IT has matured in all areas including process, technology and business standing and has progressed rapidly, thus aligning various business needs. This has led the IT executives to face multitude of challenges. Traditionally, ROI on IT investments is loosely defined and mostly restricted to qualitative justification and basic quantitative analysis. The change in economic outlook and recent financial turmoil, many firms are now forced to think differently when it comes to investing in IT. Today and in the future, when CIOs and executives discuss ROI on IT investments, they are expected to think of financial benefits that impact on organization’s P&L such as revenue increases, cost reductions and or improved organizational performance. In addition, they are also expected to consider non financial benefits in terms of IT’s impact on operations and results such as better information and improved customer satisfaction.
As business demands rise, there is an increased pressure to keep down the costs and gain an acceptable ROI on IT investments. If you do not have line of sight into cost of IT services and effects of business consumption on your budget, then you might be relegated to react to many requests in a spontaneous and tactical manner. Hence, to drive the real value, achieving a more strategic approach is very crucial. Business executives are actually demanding the IT organization to provide IT cost transparency and also consumption-based metrics to understand better and know the authentic value of IT so as to manage the consumption of the organization’s IT services. The difficulty that most IT organizations encounter is twofold: People are not sure what to measure, and don’t know how to measure. This results in the need for an IT financial management to intelligently manage the cost, value and consumption of all IT services
However, the need for better IT financial management doesn’t conflict with IT finance function that is typically provided by finance organization. In fact, CIOs are trying to get their arms to the level of IT financial management maturity that is required within their organization. . Many CIOs are agreeing to the fact that in today’s IT environment, the need for IT financial management is not merely budgeting and calculating expense accounting. The goal of IT organization and its CIOs is to basically demonstrate their distinctive value to every line of numerous business units. This principle requires that IT should adhere to same operational accountability, just like other business units and departments-commonly stating that IT should operate like any other business.
The fundamental goal of any IT organization is to develop and build an integrated view of all the IT capabilities and understand their impact on other business units. Although, the IT value and costs seems to be a data problem rather than organizational problem, the complexities involved in developing the exact cost to the value metrics remain indefinable for most CIOs. Henceforth, the first step in meeting this challenge is developing an enterprise IT services financial management model. This model should include total costs for
• Projects that are IT and Business driven capital projects
• Services ( including outsourcing services)
• Maintenance (including hardware and other)
• Other (including T&E, office supplies etc)
This allows the IT organizational leaders and CIOs to collaborate with business owners about precise cost and value items. Adopting a matured IT financial strategy allows proper definition of people, process and technology that demonstrate value and success to executives and business owners. This also allows the transformation of a traditional IT financial model that was purely depicted as cost centers to a developed model that reflects a matured value alignment and risk management between IT services and other business entities.
A strong IT Financial Management thus would have a great value for IT and also the organization at large. Although, IT has been traditionally positioned as cost center, this kind of visibility and reporting available through IT financial management discipline would shift the dynamics. It can clearly reveal the cost of its services and the impact of investments. Ultimately, this makes IT placed in a fiscally responsible posture, thus improving the credibility of CIOs.