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Financial Management for IT Services

Financial Management for IT Services – Goals & Objectives

The goal of Financial Management for IT Services is to secure the appropriate level of funding to design, develop and deliver services that meet the strategy of the organization.
Here are the objectives of Financial Management for IT Services:

Defining and maintaining a framework to identify, manage and communicate the cost of providing services.
Evaluating the financial impact of new or changed strategies on the service provider.
Securing funding to manage the provision of services.
Understanding the relationship between expenses and income and ensuring that the two are balanced according to the organization’s financial policies.

The main purpose of Financial Management for IT Services is to provide operational visibility, insight and superior decision making capabilities to the organization (service provider).

Key Terms
Here are the ‘ABC’ of Financial Management for IT Services.

  1. Accounting

  2. Budgeting

  3. Charging

This is the process that enables the IT organization to account fully for the way its money is spent (particularly the ability to identify costs by customer, by service and by activity). It usually involves accounting systems, including ledgers, charts of accounts, journals etc and should be overseen by someone trained in accountancy.

This is the process of predicting and controlling the income and expenditure of money within the organization. Budgeting consists of a periodic negotiation cycle to set budgets (usually annual) and the monthly monitoring of the current budgets.

This is the process required to bill customers for the services supplied to them. This requires sound IT accounting practices and systems.

Major Activities of Financial Management for IT Services
Here are the major activities performed under Financial Management for IT Services:

  • Service Valuation – To understand if the service is worth investing / continuing.

  • Demand Modeling – To shift or influence demands.

  • Service Portfolio Management – Right services and their cost / price are captured in the portfolio and catalog.

  • Service Provisioning Optimization – Improving time to market and provisioning of service by ensuring right funding is available.

  • Planning Confidence – With the effective Service Valuation, help in planning and increase the confidence.

  • Service Investment Analysis – Cost / Benefit Analysis and recommendations to make decisions.

  • Budgeting, Accounting & Charging

  • Compliance – Ensure compliance in financial issues.

  • Variable Cost Dynamics – Analyze and Recommend Fixed Cost or Variable Cost Models.

These activities are performed by the key Role in Financial Management for IT Services which is Finance Manager. Finance Manager also provides oversight in some more activities like:

  • Assist to identify, document & agree value of services to the business.

  • Participate in Demand Modeling activities (incentive or penalty).

  • Provision of cost information for Service Portfolio Management.

  • Maintain regulatory compliance regarding financial issues.

Business Relationship Management
Business Relationship Management is a very important process in Service Strategy which help building and maintaining the right professional relationships with the customers.

The Purpose & Objective of Business Relationship Management are:

  • To establish and maintain business relationship.

  • To identify customers business needs.

  • To identify changes to customer environment which potentially will impact value of IT services.

  • Establish formal complaint and escalation procedure for customers.

  • Mediate in case of conflicting requirements from different business.

  • Identify technology trends which potentially will impact utilization of services.

The key role in Business Relationship Management is Business Relationship Manager (BRM), sometimes termed as Account Manager or Customer Relationship Manager (CRM).

For internal service providers business relationship management is typically executed between a senior representative from IT (larger organizations may have dedicated BRMs) and senior managers (customers) from the business units.
In external service providers business relationship management is often executed by a separate and dedicated function of BRMs or account managers each one dedicated to a customer or to a group of smaller customers.

The emphasis here is on maximizing contract value through customer satisfaction. Business relationship management focuses on understanding how services meet customer requirements. To achieve this, the process must focus on:

  • Understanding and communicating business outcomes that the customer wants to achieve.

  • Services that are currently offered to the customer and the way in which they are used by the customer.

  • The way in which services are currently offered including who is responsible for the services, what levels of service have been agreed, the quality of services delivered and any changes that are anticipated.

  • Technology trends that could impact current services and the customer as well as the nature of the potential impact.

  • Levels of customer satisfaction and what action plans have been put in place to deal with the causes of dissatisfaction.

  • How to optimize services for the future.

  • How the service provider is represented to the customer.

This at times, means raising concerns around commitments that the business made to IT but is not meeting. From the above points, it is clear that business relationship management depends on a number of other service management processes and functions. For example, the mapping of business outcomes and services is done in service portfolio management.
Service level management provides information about the levels of services agreed and achieved.

Configuration management provides a mapping of infrastructure, applications, services, service owners and customers. Capacity management provides information about utilization levels and the potential impacts of new technologies.

Differences between BRM and SLM
Here are some differences between Business Relationship Management(BRM) and Service Level Management(SLM) process to understand them better.

  1. Purpose of Business Relationship Management is: To establish and maintain a business relationship between the service provider and the customer based on understanding the customer and their business needs.

  2. Whereas the purpose of Service Level Management is: To negotiate SLAs (warranty terms) with customers and ensure that all service management processes, OLAs and underpinning contracts are appropriate for the agreed service level targets.

  3. BRM focuses on Strategic and tactical: The focus is on the overall relationship between the service provider and their customer and which services the service provider will deliver to meet customer needs.

  4. SLM focuses on Tactical and operational. The focus is on reaching agreement on the level of service that will be delivered for new and existing services and whether the service provider was able to meet those agreements.

  5. Primary KPI for BRM are customer satisfaction, also an improvement in the measure customer’s intention to better use and pay for the service. Whereas for SLM, it is: Achieving agreed levels of service (which leads to customer satisfaction).