Develop a Fit-for-Purpose IT Financial Taxonomy

Take the first step in getting your IT financial data house in order.

Analyst Perspective

Classify your IT financial data so you can make it work for you.

Think about the last time you handled a piece of information technology (IT) financial data. It could have been an invoice from a vendor, an expense claim, or an update report for the chief financial officer (CFO). Did you wonder if it was accurate? Were you worried that something was missing? Was it difficult to figure out exactly what the numbers represented? Did you suspect that it was one part of a bigger picture?

If IT needs to defend IT expenditures, forecast future costs, demonstrate value, and have any credibility with the CFO and other senior managers, it must not only understand the finances but also have the right tools to analyze, report on, and explain those finances. This starts with having access to good quality and usable data and information about technology costs and expenditures and, most importantly, knowing what that data actually means.

Data problems – poor reliability, poor usability, and poor availability – are the root cause of many IT financial management woes. Discovering exactly what you have and classifying it in a way that provides context, enables financial analysis, and supports effective communication are the critical first steps in improving your IT financial data quality and your IT financial management capability overall.

Jennifer Perrier
Principal Research Director, CIO Practice
Info-Tech Research Group

Executive Summary

Your Challenge

Many IT departments struggle with their finances, namely:

• Making decisions about where their money should go.
• Answering questions about where their money has gone.
• Demonstrating the relationship between IT cost and IT value.

Too often, these struggles are rooted in fundamental problems with the IT financial data itself.

Common Obstacles

The causes of poor IT financial data are myriad but can be boiled down to three general issues:

• Poor data reliability
• Poor data usability
• Poor data availability

Underlying this is the fact that IT and Finance often do not understand one another, so they get stuck on basic communication problems and rarely progress to rectifying their shared financial data challenges.

Info-Tech's Approach

This blueprint lays out the critical first steps in rehabilitating and leveraging your IT financial data, namely:

• Knowing what IT financial data is, where it originates, and where it lives in your organization.
• Developing a meaningful taxonomy to classify and organize your IT financial data using Info-Tech's IT Cost Model as a base.
• Systematically implementing your taxonomy in collaboration with your Finance department as part of your overall IT financial management program.

Info-Tech Insight

Establishing an IT cost taxonomy that clearly classifies IT's financial data is a crucial first step in IT's ability to meet its financial accountabilities and build trust in the important decisions made using that data.

EXECUTIVE BRIEF

Your Challenge

All too often, the challenges that IT departments face come down to a lack of meaningful communication about money.

Many IT departments have yet to reach a workable state when it comes to IT financial management (ITFM). Beyond engaging in an annual budgeting exercise and periodic reporting to the CFO, little else is going on.

This state of affairs reflects a fundamental lack of meaningful communication between IT and Finance – simply put, they're just not aligned. This gap creates ongoing challenges with:

• Making decisions about where IT's money should go.
• Answering questions about where IT's money has gone.
• Demonstrating the relationship between IT cost and IT value.

A big barrier to carrying out the most rudimentary aspects of ITFM and having meaningful conversations about it – let alone engaging in more advanced IT planning, decision making, and value-demonstration activities – is the overall quality of the IT financial data itself.

• 57% of CIOs and 42% of CFOs are confident about the integrity and usability of their organization's data (Workday, 2022).
• 89% of CFOs say they are making decisions based on inaccurate or incomplete data on a monthly basis (Pigment, 2024).

"When the length of time it takes you to churn through the data erodes the value of the decision, you've lost!"

– Carol Carr, CFO, Soroc Technology

Common Obstacles

IT often cannot get its hands on its financial data in the first place. And, if it can, then IT quickly discovers that the data is inaccurate, incomplete, or not fit for purpose. Why?

Obstacle 1:
Poor data reliability

• There is a lack of quality controls around data collection and input.
• Neither IT nor Finance realizes that the data it has is incomplete or inaccurate.
• The people who have accountability for the financial outcome often are not the people who know what to do to impact that financial outcome.
• IT is not the only group that is generating financial data about technology in the organization.

