Through showback/chargeback programs, organizations typically save 5% to 10% on IT costs due to reduced demand and smarter use of services. That means, for example, an organization with a $1M annual technology spend will lower its technology costs by $50,000-$100,000/year.
But showback/chargeback programs are only one of the goals of an IT financial management (ITFM) (also known as technology business management, or TBM) program. A major goal ITFM/TBM programs is to run IT like a business. More than just sending invoices to your internal customers, it means showing the dollar value that IT brings to the business. (In the long run, it entails adopting sound management methods, strategic planning, IT operations, supplier and resource management, and driving customer satisfaction. But we’ll come to that.)
And don’t underestimate the power of marketing and communicating successes along the way. The importance of communicating back to the business cannot be overstated. Telling the stakeholders how the IT department is doing against budget and cost-cutting initiatives, and with strategic projects and systems availability is crucial in getting buy-in and appreciation of the value of IT.
A complete ITFM/TBM program will cover:
- IT budgeting
- Cost allocation
- Bill of shared services
- Forecasting
- Cost modeling
- Predictive analytics
- Reporting and dashboards
That’s a pretty tall order, one that cannot be achieved overnight. As you begin your ITFM/TBM program, the most important things to keep in mind are that:
- ITFM/TBM is a journey
- There is no one right place to start
So Where Should You Begin?
Every organization is different. The best place for your organization to start is to focus on an area that:
- Causes you the most pain; or
- Costs you the most in dollar, resources, or missed opportunities; or
- Will give you the quickest return (low-hanging fruit)
Once you get started, you can easily add or expand into the other ITFM/TBM service areas along the way. Just like getting on a freeway, there are many on-ramps, and the starting point will be different for every organization.
For many organizations, allocating costs to the various business units is the biggest pain point. For these customers, cost allocation should be the place to start their ITFM/TBM journey.
Another common theme is the need to generate a bill of shared services. It does not matter if it is for showback or chargeback; organizations need to allocate consumption-based costs out to the various business units or affiliates every month. These IT departments have basic cost models setup and have vast amounts of consumption data that needs to be categorized, grouped, cleaned, verified, and allocated via complex business rules to the various business units, subsidiaries, or partners.
For these companies, the process of running the data through the complex data validations, ownership hierarchies, Excel spreadsheets with sheets and sheets of lookup tables, crosswalk files, financial rollup workflows, etc. can take many person-hours of effort every month. Solving the error-prone and laborious monthly billing process should be the place to start their ITFM journey.
How to Begin
Excel is a good tool for an organization beginning down the ITFM/TBM path. To begin, your spreadsheet should include tabs for all of your business expenses as a provider of services:
- Labor details – include roles, salaries, locations, etc.
- Contract details – include vendor names, start and end dates, account number, locations, etc.
- Asset details – include vendor, location, description, depreciation method, asset life, etc.
- Labor resource planning – include roles and cost of salaries and benefits
- Contract resource planning
- Asset resource planning
- Opex labor – include all compensation (salaries, benefits, etc.) and travel expenses
- Opex non-labor – include monthly costs of hardware, facilities, telecom, software, outside services, depreciation and amortization
- Opex summary
- Any other areas you need to capture
Then there are companies out there who have started down the ITFM/TBM path and have home grown systems or processes with cost models, consumption models, and basic budgeting abilities.
Based on your expenses, you will then be able to determine the cost of delivering services to the business units (your “customers”).
Once you get underway, the various CXOs and department VPs will like what they see and want more. Most likely, pretty soon your team won’t be able to keep up with the transparency demands of the organization. Stakeholders will want more in-depth detail on the costs associated with the various services, and they’ll want to know the total cost of ownership (TCO) for the applications they use.
They don’t know it, but what they’ll be asking for is a better service cost model to help them make better business decisions. Unfortunately, IT departments don’t have the staff to build and enhance the internally developed systems or processes. That’s when it’s time to take the next step and move to a full-blown ITFM/TBM system developed by a company dedicated to helping you continue to expand your ITFM/TBM capabilities.
No matter where you are on your ITFM/BM journey or where you wish to go in the near-term, you need a partner that can get you there and help guide you. Make sure to work with a company that will help guide and mentor you on an on-going basis, not just sell you software and leave you to do all the work every month. You may have success at first with the help of expensive consultants, but your budget should not have to cover these costs indefinitely or on an ad-hoc basis. Just remember, eventually you will need all aspects of a full-fledged ITFM/TBM solution: Budgeting and forecasting, cost modeling, bill of shared services, predictive analytics, reporting, and dashboards.
How you get there is up to you, just find the right partner to work with and guide you on your ITFM/TBM journey. And remember, the hardest part is getting started. The rest will follow.
If your organization is ready for ITFM/TBM software, it’s important to first understand your data, end goals, capabilities, and requirements. To best position yourself to choose the ITFM/TBM vendor that’s right for you, be sure to download the industry white paper, “Selecting an ITFM Vendor.”
Also consider the time it will take to get you up and running and to start seeing successes. Upland ComSci can set you up for ITFM/TBM success in 90 days. Contact us to learn more about ComSci.