IT financial Management is interpreted as the practice of controlling the charging and or value of IT investments and costs. Like all other departments, IT too has been influenced by financial management, adopting the scope, rules and procedures defined by the organization’s Financial Department.
Activities like asset management, budgeting, accounting, and charging have grown in the financial management department and today are required practices that must be fully implemented throughout the IT organization.
This sounds good in theory. The problem lies in implementing the level of granularity of financial management activities for IT that was designed for the overall management of functional organizations – not IT organizations.
On one side, the IT organization needs to respect and apply the company rules regarding financial matters, and on the other side the day-to-day management of IT investments, complexity and costs lead to specific views, rules and activities that must be managed and managed differently than functional organizations. Therefore, outside of the traditional domain and control of the financial management organization, several financial topics are often managed by IT, with a consistent but different and specific approach requiring a mix of IT and financial skills.
An example of this is the evolution of IT service management (ITSM). One of the main goals of the modern IT organization is to supply IT services, aligned to the needs of the business, with agreed characteristics, levels of quality and at optimal costs.
This “service orientation” is a tremendous shift in the IT perspective, driving a change of the point of view of many traditional activities. The benefits of this shift are relevant for financial management, as it has made the efforts of the IT organization and the cost of IT services much more transparent and comprehensible for the business.
Although this may all seem to be straightforward and simple, it is often not the case. Defining a budget per IT service is absolutely different from and more difficult than budgeting for organizational functions. Furthermore, the financial department and the overall financial management activities may be challenged to address this important change. The traditional financial department and the designated company financial management policies, procedures and systems, may not be ready to deal with this shift. For example, financial management systems may not be ready to address the services as a required dimension in budgeting and accounting activities.
IT financial management with the service perspective in mind is core to the success of today’s IT organizations as a valued organization. This new perspective of Financial Management for IT Service is quite different from the traditional one, and is becoming more and more important, with the growing acceptance of ITSM best practices, such as ITIL, or standards like ISO/IEC 20000.