Service Strategy
Financial Management
The Financial Management process provides cost effective management and control of
IT assets and financial resources used in providing IT services.
Purpose
The purpose 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.
Objectives
Financial Management generates meaningful critical performance data.
Most importantly,
this gives an organization insight in the cost of
IT, and the cost of a specific service. This insight will help in
determining investments and possible chargeback models.
Financial Management deals with budgeting, planning, revenues, cost and market analysis. This helps in quantifying the value of IT
services and value of
service provisioning assets.
Scope
Financial management consists of three main processes:
Budgeting: 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.
Accounting:
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.
Charging: This is the process required
to bill customers for the services supplied to them. This requires sound IT accounting practices and systems.
Business Case
A business case clarifies
the
reason for
undertaking
a service or a process
improvement initiative.
Business case
justifies the
organizational goals that have been stated
by
the organization as well as assess potential benefits and the resources and capabilities
required.
The structure of a business case is as follows:
• Introduction – Presents
the business objectives
• Methods and assumptions – Define the boundaries of the business case such as the time period, the costs and the benefits
• Business impacts – The financial and non-financial business case results, such as faster time to market, better customer retention or bigger market share
• Risks and contingency – The probability that alternative results will emerge
• Recommendations – Specific actions recommended
Service Valuation
Financial Management of IT assists in the task of service valuation which is used to help the business
and the IT Service Provider agree upon the value of the IT service.
Service Valuation
helps to determine the balance demonstrating
the total cost of providing an IT service against the total value offered to the business by the service.
Service Valuation focuses on two key concepts that apply in Financial Management are:
• Provisioning value – Determines
the minimum
cost baseline for providing the service
• Service value potential
– Value-added component
based
on
the
customer’s perception of value from the service or expected marginal utility and warranty
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