Financial Management for IT Services


Goal – Primary Objective
• To provide cost-effective stewardship
(management) of (ALL) the IT assets and financial resources used in Services


Why Financial Management
• Identify the actual cost of services provided • Provide accurate and vital financial information to • • • •

assist in decision making Make Customers aware of what services actually cost TCO Assist in the assessment and management of changes Help influence customer behaviour Positioning for charging


• Accounting and Budgeting (mandatory)
- Understand costs involved in providing a - Prediction of future costs - monitor actual against predicted costs - Account for monetary spend over given period

• Charging (optional)
- Recovery of service costs from Customer - Operate IT Division as a business unit if required

IT Financial Cycle
Business IT Requirements IT Operational Plan (inc. Budgets) Cost Analysis (Accounting) Charges

Financial Targets Costing Models Charging Policies

Feedback of proposed charges to business (effects behaviour)


Cost Model
The Cost Model will consist of COST ELEMENTS

• • • • • •

COST TYPE Transfer (Cross Charges) Hardware External Services Software People Accommodation

COST CATEGORISATION Capital OR Operational Direct OR Indirect Fixed OR Variable


Key elements in determining the cost of a service
• INDIRECT COSTS – NOT directly attributable but

• ABSORBED OVERHEADS – Total cost of indirect

materials and expenses that are NOT passed onto the customer.

• UNABSORBED OVERHEADS – Total cost of Indirect
materials; wages; expenses that are apportioned and added to the cost of each service.

• DIRECT COST – Directly attributable.


• Based against Organisational policy on IT • •
- overhead / break even / profit centre Prices should be simple, understandable, fair and realistic Charging mechanism to support policy
Cost: Cost plus: Going rate: Market rate: Fixed Price: Price=cost Price=cost +/-X% Price is comparable with other internal groups (internal X charge rate) Price matches that charged by external suppliers (open market price) Set price is agreed for a set period based on anticipated usage


• • • • • • • •
Reduced long term costs Increased confidence in managing budgets Accurate cost information More efficient use of IT Ensuring funds are available to provide service Enables the recovery of costs Influences customer behaviour Allows comparison with alternative providers



Exam Tips
• ABC of Finance
Accounting (MAN) Budgeting (MAN) Charging (OPT) You must have a cost model before you can charge Charging shows Total Cost of Ownership THE SPA – Cost Types Overhead or indirect cost total cost of indirect materials wages and expenses. Direct cost can be traced in full to a product or service, cost centre or department e.g. Wages Indirect Cost cannot be traced directly in full to product or service, cost centre or department because it has been 10 apportioned.

• • • • • •

Exam Questions
• Without a good Accounting System you cannot: • • •
Know the full cost of services provided Judge the efficiency of Problem Management Recover costs related to usage, should you wish

Which of the above is true? A 1,2 & 3 B 1 & 3 only C 1 & 2 only Note! The question is asking you is 2 or 3 correct as 1 appears in all answers and must be correct.

Exam Questions
• Consider the following statements: • Customers should always be invoiced for the IT •
services they use The only reason services are charged for is to make customers aware of the costs involved in using those services Both Only 1 Neither



Exam Questions
• Which of the following is NOT the concern of IT Financial
Management? A B C Telephone charges Invoicing Differential Charging (High and Low Tariffs) – Demand Management Method used in CAPACITY MANAGEMENT D Reviewing IT service quality


Exam Questions
• Which of the following statements on IT Financial Management is
correct? A An IT Financial Manager identifies the costs incurred by IT and might propose prices for the services supplied B In order to set up Budgeting and Accounting, SLA’s and OLA’s need to have been agreed C It is only possible to be cost conscious if the customer is charged for services (hinting at TCO) D IT Financial Management must agree charges with the customer before establishing a Cost Model (Cost Model comes before charging)