Process Objective: To provide guidance on how to design, develop and implement Service Management. It is about ensuring that IT organizations are in position to achieve operational effectiveness and to offer distinctive services to their customers. Its ultimate goal is to make the IT organization think and act in a strategic manner.
Part of: IT Service Management
Processes of ITIL Service Strategy
The following processes are part of the ITIL V3 core discipline Service Strategy:
Service Portfolio ManagementProcess Objective is to decide on a strategy to serve customers, and to develop the service provider's offerings and capabilities.
Financial Management
Process Objective is to manage the service provider's budgeting, accounting and charging requirements.
ITIL The Financial Management Process
Part of: IT Service Management
Processes of ITIL Service Strategy
The following processes are part of the ITIL V3 core discipline Service Strategy:
Service Portfolio ManagementProcess Objective is to decide on a strategy to serve customers, and to develop the service provider's offerings and capabilities.
Financial Management
Process Objective is to manage the service provider's budgeting, accounting and charging requirements.
ITIL The Financial Management Process
One of the key function of IT services is to
provision stewardship of the IT assets and resources of the organization. This
is a key component to managing your organization. Financial Management presents
the foundation for planning and executing while also marketing the value of IT
to maximize efficiencies. To meet the main objective for IT financial
management, organizations commonly have the following processes:
§ Budgeting - The budgeting process predicts and controls expenditures
within the organization. This normally is yearly periodic cycle to set capital
and operating budgets. Budgets are commonly closely monitored for variances,
which will need to be explained.
§ IT accounting - The goal of the IT accounting process is to track how much
money an IT organization spends. Additionally, IT accounting helps to justify
expenditure on new and better services. Commonly a financial analyst within IT
or finance is accountable for IT accounting.
§ Charging - Charging is the process of billing the customer for
services rendered. Unlike budgeting and IT accounting, which are required in
the implementation of financial management for IT services, charging is
optional.
Budgeting enables a department to do IT
accounting, which in turn helps one account for the budget. The budgeting
process yields financial targets, and the IT accounting process portrays the
cost models for all known costs.
The charging process, however, is optional. If
your organization chooses to include charging, it would be able to recover the
costs of IT services, or even make a profit, depending on the management
philosophy. This process has not be common in the healthcare it organizations.
One key item to consider for a charge back process is to effectively implement
it so that it brings opportunity for discussion on the value of IT services.
Commonly charge back process implemented poorly bring untruth of the
organization and justify a poor ranking on the healthcare it credibility scale.
The primary objective of financial management
for IT services is to provide cost-effective stewardship of the IT assets and
monetary resources.
An organization's expenditures are categorized
into different cost types. Cost types are broad categories of costs which can
be utilized for assigning various cost elements.
There are six commonly defined cost types. The
hardware, software, people, and accommodation cost types are self-explanatory.
However, the other two are sometimes a little more difficult to understand:
§ External service - These are for services obtained from other companies – an
outsource vendor.
§ Transfer - These are costs associated with internal goods or services
sold or provided from one part of an organization to another. Hardware,
software, people, or accommodation may be regarded as transfer costs. For
example, your organization may have a center of excellence in integration. All
integration service costs are transferred to the health system from the
regional organization.
Each cost element in an IT budget has to be
identified. Classifying cost elements within the commonly defined cost types
will help you ensure that all cost elements are identified.
To run an IT organization as a business, it's
essential that you identify and understand all the costs which are IT’s
responsibility. If an organization has an IT accounting process in place, then
it most likely also has implemented financial management for IT services.
The IT accounting process is one of the three
main processes of financial management for IT services. IT accounting helps to
justify expenditures on new and better services. For financial purposes, once
you have determined what your cost elements are, you may find it helpful to
classify them further. Additional classifications of cost elements are:
§ direct costs
§ indirect costs
§ fixed costs
§ variable costs
§ operational costs
§ capital costs
Another consideration in IT accounting is
determining the depreciation of fixed assets. The methods for assessing
depreciation should be appropriate to the types of assets and their uses in the
business. The decision on which depreciation method to use for fixed assets is
based on the method used by the organization for other non-IT assets.
The three most common methods of assessing
depreciation are the:
§ Reducing-balance method —This method applies a percentage—40 percent in the first
year, 30 percent in the second and last years—of the capital cost, which is
written off the net book value each year. The net book value is the difference
between the original cost of an asset and the accumulated depreciation to date.
§ Straight-line method —This depreciation method is the most common, where an equal
amount—usually a fixed percentage of the purchase cost—is written off the value
of the asset each year. This results in the item having a zero net book value
after a preset number of years.
§ By-usage method —This is the method in which an asset's depreciation is
written off according to the extent of its use. It is common to estimate the
total useful life of an asset and to calculate the proportion of the usage
during the year.
The charging process requires billing customers
for the delivered services in order to recover revenue. Financial management
for IT services is responsible for drawing up a charging system. However, bear
in mind that within IT financial management, charging is an optional activity.
