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At the core of financial management is understanding the true cost of IT services and communicating the value of these services to the business. Instead of abstract, technical jargon it is the responsibility of financial management to provide information to business in term they can understand. Conversely, it is also the responsibility of financial management to translate business requirements into clearly defined requirements for IT.

Processes within financial management fall into three broad catagories:

1. Budgeting - predicting the cost of IT operations for a specific period. This relies heavily on accurate business forecasts and capacity planning.
2. Accounting - tracking actual spend against budget and providing the basis for performing ROI analysis and resource prioritization. The basis for accounting depends on decisions around what to cost, how to cost it, and who pays the cost.
3. Charging - recovering the cost of IT services from the customer of those services.

Within accounting there are a many choices to be made around cost categories such as fixed, variable, direct, indirect, and capital. Additionally, decisions around cost models such as cost by customer, by service, by location, how to recover unabsorbed overhead, etc.

Cost models impact business decisions on how to expand business services as well as how to fund IT. Chargeback models also strongly influence these decisions. Chargeback models attempt to recover the costs of IT services in a manner perceived as fair and equitable. This process influences the demand for IT services by making IT costs a clear factor in business cost-benefit calculations.

In order to be effective and achieve organizational support, chargeback models must be:

• Simple - so that people can readily use them in decision making.
• Fair - people must pay for what they use but not be paying for services they do not consume. Chargeable items must be understood and their consumption controlled by the customer..
• Realistic - charges incurred by the customer must reasonably resemble the cost environment in which the business operates. Additionally, the accounting and chargeback systems must not become so elaborate that their costs exceed their value add..

Other Links

• Service Level Management
• Capacity Management
• Availability Management
• Service Continuity Management (business continuity and disaster recovery)
• Financial Management of IT Services