Obstacle 2:
Poor data usability

• Data is not consolidated but rather sits in multiple systems, email inboxes, and desk drawers.
• Data exists in hard-to-use forms or formats, such as on paper or in non-editable PDF files.
• No IT financial taxonomy or classification system is in place to describe what the data actually is, enable searchability, or support analysis.

Obstacle 3:
Poor data availability

• IT does not have access to the systems or tools where the data lives, or does not even know where the data lives in the first place.
• Getting financial data into the appropriate systems is often delayed due to poor procedures or non-compliance with good procedures, making what is available out of date.
• The data that IT needs is often different than what Finance needs, so Finance does not collect it and cannot provide it.

Underlying all of this is the basic fact that many in IT do not understand finance and many in Finance
do not understand technology. These two groups struggle to get past this fundamental misalignment and rarely get around to rectifying their shared financial data challenges.

There is also a significant gap in information about IT financial data management

A web search will get you information about applying technology to make financial data better, but there is little about IT's experience as an actual user of that data.

Opportunity missed?

• As one of the largest cost centers in most organizations, IT directly generates a lot of financial data via its capital and operational expenditure activities.
• There is a lot of research that focuses on how IT can support the rest of the organization in its generation, use, and consumption of business data. However, almost nothing is said about IT as a generator, user, and consumer of this data.
• The fact that IT is not more involved in the modeling and management of financial data and associated processes is nothing short of a lost opportunity.

What if IT treated itself like its own business data customer?

Opportunity rediscovered!

• A sensible IT department would not implement a business solution without gathering requirements from the target users about how they work and what they need.
• Apply this same requirement-gathering attitude to your own IT department and its own financial data.

Info-Tech's Approach

Start fixing IT's financial data and improve overall ITFM capability with a meaningful IT cost taxonomy.

DISCOVER

Know what IT financial data is, where it originates, and where it lives in your organization.

DEVELOP

Develop a meaningful taxonomy for classifying and organizing your IT financial data.

IMPLEMENT

Implement your taxonomy as part of your overall IT financial management program.

The Info-Tech Difference

1. Understand the key steps in putting together a rational and meaningful IT financial data taxonomy.
2. Gain an all-in-one workbook tool for documenting your taxonomy development process end to end.
3. Learn strategies for successful taxonomy implementation.

What is a taxonomy and how does it work?

The main purpose of a taxonomy is to organize information by describing and representing it in a way that makes it easier to retrieve, understand, and interpret.

• A taxonomy is a structure that classifies things according to group or type.
• Taxonomies group together things that are similar and distinguish between things that are dissimilar. Well-known taxonomies are the animal kingdom classification system and the Dewey Decimal Classification used in public libraries.
• Taxonomies are usually hierarchical and organize elements according to tiers. Broader or "parent" classifications are higher up in the taxonomy and narrower or "child" classifications are lower down.
• Items on the same tier or level in a taxonomy are "equal" in terms of relative value or weight. For example, in a color taxonomy, red, yellow, green, and blue are on the same tier. A hue like scarlet is subordinate to red and one tier down. Other subordinate hues, such as crimson, mustard, lime, and sky blue, are on the same tier as scarlet.

Applying a taxonomy to IT financial data is essential for making IT costs easier to track, manage, and analyze. Simply put, a taxonomy makes your financial data usable – clearly defined, consistently and predictably organized, consumable, and meaningful for decision making.

Your IT financial taxonomy is one piece in a broader ITFM capability framework

Standardizing your financial data is a foundational step in building a sound ITFM practice.

The most important action to take for standardizing your data is to adopt an IT financial taxonomy to organize your data and help make it reliable, usable, and accessible. A taxonomy is also a key step in gaining financial transparency. Without financial transparency, improving ITFM maturity will be nearly impossible.

Use Info-Tech's IT Cost Model as a starting point for building your own taxonomy to help eliminate paralyzing doubt and get you on your way that much faster.

Insight Summary

Overarching Insight

Establishing an IT cost taxonomy that clearly classifies IT's financial data is a crucial first step in IT's ability to meet its financial accountabilities and build trust in the important decisions made using that data.

Insight 1

IT owns IT's financial data. This ownership comes not only with accountability for ensuring that this data is reliable, usable, and available for both IT and its stakeholders, but also with a right to ensure that this data works for IT, too.

