Run IT Like a Business with Financial Visibility

Transcription

1 Run IT Like a Business with Financial Visibility Understand overall IT spending, its business value, and how much you re investing in innovation Start

2 What will you tell the CFO about IT costs? She wants to know how you spent last year s budget, which business units consumed the most services, and what you need for the coming year. She also wants a plan for investing in innovation without increasing overall costs. If you don t have visibility into your IT costs, these kinds of requests can be a big problem. You may not actually know how much your whole organization including IT groups and business units is spending on IT. And even if you know what IT costs companywide, you may not be able to quantify its business value, break out investments in innovation, or understand service consumption. A strategy that provides financial visibility can help you shine a spotlight on IT costs. You can gain insight into overall expenditures, understand how much you spend on routine maintenance vs. innovation, map IT investments to business goals, and accurately allocate costs to business users. You can also earn the trust of business units by communicating IT s value in a language they understand. And, best of all, you can run IT like a business. This ebook outlines best practices for transitioning from piecemeal financial management and reporting to a comprehensive financial visibility strategy. Transparent governance processes and budget and performance monitoring are important factors in regaining the trust of business units. Gartner Source: Gartner 2 ebook Run IT Like a Business with Financial Visibility

3 A quick assessment of financial visibility The following questions can help you zero in on your most critical financial visibility challenges: Do you have difficulty answering the question how much of your budget is spent running the business vs. changing the business (innovating)? Do you find it difficult to respond when asked what your services costs are? Are you concerned that you can t quantify all the costs of delivering your applications and services? Do you have difficulty explaining the value of IT to your organization or linking your cost drivers to service consumption? Do you have trouble identifying where to take out cost when you need to reduce your budget? Does it seem like IT and the business are speaking in different languages when it comes to discussing IT service investments? Any yes answer to these questions represents an opportunity for improvement. 3 ebook Run IT Like a Business with Financial Visibility

4 Objective guidance to drive financial visibility Explain or defend the business value of IT investments by matching consumption to cost Use financial information to drive behavior (i.e. drive adoption, switch usage to more cost-efficient tools, manage old assets to retirement) Forecast investments needed to meet service commitments and comply with regulatory and legislative requirements Understand how IT investments affect business performance by linking them to service performance data Provide greater transparency in financial investment discussions with the business 4 ebook Run IT Like a Business with Financial Visibility

5 The risks of poor financial visibility Poor financial visibility can make it harder for IT to get the funds it needs for innovation and create unnecessary conflicts with business units. Here are some common problems that often result from incomplete insight into IT costs: The perception that IT is expensive. When business units see IT costs without a corresponding use or value metric, it creates the impression that IT investments are overhead and not strategic. Arbitrary budget cuts. When business units and finance organizations don t understand the connection between IT investments and business services, they may suggest arbitrary cost reductions, unaware that their proposed cuts could affect business performance. Random cost allocations. When IT costs are not accurately mapped to service usage and allocated at random (e.g., every department pays X), business units that are not heavy users may come to resent IT. Tension between IT and business units. When IT investments are not accurately mapped to business value and innovation, business units with revenue targets can come to feel that IT is getting a free ride rather than contributing to the bottom line. 5 ebook Run IT Like a Business with Financial Visibility

6 Best practices for improving financial visibility The best practices in this section are based on our real-word experience helping our customers improve financial visibility and service performance. Adopt a business-oriented approach Your IT organization needs to start running IT like a business, which means capturing financial and business performance metrics in addition to critical technical metrics. When you look at IT through a business lens, it will be much easier to provide the kinds of insights lines of business and corporate finance teams require. Build a consolidated CMDB that captures cost drivers and categories We recommend designing a consolidated, service aware CMDB to capture all critical infrastructure, business services, and reporting categories across your organization. To build your data model, you ll need a Configuration Management leadership team made up of key stakeholders, including IT asset managers, application managers, and staff from incident, process, and change management. For your CMDB to support cost visibility, you must ensure your CMDB captures all cost drivers and categories, such as hardware, software, labor, projects, and contracts. For a more detailed explanation on best practices for CMDBs, read our ebook on Service Visibility. 6 ebook Run IT Like a Business with Financial Visibility

7 Define a meaningful IT cost model Your cost model should make the crucial connection between the way services are used and the cost of delivery. We suggest identifying core IT-supported business services that may be mapped to business units. These services and the business units that are consuming them should be defined in your CMDB. Once established, the cost model can be leveraged through a better understanding of COGS (costs of goods sold) to drive pricing and margin optimization. Provide IT cost information in a way that business will understand Your financial management reports should provide accurate, comprehensive cost allocations based on actual service usage as well as quantify service value. To do this, you may need to integrate financial software and data sources such as General Ledger and departmental spreadsheets with your service delivery system of record. You will also need to map IT services to the business units that use them and identify who on the business side is responsible (and accountable) for requesting IT services. We suggest working with business units to develop a financial reporting approach that they will find meaningful as a starting point for ongoing collaboration with IT. Depending on your organization s priorities, they may want to simply see service consumption by team (showback) or actually invoice those teams (chargeback) according to their usage. 7 ebook Run IT Like a Business with Financial Visibility

8 Important financial visibility KPIs We suggest managing and tracking costs through these KPIs: Variability of cost and accuracy percentage: This metric refers to the variance between actual project costs and planned project costs. It can help you determined how well you re forecasting and managing costs. Discretionary spend as a proportion of overall spend: This metric uses discretionary spending as proxy for spending on innovation. Cost of IT delivery per unit of measure: You can use this metric to compare your organization against industry benchmarks for cost of IT service per service and user. Change in business service cost: Management will generally want to know if business service costs are trending upwards or downwards, and why. 8 ebook Run IT Like a Business with Financial Visibility

9 ITBM: The missing link IT Business Management (ITBM) helps IT demonstrate its value to the business and identify the true costs of all services, rationalize investments to focus more on innovation, and transform the delivery of new services through lean execution methodologies. Providing greater financial visibility to business units can help those business units trust IT as a strategic partner. It also provides a solid foundation for planning future investments to foster innovation and meet business needs. 9 ebook Run IT Like a Business with Financial Visibility

10 Learn more Are you ready to discover more about ITBM? Visit our ITBM resources page at Copyright 2016 ServiceNow, Inc. All rights reserved. ServiceNow, the ServiceNow logo, and other ServiceNow marks are trademarks and/or registered trademarks of ServiceNow, Inc., in the United States and/or other countries. Other company and product names may be trademarks of the respective companies with which they are associated. SN-EB-ITBMCostVisibility ebook Run IT Like a Business with Financial Visibility