
Competent financial management will help you accomplish these objectives. The goal of this SMF is to provide IT-relevant activities and considerations that improve financial management practices.
When management makes decisions about changes to IT infrastructure, systems, staffing, or processes, it uses financial data to justify the cost. However, cost tells only part of the story; value must be considered as well. The concept of value reflects service levels, business impact, and both hard and soft benefits. Financial management ensures that IT services and solutions have agreed-upon value delivery expectations, as well as metrics for tracking and realizing value, cost justification, and adequate budgetary support.
Roles
The primary Team SMF accountability that applies to the Financial Management SMF is the Management Accountability. The role types within that accountability and their primary activities within this SMF are displayed in the following table.
Table 1. Management Accountability and Its Attendant Role Types
Role Type
Responsibilities
Role in this SMF
IT Manager
- Manages the overall business value realization process for IT
- Manages risk and approves expenditures
- Ensures that the IT portfolio delivers desired business value
- Drives accurate forecasting of IT resources
- Maintains known IT services costs and returns
IT Finance Manager
- Manages the financial aspect of the IT organization
- Ensures IT budget and accounting are accurate and timely
Business Relationship Manager
- Acts as communication interface between IT and the business and partners
- Validates that IT understands business requirements
- Considers technology opportunities and constraints in business strategy
Goals of Financial Management
Successful financial management will help an organization:
- Fully account for the cost of IT services while defining the expected contribution to the business.
- Attribute costs of services delivered to customers so that the costs can be recovered.
- Aid decision making by clarifying the costs, benefits, and risks of IT services.
- Contribute to business cases for changes to IT services based on a sound understanding of the cost-benefit tradeoffs involved.
The achievement of these objectives should result in several specific outcomes, which are detailed in the table below.
Table 2. Outcomes and Measures of the Financial Management SMF Goals
Outcomes |
Measures |
IT cost accounting |
|
Delivered business value |
|
IT cost recovery |
|
Accurate IT budget |
|
Key Terms
The following table contains definitions of key terms found in this guide.
Table 3. Key Terms
Operational costs |
Costs resulting from the day-to-day running of IT—for example, staff costs, hardware maintenance, and electricity. Also referred to as non-discretionary spending. |
Return on investment (ROI) |
The ratio of money gained or lost on an investment relative to the amount of money invested. |
Total cost of ownership (TCO) |
The total cost of an item over its useful lifetime. TCO takes into account not only the purchase price, but also implementation and training costs, management costs, and support costs. |
Value realization |
The identification, definition, monitoring, and evaluation of targeted business benefits that result from planned IT activities. |
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