Financial Management

Objectives:
To provide information about and control over the costs of delivering IT services that support customers business needs.

Costing is a must! Input cost units recommended by ITIL:

• Equipment Cost Units (ECU)
• Organization Cost Units (OCU)
• Transfer Cost Units (TCU)
• Accommodation Cost Units (ACU)
• Software Cost Units (SCU)
Equipment = hardware
Organization = staff
Transfer = costs which IT incurs acting as an agent for the customer, they do not appear
as a cost against the IT department’s budget
Accommodation = buildings
Software = software

Different Cost Types:
• Fixed - unaffected by the level of usage
• Variable - varying according to the level of usage
• Direct - usage specific to one service
• Indirect or Overhead – usage not specific to one service
• Capital – not diminished by usage
• Revenue or running – diminish with usage

Charging Objectives:
• Recover from customers the full costs of the IT services provided
• Ensure that customers are aware of the costs they impose on IT
• Ensure that providers have an incentive to deliver and agreed quality and quantity of economic and effective services

Charging and Pricing Options:

Charging:
• No Charging – IT treated as support center
• Notional Charging – IT treated as cost center
• Actual Charging

Pricing:
• Recover of Costs – IT treated as a service center
• Cost Price Plus – IT treated as a profit center
• Market Prices – IT treated as a profit center

Support and Cost centers used “soft charging” in which no money changes hands; service
and profit centers use “hard costing” in which money is transferred between bank
accounts
Profit centers focus on the value of the IT service to the customer. Good Financial Management minimizes the risks in decision making

3 Main Processes:

Budgeting:
The process of predicting and controlling the spending of money within the enterprise and consists of periodic negotiation cycle to set budgets (usually annual) and the day-to-day monitoring of the current budgets. Key influence on strategic and tactical plans.

IT Accounting:
The set of processes that enable the IT organization to fully account for the way its money is spent (particularly the ability to identify costs by customer, by service, by activity).

Charging:
The set of processes required to bill a customer for the services applied to them. To achieve this requires sound IT Accounting, to a level of detail determined by the requirements of the analysis, billing, and reporting procedures.