That's because the concept of charging is often
perceived as bureaucratic or too difficult to implement fairly. Organizations
that implement charging normally introduce it to recover revenue for all the
costs incurred for the delivery of IT services. Other reasons why an IT
organization may introduce charging are:
§ to reduce overall costs
§ to control customer spending
§ to become aware of non-cost-effective areas
§ to match services to justifiable business needs.
In addition, a charging system should help an
IT organization determine the most suitable charging policies for its business
and shape customer and user behavior to ensure optimal return on the
organization's IT investment. To achieve these goals, IT organizations may
consider different charging systems such as:
§ differential charging —Differential charging is useful when setting different
charges for different usage of the same or similar services.
§ notional charging —Notional charging helps prepare an organization for setting
up the initial charging system.
§ full charging —Full charging entails recovering revenue for all costs
associated with providing an IT service.
Business divisions may make unrealistic,
competing, or unjustifiable demands on the available fixed resources. One way
to counter these demands is to implement a charging system.
A charging system should be simple, fair, and
realistic. You and your organization will want to consider four factors before
implementing any of the three charging systems. They are:
§ level of recovery of expenditure required
§ desire to influence customer and user behavior
§ ability to recover costs according to usage
§ control of the internal market
Setting agreed-upon rates for charging
customers is referred to as pricing. Charging is the process that is used to
bill customers for the delivered services.
Five common pricing methods to consider are:
1.
cost
2.
cost plus
3.
going rate
4.
market price
5.
fixed price.
Whichever charging or pricing method you
choose, it is crucial that your customers know your choice. That way they can accurately
tailor their budget forecasts and service level requirements. It is also
important to understand how to record cost elements to their corresponding cost
type and classify them appropriately.
Organizations must have a dedicated finance
manager who is responsible for implementing and maintaining financial
management for IT services.
IT financial management revolves around the
following three processes:
§ Budgeting —This is the process of predicting and controlling
expenditures within the organization. To effectively carry out this process,
organizations use a periodic negotiation cycle to set budgets as well as the
day-to-day monitoring of current budgets.
§ IT accounting —The goal of the IT accounting process is to track how much
money an IT organization spends. Additionally, IT accounting helps to justify
expenditure on new and better services.
§ Charging —This is the process of billing the customer for services
rendered. Unlike budgeting and IT accounting, which are required in the
implementation of financial management for IT services, charging is optional.
IT finance managers can ensure that financial
management operates efficiently and effectively through continual communication
with other IT service management processes and the organization's customers.
All the IT service management (ITSM) processes must work with one another for
IT service management to be effective. Financial management for IT services is
no exception.
IT financial management has particularly close
relationships with the following processes:
§ Service level management (SLM) —Service level management negotiates with
financial management about the costs of meeting current and new business
demand. SLM is the service delivery process that entails planning, agreeing
upon, and monitoring service level agreements.
§ Capacity management —Capacity management supports investment budgeting,
cost-benefit analysis, and investment decisions. Capacity management also provides
essential information for charging for capacity-related services, such as the
allocation of network capacity.
§ Configuration management —Configuration management stores budgeting and IT accounting
information for financial management in the configuration management database
(CMDB). Financial management provides configuration management with cost
information.
When implementing financial management for IT
services, keep in mind that the process has particular dependencies and
responsibilities with respect to other ITSM processes.
There are a number of common potential problems
related to the implementation and ongoing operations of financial management
for IT services, particularly with IT accounting and charging.
Common problems associated with the implementation
and operations of financial management for IT services are:
§ Lack of management commitment —This is a potential problem because senior managers may not
understand the benefits gained from IT financial management and resent the
additional overhead.
§ Difficulty quantifying indirect costs —This is a common problem of financial
management for IT services. Finding an appropriate and fair strategy for
distributing all costs of a service to the proper group can be difficult.
§ Dependence on other ITSM processes —IT financial management relies on other ITSM
processes to deliver information. If the information is delayed, the process
will not function effectively or efficiently. The timing of the delivery is
essential in the execution of financial management.
§ Finding a skilled finance manager —Finding personnel who are familiar with both
IT and accounting can be one of the biggest challenges of implementing
financial management.
§ Lack of cost documentation —Very little documentation exists about how to record and
monitor costs, which means that IT personnel don't always accurately record and
monitor the costs that would help the finance manager implement an effective
charging system.
In addition, certain costs are associated with
implementing, maintaining, planning, and managing financial management for IT
services such as:
§ Additional computing resources - These include extra resources such as network sniffers,
needed to automate and facilitate IT accounting and charging, and barcode
wands, needed to swipe asset tags and facilitate inventory audits.
§ Tools - The purchase and support of tools, such as software and
hardware required for carrying out the main financial management processes.
§ Administration and organization - These costs include training staff to implement
and maintain financial management.
You will find that there will always be
problems and costs associated with implementing financial management in IT
services, but most finance managers agree that the benefits easily outweigh the
problems and costs.
