FINANCIAL MANAGEMENT FOR IT SERVICES

buttermilkbouncyManagement

Nov 10, 2013 (3 years and 8 months ago)

68 views




Copyright The Art of Service

Email
:
service@theartofservice.com

, web:

http://www.theartofservice.com

,

Phone:
+61732522055

PROCESS FACTSHEET


FINANCIAL MANAGEMENT FOR IT SERVICES

Why

The IT services market can be divided by the primary methods of purchases made by end
-
users and
service providers:



Discrete


Project
-
specific contractual arrangement, with a predetermined scope of work to
be compl
eted within a given time period



Outsourcing


Annuity
-
based contractual arrangement that details how an organization will
provision services on an ongoing basis at a specified level of competency. Outsourcing
arrangements usually last between two and five
years, but may be either shorter or longer.


In both cases it is vital to have a Financial Management process implemented. Control of IT spending
is fundamental to the effective and efficient running of an IT Organisation.


Goal



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

The aims for any IT Services organisation should include:



To be able to fully account for the spend on IT Services and to be able to assign these costs
to the services delivered to th
e organisation's Customers



To assist management decisions on IT investment by providing detailed cost analysis
regarding changes to IT Services


Activities



Budgeting

is the
Process

of predicting and controlling the spending of money within the
organisation

and consists of a negotiation cycle to set budgets (usually annual) and the day
-
to
-
day monitoring of the current budgets

o

Incremental budgets (build on last year’s budget)

o

Zero based budgets (start from scratch every time)




IT Accounting

is the set of pro
cesses that enable the IT organisation to account fully for the
way its money is spent (particularly the ability to identify costs by Customer, by service, by
activity). It usually involves ledgers and should be overseen by someone trained in
accountancy

o

D
irect Cost vs. Indirect Cost

o

Capital Cost (GCA) vs. Operational Cost (GST)

o

Fixed Cost vs. Variable Cost

o

Cost Types (e.g. Hardware, software)

o

Cost Elements (e.g. PC, Local Service within the cost type ‘hardware’

o

Cost Unit (chargeable unit)




Charging

is the
activity required to bill Customers for the services supplied to them. To
achieve this requires sound IT Accounting. The detail required must be pre
-
determined.



o

Charging Policy (Pricing)

derived from corporate charging system:




Cost Price



Cost Price +



G
oing Rate



Market Price



Fixed Price





Copyright The Art of Service

Email
:
service@theartofservice.com

, web:

http://www.theartofservice.com

,

Phone:
+61732522055

PROCESS FACTSHEET

Identify Financial
Objectives
Cost
Control
Methods
Charging
Methods
IT needs of the
business activities
IT Plans
(Including Budgets)
Accounting
Charging
Feedback about
planned charges
Financial
Management
Service Level
Management

Terminology

Accounting Centre

Simply costing inputs with maybe some elements of budgeting (no billing)


Recovery Centre

Account fully for all IT spend and recover costs from the customer


Profit Centre

The IT organisation operates as a separate business unit


Notional Charging

To create cost
-
awareness without the physical exchange of money


Results



Clear, accurate budgets



Management report on
real
Costs and Charges



Pricelist (to be added to

Service Catalogue)


Cost

The costs associated with Budgeting, IT Accounting and Charging fall into 3 broad categories:



Staff: administration for Financial Management



Extra hardware and book keeping software



Support Tools


Once costs are visible, and parti
cularly when Real Charging is in place, the demand for some services
may fall. This results in reduced revenue but is not really a cost of implementation, as it is in the
organisation's interest to identify and reduce inefficient use of IT resource.


Benef
its



Increased confidence in setting and managing budgets



Accurate cost information to support IT investment decisions



Accurate cost information for determining cost of ownership for ongoing services



A more efficient use of IT resource throughout the org
anisation



Increased professionalism of staff within the IT organisation.





QUICK VIEW FINANCIAL MANAGEMENT FOR IT SERVICES MINDMAP

Copyright The Art of Service

Email
:
service@theartofservice.com

, web:

http://www.theartofservice.com

,

Phone:
+61732522055

Objectives
Activities
Roles
Benefits
Problems
KPIs
Terminology
Relationships
Financial Management
for IT Services
to provide cost- effective stewardship of the IT assets
and r esourc es used in providing IT Services
Budgeting
Determine budget method
Incremental budgeting: prior figures as basis
Zer o-based budgeting: basis of estimate for each item
Determine the budget period
Set up the budget
IT Accounting
fix ed vs variable
capital v s ex pense
depr eciation
straight line
reducing balance
by usage
direc t vs indirect
Cost type
Material
Hardware
Software
Labour
Over head
Accomodation
trans fer (other cos t centr es)
Administration
Char ging
Pr icing
Cost
Cost-plus
going rate
Mark et Pr ice
Fixed Pr ice
Billing
ser vice cost info only (no char ging)
ser vice pricing info only (notional char ging)
ser vice price billed (full c harging)
Method
Direct
Used resources
Pr oportional
Output-r elated
IT Finance Manager
Over see implementation of Financial Management proc ess
Assist in setting up the budgets and the ac counting plans
Assist with Budgeting, IT Accounting and Char ging polic ies
Gener al
Increased confidence in setting and managing budgets.
More efficient IT resources use
Higher Customer satisfaction as they know what they pay for
Investment decisions can be made on accurate information
Increased profess ionalism of staff within the IT organisation
Of Budgeting
Ability to estimate IT r unning costs
Reducing risk of over spending
Compar ison of actual costs to estimated c osts
Guar antee of money to provide agr eed Ser vic e Levels
Of IT Accounting
Availability of IT Ser vic e c osts
Better IT and Business decisions give cost-effective outcomes
Ability to account for all IT expenses
Demonstrate under- or over- consumption of ser vices in financial ter ms
Maximis ing the value/cost of IT serv ices
Costs of NOT making specific investments vis ible
For ms the basis to implement Charging
Of Char ging
The ability to recov er IT c osts in a fair manner
Method of balancing IT Ser vic es quality and quantity Customer needs
Influence demand for IT Services and so behaviour of Cus tomer
Cost Models us ed for IT Accounting ar e too detailed,
cr eating too much administr ative ov erhead
Not enough commitment from senior IT and Business management
Pr ocess not how organisation manages its finances
Char ging policies not well communicated to customer s,
caus ing unwanted behaviour
Per formance against set tar gets
How do the IT Customers per ceive the Char ging methods?
Actual costs versus Budget
Ar e all costs being accounted for?
Cost Model
Fr amework where known costs ar e recorded and allocated
to specific Customers, activities, or other categor ies
Return on capital employ ed ( ROCE)
net profit befor e tax and interest / total assets less curr ent liabilities
Return on investment (ROI)
aver age increase in pr ofit / investment
Ser vice Des k
In
cost estimates
Out
actual costs
Incident Management
In
cost estimates
Out
actual costs
Pr oblem Management
In
cost estimates
Out
actual costs
Change Management
In
cost estimates
Out
actual costs
Release Management
In
cost estimates
Out
actual costs
Configuration Management
In
asset and cost information
Out
asset value information
(c onsider depr eciation)
Security Management
In
cost estimates
Out
actual costs
Ser vice Level Management
In
Customer cost constr aints
Out
Pr icing guidanc e
Capacity Management
In
cost estimates
Out
actual costs
Availability Management
In
cost estimates
Out
actual costs
IT Service Continuity Management
In
cost estimates
Out
Out
actual costs