IT Financial Management (ITFM)

Defition of IT Financial Management (ITFM)

IT financial management (ITFM) is the oversight of expenditures required to deliver IT products and services. The discipline is based on traditional enterprise financial and accounting best practices, such as mandating documentation of expenses and requiring regular audits and reports. However, IT financial management methods and practices are adapted to address the particular requirements of managing IT assets and resources.

Gartner professes that most organizations prioritize the following ITFM capabilities in their practices:

• Budgeting
• Forecasting
• Variance analysis
• Cost optimization

IT Financial Management (ITFM) Roadmap

Below is a representation of how to plan your Financial Management Transformation Roadmap

source: IBM

IT Financial Management (ITFM) Tools

IT financial management (ITFM) tools are gaining traction among IT leaders, as many organizations zero in on identifying and controlling IT costs, and generally providing better transparency to the broader business. But for every ITFM enthusiast, there are two more IT leaders who don’t fully understand what an ITFM tool is, or what it should do for them. ITFM tools enable technology leaders to manage their business with the same process-driven accuracy, financial visibility, and discipline as their corporate peers. In other words, ITFM tools provide visibility into precisely what IT is spending. Think of them as financial accounting for IT—a powerful tool to understand how an organization’s resources are being spent.

“One of the main reasons to adopt IT financial management tools is to gain the cost insight necessary to develop a cost allocation/chargeback strategy that is transparent, and based on the actual costs of running the business,” explains Apptio partner 6fusion. “Instead of charging a department based on their size or the number of computers, IT organizations can show actual spend numbers for each department. This allows the IT department to act more like an internal service provider, just as you would see pricing from an external service provider. The pricing of services is presented in a rational way that is also defensible.”

To arrive at this information, data is pulled directly from accounting general ledgers for software, hardware, and every IT soft cost in between. Data models are applied to combine those costs into stacks and cost centers for management purposes. Key reports are then built and made available for all stakeholders to access. And then you end up with a whole new level of visibility that enables better allocation decisions, accelerates initiatives for investments, and drives greater efficiency.

An increasing number of organizations are looking to initiate or improve their IT financial management efforts with the purchase of an ITFM tool, driving growth in the market.

But before you go shopping for an ITFM tool, know why you need one. That will give you a much better basis for selecting the right tool. According to Gartner, there are five key questions to ask—and answer—before you scope out vendors:

• What is the mandate?
• What issue(s) need to be resolved and why?
• Who is the executive sponsor?
• What is driving their interest in better IT financials?
• What is the appetite for ITFM (willingness to commit resources)? Who has a vested interest in better IT financial management?

The answers to these questions will impact the "what" and determine the "how" of ITFM and, in turn, answer the question, "Where do I start?"

See Also

IT Cost Allocation
Technology Business Management (TBM)
IT Chargeback
IT Cost Optimization
Federal IT Acquisition Reform Act (FITARA)
Total Cost of Ownership (TCO)

Further Reading

• Basics of IT Financial Management - What you need to know and why IBM