Financial Management deals with accounting, budgeting and charging activities for services. It determines all the costs of IT organization on the basis of direct and indirect costs. This process is used by all three types of service providers – internal, external or shared service providers.
Financial Manager is the process owner of this process.
Here are some of the benefits of Financial Management −
Enhanced decision making
Speed of change
Service portfolio management
Value capture and creation
The following decisions are to be made for taking decisions for financial management −
It is important to decide how funding will be replenished. Clarity around the operating model greatly contributes to understanding the requisite, visibility of service provisioning costs, and funding is a good test of the business’s confidence and perception of IT.
The IT financial cycle starts with funding applied to the resources that create output which is identified as value by the customer. This value in turn includes the funding cycle to begin again.
A chargeback model provides added accountability and visibility. Charging should add value to the business.
Chargeback models vary based on simplicity of calculations and the ability for the business to understand them. Some a sample chargeback model includes the following components.
This addresses whether a journal entry will be made to the corporate financial systems. Here we have a two-book method in which one records costs in corporate financial systems while a second book is kept but not recorded.
This second book gives same information but reflects what would have happened if alternative method of recording had been used.
It refers to varying levels of warranty and /or utility offered for a service, all of which have been priced, with appropriate chargeback model applied.
In this, demand modeling is incorporated with utility computing capabilities to provide confidence in the capture of real-time usage.
In this, cost is divided by an agreed denominator such number of users.