Financial management

Financial Management is the sound stewardship of the monetary resources of the organization. It supports the organization in planning and executing its business objectives and requires consistent application throughout the organization to achieve maximum efficiency and minimum conflict (ITIL, 2003) (ITIL, 2007). Financial Management is composed by:

  • Budgeting is the process of predicting and controlling the spending of money within the organization and consists of a periodic negotiation cycle to set budgets (usually annual) and the day-to-day monitoring of the current budgets.
  • IT Accounting is the set of processes that enable the IT organization to account fully for the way its money is spent (particularly the ability to identify costs by Customer, by service, by activity). It usually involves ledgers and should be overseen by someone trained in accountancy.
  • Charging is the set of processes required to bill Customers for the services supplied to them. To achieve this requires sound IT Accounting, to a level of detail determined by the requirements of the analysis, billing and reporting processes.

Participants: 1 a 4
hours: 1
Participants are involved in:

  • IT budgeting
  • Execution of IT budget
  • IT accounting
  • IT service charging

 

1) Mark with an “X”, the Budget items that are included in the IT Budget of your organization:

  • Hardware (  )
  • Software (  )
  • Employment (  )
  • Accommodation  (  )
  • External service (  )

Based on the Budget items selected which documents, roles and organizational units can be referred:
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Others Budget items defined in the organization:
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2) Mark with an “X”, the IT Accounting Types that are defined in the organization:

  • Accounting Centre—Simply costing inputs which maybe some element of Budgeting (  )
  • Recovery Centre1costing outputs (services) and simply apportioning those costs (  )
  • Profit Centre2the full panoply of separate Accounting (  )

Based on the IT Accounting Type selected which documents, roles and organizational units can be referred:
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Others IT Accounting Types defined in the organization:
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3) Mark with an “X”, the Cost Types that are defined in the organization:

  • Hardware Costs (  )
  • Software Costs(  )
  • People costs (  )
  • Accommodation costs  (  )
  • External service costs (  )
  • Transfer costs3 (  )

Based on the cost types selected which documents, roles and organizational units can be referred:
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Others cost types defined in the organization:
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4) Mark with an “X”, the classes of Cost defined in the organization:

  • Direct Costs—are those clearly attribute to a single Customer (  )
  • Indirect Costs—sometimes called overheads, absorbed or unabsorbed (  )

Based on the classes of Cost selected which documents, roles and organizational units can be referred:
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Others classes of Costs defined in the organization:
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5) Mark with an “X”, the Cost elements defined in your organization:

Capital Costs4Current Expenditure

  • Computer equipment (  )
  • Building and plant software packages (  )

Operational Costs5Revenue Expenditure

  • Staff Costs  (  )
  • Maintenance of computer hardware and software (  )
  • Consultancy services, rental fees for equipment (  )
  • Software license fees (  )
  • Accommodation costs (  )
  • Administration expenditures (   )
  • Electricity, water, gas, rates (  )
  • Disaster recovery (  )
  • Consumables (  )

Based on the Cost elements selected which documents, roles and organizational units can be referred:
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Others Cost elements defined in the organization:
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6) Mark with an “X”, the  factors of  depreciation assessment defined in your organization:

  • The current cost ( or valuation  ) of the asset (  )
  • The length of the asset´s expected useful economic life to the business of the organization having due regard to the incidence of obsolescence (  )
  • The estimated residual value of the asset at the end of its useful economic life in the business of the organization  (  )

Based on the factors of depreciation assessment selected which documents, roles and organizational units can be referred:
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Others factors of depreciation assessment defined in the organization:
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7) Mark with an “X”, the depreciation methods defined in your organization:

  • Straight line method—where an equal amount is written-off the value of the asset each year (  )
  • Reducing balance method—where a set percentage of the capital cost is written-off the Net Book Value each year (  )
  • By usage—where depreciation is written-off according to the extent of usage during a period  (  )

Based on the depreciation methods selected which documents, roles and organizational units can be referred:
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Others depreciation methods defined in the organization:
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8) Mark with an “X”, the IT investment appraisal methods defined in your organization:

  • Return of Investment, ROI (  )

ROI = 

  • Return of Capital Employed, ROCE (  )

ROCE = 

Based on the IT investment appraisal methods selected which documents, roles and organizational units can be referred:
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Others IT investment appraisal methods defined in the organization:
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9) Mark with an “X”, the  pricing methods defined in your organization:

  • Full Cost—calculated as a Total  Cost of Ownership, TCO6, (  )
  • Marginal cost—the cost of providing the service now, based upon the investment already made (  )
  • Cost plus—Price= cost + x% (  )
  • Going rate—the price is comparable with other internal departments within the organization or with similar organizations  (  )
  • Market price—The price is the same as the charged by external suppliers (  )
  • Fixed price—The IT organization sets a price based upon negotiation with the Customer for a set period, based upon a predicted consumption (  )

