For an in-house organisation, the goal should be:

“To provide cost-effective stewardship of the IT assets and resources used in providing IT Services.”

In a commercial environment, there may be a goal statement that reflects the profit-making and marketing aims of the organisation.

The aims for any IT Services organisation should include:

“To be able to account fully for the spend on IT Services and to attribute these costs to the services delivered to the organisation's Customers.”

“To assist management decisions on IT investment by providing detailed business cases for changes to IT Services.”

You can see that financial management for IT Services is not just budgeting, but about being cost effective; however, budgeting is a key component of this process. The SLM goals state: “in line with business or cost justification,” and this process is where cost justification resides. ITIL often uses the phrase, “fit for purpose” when talking about costs. This is a key phrase because it relates to money being spent wisely on IT Services. For example, it may take X dollars to provide 99.999% availability, but how much more would it cost for 100% availability? The cost may be disproportionate; therefore, 99.999% is deemed to be “fit for purpose.” Conversely, why work to provide 99.999% when the customer only wants 50% availability? This could be seen as an unwise decision if some of that finance could be spent on improving other IT areas or to reduce the overall costs.

For the purposes of this report, an in-house organization supports only internal staff and does not have chargeback. For those in a commercial environment, this is either chargeback for internal customers or when external customers are supported and charged. Let us now investigate a breakdown of the financial management goals, first for an in-house organization:

To provide cost-effective — Small goal, but huge implications, because poor stewardship will soon be halted by a change of management or by being outsourced. The expression “cost effective” can be very abstract when it relates to IT Services. For example, some organizations will argue that the lowest cost is the best cost, whereas others will argue that it is better to invest in quality services. Often, cost effectiveness is driven by budget limits rather than solid business decisions. However, for this goal, you have to look at “cost effective” as a phrase within the overall goal because whatever terms have been set down by budgets or other criteria, IT finances must still be managed to protect and grow the IT investment. Do you have a clear understanding of what “cost effective” means in your IT organization? Are your driving factors to reduce costs, maintain quality, or something in-between? If you do not have a clear statement, then managing your finances becomes very difficult — a clue is when decisions involving cost take too long and generate more arguments than they should. For example, you can always bring doubt into somebody’s business plan by saying it is at too high a cost or will result in poor quality, depending upon the thrust of the financial argument in the business case.

Stewardship is word commonly used in UK English and has many potential meanings; for example, here are some synonyms for stewardship: custodian, curator, keeper, superintendent, supervisor, and guardian. Looking at this list of synonyms, it easy to see why stewardship was chosen, because each one of them is relevant to this goal. Note that the stewardship synonyms relate to supervising and guardian rather than managing and ordering. This is important because each person in IT needs to understand financial management as it relates to their role and responsibilities. So, stewardship means guiding and leading, while cost effective delimits the spending levels and objectives.

The IT assets and resources used in providing IT Services — Before we can explore this component further, we should remind ourselves what ITIL means by an asset:

“Component of a business process. Assets can include people, accommodation, computer systems, networks, paper records, fax machines, and so on.”

So, assets must be registered and controlled if they can be guided by cost-effective stewardship, and there is an ITIL process especially designed to manage those IT assets: Configuration Management. Do you have your assets in a central database? Do you understand the costs as they relate to those assets? If not, you are not in a position to manage your IT finances effectively. Now let us look at what ITIL means by resources:

The IT Services section needs to provide customers with the required services. The resources are typically computer and related equipment, software, facilities, or organisational (people).

At first glance, the definition of “asset” and “resource”are very similar, but there is a key difference: While an asset is a component, a resource requires a number of assets to provide a service; e.g., providing the email service requires many assets. In many cases, an asset may be shared among numerous resources (for example, the asset is a server but many services are using that one server as part of their resources).

So to meet this goal component, you need to not only know the costs as they relate to your assets, but how they are apportioned to the services that you are providing to your customers. In this way, you can provide the cost structure that will allow clear allocation of costs.

The goals described under in-house financial management for IT also apply in addition to the goals for commercial environment. Therefore to meet the commercial goals you must also be meeting the in-house goals already described:

To be able to account fully for the spend on IT Services — This means that you must have in place financial software and processes that will allow you to manage your costs so that you can account for your IT spend. So, for example, do you know how much your email service costs to run each month? This would include the costs of assets, processor time, changes, calls to the service desk, and telecommunications, and so on. To fully account for the spend means that you are running IT as a business.

To attribute these costs to the services delivered to the organisation’s customers — Following from the previous element, do you attribute the costs of your email service to your customers? To do this, you will need a formula to calculate costs. An example could be a percentage of costs for the service as used by a customer; another could be a “metered” approach based on a pay-as-you-use approach. Whatever method you use to meet this goal element, you must know the cost of all your services as they relate to your customers. Do you have formulas for attributing costs? If not, you cannot meet this goal element.

To assist in making management decisions about IT investment by providing detailed business cases for changes to IT Services — This is a fairly straightforward element, but it does depend upon all the other elements in financial management being met. Without those elements, the information to provide business cases does not exist. Do not confuse this statement with just providing costs (e.g., cost of server) because a business case will require data for Return On Investment and other key business decision criteria. If you are not meeting all of the other criteria, you cannot meet this one.

Financial management of IT is becoming increasingly important to managing costs and remaining competitive in the marketplace. Those organizations that practise good financial IT management will benefit most, making IT a business asset and not a business expenditure. So, meeting these goals is good for both IT and the business.

Business alignment indicator — Alignment between IT and its Customers depends upon how IT finances are managed within an organization. Therefore, it is very difficult to identify many business alignment indicators here. However, no matter what financial controls embraced by an organization, customers should be fully aware of the costs of their IT Services at all times. For example, they should know the costs of the incidents they report to the service desk. All customers should be able to view the costs of their IT Services online and also receive regular periodic reports. ITSM should also report upon the Total Cost of Ownership (TCO) as specified by ITIL:

“Calculated including depreciation, maintenance, staff costs, accommodation, and planned renewal.”

If this is impossible because you do not have the required software, you should at least report on direct costs, such as the cost of handling an incident. Customers should be able to view online any ITSM costs that are attributed to them. ITSM should regularly discuss their costs with the customers to minimize costs (e.g. discouraging unnecessary calls to reduce the number of Incidents).

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