CIO’s must be able to explain IT costs from the budget to customer value.
Today’s business unit leaders are demanding that the IT organization provide greater cost transparency and consumption-based metrics. Why? They know that cost transparency is critical, be able to intelligently manage their consumption of IT services and other resources.
Today’s business executives are demanding that the IT organization provide greater IT cost transparency and consumption-based metrics. Why? To better understand the true value of IT. They know that IT cost transparency is critical, because it enables them to intelligently manage their consumption of IT services.
Just for the record, the need for greater IT financial management maturity within the IT organization is not in conflict with the role of the IT finance function, typically provided by the finance organization. Many CIOs are just starting to get their arms around the level of IT financial management maturity required within their organization. They understand that in today’s complex IT environment IT financial management goes beyond basic budgeting and expense accounting practices. The end goal is for the CIO and the IT organization to clearly demonstrate their distinct value to each of the numerous lines of business entities. Some claim that this principle requires IT to adhere to the same operational accountability as other departments and business units — commonly stated as operating IT like a business. And others simply characterize this as a sound business-focused best practice.
Moving to an IT service management financial model is at the root of this requirement for greater IT financial management maturity. Why? Because the IT organization must develop a fully integrated and cross-domain view of IT capabilities and how they impact the effectiveness of business units. While the issues of IT costs and value are an executive problem rather than an IT organizational problem, the complexities of developing the precise cost to value metrics remain elusive for most CIOs.
We have found that the first step to meet this challenge is to develop an enterprise IT services financial management model. Today’s successful CIOs understand this well and have implemented a single ITSM financial management model that includes:
- costs for:
- resource consumption, and
- all line of business entities.
Though no simple task, pulling these items into a single ITSM financial management model allows the CIO and IT organizational leaders to collaborate with line of business owners about distinct value and cost items. Adopting a mature ITSM financial management strategy means defining IT people, process and technology into manageable chunks of work that demonstrate success and value to corporate executives and line of business owners. Also, doing this quickly transforms the IT organization from the traditional financial model based on cost centers to a model that reflects the maturity of risk management and value alignment between IT services and line of business entities.