Based on the pricing methods selected which documents, roles and organizational units can be referred:
______________________________________________________________________________
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Others pricing methods defined in the organization:
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10) Mark with an “X”, the  Performance Indicator of IT Accounting and Charging Systems defined in your organization:

  • Cost recovery profiles and expenditure profiles prove to be accurate (  )
  • Charges, where applied, are seen to be fair (  )
  • IT Customers´ and Users´ behavior and perceptions change  (  )
  • Plans and Budgets produced on time (  )
  • Specified reports produced at the required time (  )
  • The inventory schedules are kept up-to-date all costs are accounted for (  )
  • Timeliness of annual audits (  )
  • Meeting of monthly, quarterly and annual business objectives (  )
  • The number (and severity) of Changes required to the IT Accounting System (  )
  • Accuracy of a monthly, quarterly and annual profiles (  )
  • Number of Changes made to the Charging algorithm—where appropriate (  )

Based on the Performance Indicator of IT Accounting and Charging Systems selected which documents, roles and organizational units can be referred:
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Others Performance Indicators defined in the organization:
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11) Mark with an “X”, the  reports defined in your organization:

  • Cost total, broken down by business (  )
  • cost  analyses by service line, equipment domain or other relevant view (  )
  • revenues total, broken down by business  (  )
  • outlook on costs and cost recovery (  )
  • problems and costs associated with IT Accounting and Charging systems (  )
  • Recommendations for changes (  )
  • Future investments required (  )

Based on the reports selected which documents, roles and organizational units can be referred:
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Others reports defined in the organization:
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12) Mark with an “X”, the guidelines  of budgeting in your organization:

  • Budgets are provided for all activities (  )
  • Budgets are monitored and reported regularly (  )
  • Budget projections are reviewed at the end of the budget period (  )
  • Escalation procedures exist for budget over-runs (  )

Based on the guidelines of budgeting selected which documents, roles and organizational units can be referred:
______________________________________________________________________________
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Others guidelines of Budgeting defined in the organization:
______________________________________________________________________________
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13) Mark with an “X”, the guidelines  of IT Accounting in your organization:

  • Cost projections are accurate each month and at the year end—overall and for each business supported (  )
  • The total Cost of providing IT Services is accurate (  )
  • All costs, including unexpected costs, are accounted for Hardware, Software, People, Accommodation and Transfer (  )
  • Regular and accurate reports are produced for management including the production of prices list (  )
  • The IT Accounting system is understood and Customers are satisfied with the manner in which it operates (  )

Based on the guidelines of IT Accounting selected which documents, roles and organizational units can be referred:
______________________________________________________________________________
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Others guidelines of IT accounting defined in the organization:
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14) Mark with an “X”, the guidelines  of Charging in your organization:

  • Bills are simple, clear, accurate and issued on time (  )
  • Charges are considered fair (  )
  • Income is collected on time (  )
  • Price lists are available and any changes to the charges or price lists are implemented within target timescales (  )
  • Customers are neither under-charged nor overcharged for their IT services (  )
  • Discrepancies in charges are identified quickly and resolved with the Customers (  )
  • Senior managers are satisfied with the reports produced (  )
  • Cost recovery plans are on target (  )
  • Interfaces to Service Level Management are effective (  )

Based on the guidelines of charging selected which documents, roles and organizational units can be referred:
______________________________________________________________________________
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Others guidelines of charging defined in the organization:
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Research Group at the National University of Engineering in Nicaragua

Authors Johnny Flores Leonel Plazaola

 

References

ITIL. 2003. Service Delivery. Second edition. s.l. : The Stationery Office, 2003. 0-11-330015-8.
—. 2007. Service Design. s.l. : The Stationary Office, 2007. 978-11-331047-0.

 

1Recovery Centre is designed to account fully for all IT spend and recover it from the Customers .
2A Profit Centre is a method of managing the IT organization in which it has sufficient autonomy to operate as a separate business entity but with business objectives set by the organization.
3Transfer costs are those that represent goods and services that are sold from one part of an organization to another (often within a multi-national or other large organization that has a sophisticated internal accounting system).
4Capital Costs are typically those applying to the physical (substantial) assets of the organization.
5Operational Costs are those resulting from the day-to-day running of the IT service organization.
6 TCO was proposed by Gartnet Group; it is a method of calculating the costs of a product or service. this referred to assessing the lifecycle costs of an item rather than just the visible capital expenditure.