Insight 2

An established IT cost taxonomy is the cornerstone of IT's successful communication with the business as it creates a shared vocabulary that can be leveraged and understood in every IT-business dialogue.

Insight 3

Collaborating with your organization's central finance team, as well as with other financial stakeholders such as your procurement group, is imperative to developing a truly meaningful IT cost taxonomy that works for everyone.

Insight 4

Rolling out a new IT cost taxonomy should not happen overnight. Rather, it needs to be done with care, thought, and diligence to ensure that it sticks and yields intended benefits over the long term.

Blueprint Deliverables

This blueprint will walk you through the steps in creating an IT financial taxonomy using the IT Financial Data Taxonomy Workbook.

Key Deliverable

IT Financial Data Taxonomy Workbook

This workbook offers a place to document the outcomes of your taxonomy-building activities, including your entire IT financial data taxonomy and the related IT financial data rehabilitation and optimization activities that you plan to tackle. Use this workbook as both a workspace and an ongoing standards reference tool.

Data Sources	Document the financial data you have, who owns it, and where it lives so that you know what your taxonomy must represent.
Use Cases	Brainstorm what you want to do with your financial data to set a target for what your taxonomy needs to enable.
IT Financial Taxonomy	Develop an IT financial taxonomy that will allow you to realize your IT financial data use cases.
Vendor/Product Names	Create a separate list of standard naming conventions for all the IT vendors and products that your organization uses.
Activities	List future IT financial data organization and rehabilitation activities, including implementing your new taxonomy.
IT Cost Tracker	Use this additional template to track and label your IT costs according to your new taxonomy classifications.

Blueprint Benefits

Measure the value of this blueprint

Implementing a meaningful IT financial taxonomy lays the groundwork for substantial benefits.

"Setting up a taxonomy … is like organizing your silverware into forks, knives and spoons so you can quickly grab the right one when you need it. Putting your forks in the bin marked 'spoons' will make it hard to eat your soup at dinner time."
– The Nielsen Company, 2019

Case Study

INDUSTRY: Local Government
SOURCE: Anonymous

Applying some structure was the first step in making IT"s procurement data fit for analysis and cost control efforts.

Challenge

The IT department for a municipal government needed clean procurement data because procurement was a major driver of costs, so it needed to be analyzed and controlled.

• Unfortunately, the Finance department's chart of accounts (CoA) did not have the granularity required to provide useful levels of transparency. In addition, the procurement department's data was not well integrated with the CoA.
• Getting any financial data out of the ERP system demanded significant extraction and translation for the data to be fit for analysis.

Complication

IT and Finance were not speaking the same language:

IT leadership did not understand Finance's CoA. There were also some problems with the CoA, such as unique IT vendors scattered across different accounts and hardware spending erroneously showing up in the software category.

Finance did not understand IT's need to have a different method for classifying its financial data because the current structure had always passed audit.

Results

The IT department opted for a quick and low-cost solution that involved three people: a part-time business analyst, a part-time financial manager, and an external consultant.

The consultant was able to build a data model that was sufficient for the business analyst to run SQL queries and generate spreadsheet-based outputs that met the CIO's needs.

Overall, it was a time-consuming effort, but automations were eventually integrated into the relevant systems to accelerate the process.

Info-Tech offers various levels of support to best suit your needs

DIY Toolkit

“Our team has already made this critical project a priority, and we have the time and capability, but some guidance along the way would be helpful.”

Guided Implementation

“Our team knows that we need to fix a process, but we need assistance to determine where to focus. Some check-ins along the way would help keep us on track.”

Workshop

“We need to hit the ground running and get this project kicked off immediately. Our team has the ability to take this over once we get a framework and strategy in place.”

Consulting

“Our team does not have the time or the knowledge to take this project on. We need assistance through the entirety of this project.”

Diagnostics and consistent frameworks used throughout all four options

Guided Implementation

What does a typical GI on this topic look like?

A Guided Implementation (GI) is a series of calls with an Info-Tech analyst to help implement our best practices in your organization.

A typical GI is six to eight calls over the course of one to three months.

Workshop Overview

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workshops@infotech.com 1-888-670-8889

DISCOVER