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Advice and Information for Finance Professionals

How to Get Better Insight Into the Value of IT

Guest Author

By Bart Stoehr, IP Program Director, Edgewater Ranzal

Within an organization, technology is mission-critical to most business strategies, and IT costs represent a significant portion of back office spend.

Among their many responsibilities, the CFO and the CIO must make sure that:

  • Technology spending is aligned with business strategy
  • Business applications and end-user services are delivered efficiently and cost-effectively
  • Coherent project portfolios that grow and transform the business are created and nurtured

Within this new economy, a key ongoing goal of the CIO is to make sure that IT is aligned with business strategy.

Generally, this IT-to-business strategy alignment is achieved in two ways:

  1. Running the business: Providing a cost-effective level of internal services necessary for sustaining business activity.
  2. Building the business: Managing and delivering portfolio development projects that are prioritized and aligned with all key business initiatives aiming to improve efficiency and aid in gaining competitive advantages.

The Nature of the Problem

One challenging pattern we see time and again is the ongoing disconnect between the CIO and the CFO.

Some might say this disconnect is an inevitable result of the fact that technology is moving so fast and we don’t always have the time to stop and assess its value. Understandably, it can be difficult for a CFO to get away from all the checks and balances just to get the financial books closed, let alone turn attention to the books which measure performance at greater depths like line of business.

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In general, as a function of his or her role, the CFO does not talk servers, desktop deployments, applications or other semantics of the technology business. Conversely, with many companies establishing technology shared service centers, pressure is placed on the CIO to operate the business of IT with the same financial disciplines the CFO requires of all lines of business. The CIO must connect the value of IT services and capabilities to internal business partners.

To achieve this, IT Finance teams require performance management solutions that are IT-specific, yet are connected to Finance, to ensure efficient allocation of resources and effective delivery of internal services.

Part of the CFO’s role is to look at the technology projects and initiatives and think about how all of this technology is adding value. CIOs have to fill information voids, while also building their own financial models and performance management book of record using their own resources.

These two seemingly differing views of value can be hard to navigate and leverage.

If two divergent approaches are not connected in a common view among the key stakeholders, then—more often than not—there is ongoing value-related confusion. Ultimately, the dissonance between the line of business owners can stall or even paralyze decision-making.

A Better Language Is Needed

For the good of your organization, it’s imperative that the CIO and the CFO speak the same shared language of value, and that they connect in an effort to move forward in the most aligned and productive manner possible.

Speaking a shared language—one that offers a unified financial model view and is based on shared definition of value—is a key to finding a solution. The discipline of IT financial management (ITFM) is about equipping both of these executive-level offices and their teams with a better language.

With an ITFM solution, you are able to:

  • Reduce the time that IT Finance spends on managing business processes, providing more time for value-added analytical activities
  • Give IT managers more detailed, timely, accurate data to better understand the cost and effectiveness of the services and projects they deliver
  • Provide line-of-business managers with cost transparency into IT allocations and charge backs, allowing them to better align their consumption of services with their business goals

ITFM focuses on these finance business processes:

  • IT planning: Budgeting and forecasting of IT operating and capital spend.
  • IT costing: Linking supply-side financial cost structures with demand-side consumption for services and projects.
  • IT charge backs: Equitably charging lines of business for internal services and projects performed (or "show back").

IT Finance organizations typically manage these processes through a series of multiple systems and offline spreadsheets. These processes are not ideal, as they are inefficient and ineffective at measuring results.

Our preferred solution for IT service costing is based on Oracle Profitability and Cost Management Cloud, a cloud-based, packaged performance management application. It offers a rules engine for cost allocations, embedded analytics and data management platform.

When implementing the solution, the following were top priorities for our team:

  • That it required no large initial investment
  • That it was accessible to all
  • That it was always up-to-date
  • That limited IT involvement was needed

Oracle IT Financial Management Solution Overview

The ITFM solution—a joint effort with Oracle and based on valuable feedback and results from multiple Ranzal customer implementations—offers all of the following in one package:

  • Pre-packaged content for cloud or on-premises
  • Pre-built data model
  • Pre-built costing model and reporting content
  • Pre-built interface specifications

A key component of the IT costing and chargeback template is its approach to modeling IT like a service business, which includes the following modules:

  • Modelling of financials and projects: This first step is focused on modelling financial projects, allowing you to combine multiple data sources, perform cost center allocations and, for those customers without an existing project costing system in place, to perform basic project costing and project allocation functions.
  • Complete costing of IT operations: This second pillar of the solution provides a flexible framework that allows you to combine data from multiple sources, perform resource costing and perform service costing.
  • IT as a business service provider: This third leg of the solution considers catalogue and bill rates, contribution cost trace, consumer show backs and consumer charge backs.

We Have Options, You Have Options

Our flexible maturity model allows customers to start where they feel most comfortable, and progress in a way that is focused on maximum flexibility for maximum effectiveness. No one size fits all, and we believe in starting right where you are. 

Are you getting the most out of your profitability and cost management solution? Take the Edgewater Ranzal Profitability & Cost Management Improvement Index (PCMII) and see where your organization stands. For more information or to request a demo, email us.

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