The Financial Management process provides cost effective management and control ofIT assets and financial resources used in providing IT services.
The purpose of financial management for IT services is to secure the appropriate level of funding to design, develop and deliver services that meet the strategy of the organization.
Financial Management generates meaningful critical performance data.
Most importantly,this gives an organization insight in the cost of IT, and the cost of a specific service. This insight will help in determining investments and possible chargeback models.
Financial Management deals with budgeting, planning, revenues, cost and market analysis. This helps in quantifying the value of IT services and value of service provisioning assets.
Financial management consists of three main processes:
Budgeting: This is the process of predicting and controlling the income and expenditure of money within the organization. Budgeting consistsof a periodic negotiation cycle to setbudgets (usually annual) and the monthly monitoring of the current budgets.
Accounting:This is the process that enables the IT organization to accountfully for the way its money is spent (particularly the ability to identify costs by customer, by service and by activity). It usually involves accounting systems, including ledgers, charts of accounts, journals etc. and should be overseen by someone trained in accountancy.
Charging: This is the process requiredto bill customers for the services supplied to them. This requires sound IT accounting practices and systems.
A business case clarifies the reason for undertaking a service or a process improvement initiative.
Business case justifies the organizational goals that have been stated by the organization as well as assess potential benefits and the resources and capabilities required.
The structure of a business case is as follows:
• Introduction – Presentsthe business objectives
• Methods and assumptions – Define the boundaries of the business case such as the time period, the costs and the benefits
• Business impacts – The financial and non-financial business case results, such as faster time to market, better customer retention or bigger market share
• Risks and contingency – The probability that alternative results will emerge
• Recommendations – Specific actions recommended
Financial Management of IT assists in the task of service valuation which is used to help the businessand the IT Service Provider agree upon the value of the IT service.
Service Valuation helps to determine the balance demonstrating the total cost of providing an IT service against the total value offered to the business by the service.
Service Valuation focuses on two key concepts that apply in Financial Management are:
• Provisioning value – Determines the minimum cost baseline for providing the service
• Service value potential – Value-added component based on the customer’s perception of value from the service or expected marginal utility and warranty
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