IT financial management (ITFM) tools are gaining traction among IT leaders, as many organizations zero in on identifying and controlling IT costs, and generally providing better transparency to the broader business. But for every ITFM enthusiast, there are two more IT leaders who don’t fully understand what an ITFM tool is, or what it should do for them.
ITFM tools enable technology leaders to manage their business with the same process-driven accuracy, financial visibility, and discipline as their corporate peers. In other words, ITFM tools provide visibility into precisely what IT is spending. Think of them as financial accounting for IT—a powerful tool to understand how an organization’s resources are being spent.
How do ITFM tools work?
“One of the main reasons to adopt IT financial management tools is to gain the cost insight necessary to develop a cost allocation/chargeback strategy that is transparent, and based on the actual costs of running the business,” explains Apptio partner 6fusion.
“Instead of charging a department based on their size or the number of computers, IT organizations can show actual spend numbers for each department. This allows the IT department to act more like an internal service provider, just as you would see pricing from an external service provider. The pricing of services is presented in a rational way that is also defensible.”
To arrive at this information, data is pulled directly from accounting general ledgers for software, hardware, and every IT soft cost in between. Data models are applied to combine those costs into stacks and cost centers for management purposes. Key reports are then built and made available for all stakeholders to access. And then you end up with a whole new level of visibility that enables better allocation decisions, accelerates initiatives for investments, and drives greater efficiency.
Do you need one?
An increasing number of organizations are looking to initiate or improve their IT financial management efforts with the purchase of an ITFM tool, driving growth in the market.
But before you go shopping for an ITFM tool, know why you need one. That will give you a much better basis for selecting the right tool. According to Gartner, there are five key questions to ask—and answer—before you scope out vendors:
- What is the mandate?
- What issue(s) need to be resolved and why?
- Who is the executive sponsor?
- What is driving their interest in better IT financials?
- What is the appetite for ITFM (willingness to commit resources)?
- Who has a vested interest in better IT financial management?
The answers to these questions will impact the "what" and determine the "how" of ITFM and, in turn, answer the question, "Where do I start?"
»Read more: IT planning needs its own tool
Start with your vector
Ahead of an ITFM tool purchase, IT leaders must determine a single “vector” that most closely represents their current state and near-term objectives. According to Gartner, the “optimization vector” is the most frequent starting point for exploring ITFM tools.
You’re most likely to be in the “Optimization Vector”
Those in the optimization vector share a common focus on identifying and managing costs. They are usually middle to upper level IT managers who understand the advantages of managing IT costs.
The organizations in this vector are under no specific external pressure to manage IT finances, but they are simply more open to recognizing the value of having more cost-effective IT financial management.
This, in turn, enables:
- improved IT operations efficiencies
- better spend management
- lower per unit costs
- the ability to define and defend budgets
- more accurate budgeting and forecasting product mix optimization
Other benefits of cost-effective IT management include fact-based funding decisions, improved resource utilization and increased business relevance.
According to the report, IT leaders in the optimization vector have not only the luxury of time (compared to the other vectors) but they also have limited external pressures to demonstrate cost transparency.
Gartner observes that in many cases, increased IT financial transparency toward business units is not a key CIO or CFO priority, with cost models often constructed only at the asset or technology level rather than going all the way to the business-value service level.
This allows for benchmarking and then optimizing technology components. The challenge, according to the report, is often that management and even the rest of the IT organization may not share the same vision.
Gartner’s recommended next steps if you’re in the Optimization Vector
- Calculate the cost of what you do (IT tasks) – aggregating total cost is more important than mapping cost to the ideal cost or services model.
- Improve data accuracy and sourcing. Question what data will you need, is it accurate and what it will take to access it?
- Clarify the mandate and identify an executive sponsor.
- Prioritize costing efforts – focus on the top priorities first – where priority is a function of spending/cost allocation.
- Work with the business to understand what they value (refine your products and services over time).
In our experience, every IT organization struggles with calculating the cost of IT tasks and improving data accuracy (points 1 and 2). Many are intimidated by the prospect of having to clean their data before getting started with an ITFM program.
These challenges led Apptio to build our suite of Technology Business Management applications. With Apptio Cost Transparency, you can automate the categorization and calculation of IT costs on a monthly basis, starting at the level of common cost pools and IT towers, working up to applications, service and business units. To address the data quality challenge, Apptio embedded native data remediation capabilities into our suite of TBM applications. Apptio’s platform takes customer data in any form and cleans and refines it internally. You can skip costly data cleanup projects beforehand. Learn how Apptio Cost Transparency helps you quickly get a handle on IT costs, no matter the current state of your data
Do you have a calendar view of IT financial management (ITFM) processes?
Getting IT, Finance, and Business Units on the same schedule for ongoing IT financial management ITFM processes throughout the year. ITFM processes are delayed and often incorrect when IT, finance, and business unit stakeholders do not have a view of upstream and downstream dependencies.
Keeping track ITFM timelines, dates and processes is difficult
IT financial management (ITFM) practices vary from company to company—by timing, tactics, and templates. But all organizations share the common pain of trying to manage ITFM processes in spreadsheets. Your organizations most complex domain needs something better. For many companies, it takes 3-6 months just to complete the annual budget process. That’s a lot of time and focus taken away from the critical, foundational ITFM activities like month-end close, variance analysis, and building forecasts and broader organizational milestones like QBRs, IT investment reviews, IT billing chargebacks to the business.
It’s easy to lose sight of the dependent ITFM processes—and those accountable to deliver them. We’ve worked with thousands of IT Finance professionals—we know how hard it is to keep track of your ITFM calendar.
We know the pain. Let us alleviate some of yours.
We want to provide you with a poster to map out key dates (and involved stakeholders) for your own ITFM processes.
Track to your quarterly processes in one place—and then wipe clean for your next reporting period.
»Download these assets to plan budgets & forecasts that align to business priorities and quickly adjust to changes: