ITIL Financial Management for IT

What is it?

Financial Management for IT is one of five components in the ITIL Service Delivery area. 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

Financial Management has close ties to Service Level Management, Capacity Management, and Configuration Management areas, as well as the Corporate Finance Department.

TeamQuest Addresses ITIL Financial Management for IT

TeamQuest software directly supports ITIL Financial Management processes.

TeamQuest IT Service Analyzer enables IT organizations to generate chargeback reports directly from the tracking data and avoid adding a second separate system for billing. The business can easily match its bills to the original data, avoiding questions and concerns about incongruence and potential errors associated with having a separate billing system.

TeamQuest IT Service Analyzer and TeamQuest IT Service Reporter give you the ability to automate reports against historical data and track actual usage to your technology plan. With this data, you also use TeamQuest Model to easily prepare reports that visually show any deviation and how it impacts your plan today and the rest of the year.

TeamQuest tools support Financial Management by:

• Enabling IT organizations to generate chargeback reports directly from the tracking data and avoid adding a second, separate system for billing
• Allowing business units to easily match bills to the original data, avoiding questions and concerns about incongruence and potential errors associated with having a separate billing system
• Automating reports against historical data
• Tracking actual usage to your technology plan
• Providing the ability to prepare reports that visually show any deviation and how it impacts both your plan today and predicts the impact for the rest of the year

As with all major projects, proper planning is key. TeamQuest recommends following 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, using either a consultant or self-assessment checklists, to discover where and to what extent Financial Management work is being performed today.
• Inventory tools and software currently used for budget, accounting and chargeback systems.
• 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.
• Determine where the financial manager is located in the organization, ideally reporting directly to the CIO or IT Director.
• Describe workflow, including data inputs, information outputs, and work processes.
• Identify and train the people who will perform the work.
• Identify any necessary work to acquire, consolidate and/or implement financial management tools.

Be sure to communicate the organization and its processes to the rest of the company, preferably through your internal corporate communications team.

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. This is an important step that will likely take considerable time during initial implementation.
• Acquire and implement the tools. Ideally, a single tool would be used to provide the data and reporting necessary for accurate reporting of service performance.
• Build the accounting and budgeting framework. Use existing budget as a starting point and adjust it as needed based on the new structure. Obtain invoices, staffing expenses, travel, supply, vendor services and depreciation schedules and use as input. Establish a financial calendar to specify when regular analyses and review points will take place.
• Identify, define and implement chargeback systems. Gather and analyze usage data to confirm original estimates and allocations, establish rates, and finalize reporting.
• Define metrics to measure success. Be sure to tie your metrics to business value, not technical measures. Metrics should be few in number, yet succinct and to the point. Most FM metrics will be related to financial performance.
• Build training materials and execute the training plan. Develop the training materials based on the processes you drafted and test staff members to ensure retention.
• Implement reporting and exception processes and procedures. Two types of reporting are necessary. High-level reporting, used to keep management informed, often takes the form of a dashboard, using colors to depict service quality. Be sure to report both current status and how it is trending. The second type of reporting is more detailed for use by the FM team to identify problematic service areas.
4. Initiate the ongoing work of Financial Management. Begin work to automate and produce financial reports. Be sure the reports alert the FM team when financial targets are threatened and when substantial changes in user behavior occur.
5. 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.