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Develop a Fit-for-Purpose IT Financial Taxonomy

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

  • Many IT departments struggle with their finances, namely making decisions about where their money should go, answering questions about where their money has gone, and demonstrating the relationship between IT cost and IT value.
  • Too often, these struggles are rooted in fundamental problems with the IT financial data itself.

Our Advice

Critical Insight

  • The causes of poor IT financial data are myriad but can be boiled down to three general issues: poor data reliability, poor data usability, and poor data availability.
  • Underlying this is the fact that IT and Finance often don’t understand one another, so they get stuck on basic communication problems and rarely progress to rectifying their shared financial data challenges.

Impact and Result

Take the first critical steps in rehabilitating and leveraging your IT financial data:

  • Know what IT financial data is, its points of origin, and where it lives organization.
  • Develop a meaningful taxonomy to classify and organize your IT financial data using Info-Tech’s IT Cost Model as a base.
  • Systematically implement your taxonomy in collaboration with your Finance department as part of your overall IT financial management program.

Develop a Fit-for-Purpose IT Financial Taxonomy Research & Tools

1. Develop a Fit-for-Purpose IT Financial Taxonomy Deck – A systematic guide for creating and implementing an IT financial data taxonomy to make it more organized, transparent, and usable.

This systematic guide will help you create and implement an IT financial data taxonomy to make it more organized, transparent, and usable. Take this critical first step in rehabilitating your IT financial data.

2. IT Financial Data Taxonomy Workbook – An Excel-based tool for documenting and organizing the outcomes of your IT financial data taxonomy development and implementation efforts.

This Excel workbook provides a place to document the outcomes of your IT financial data taxonomy development and implementation efforts, including data sources, use cases, data improvement activities, and the taxonomy itself.


it-Develop-a-Fit-for-Purpose-IT-Financial-Taxonomy-Storyboard

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.

A picture of Jennifer Perrier

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.

A picture of a hierarchy, with variations of Red, Yellow, Green, and Blue. Tiers 1-3 are labelled on the hierarchy.

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.

An image of a model for It Financial Management.

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.

An image of Info-Tech's IT Cost Model.

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.

A screenshot of the IT Financial Data Taxonomy Workbook.

Data Sources

Document the financial data you have, who owns it, and where it lives so that you know what your taxonomy must represent.

A screenshot of the Data Sources Tab.

Use Cases

Brainstorm what you want to do with your financial data to set a target for what your taxonomy needs to enable.

A screenshot of the IT financial data taxonomy tab.

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.

A screenshot of the Activities tab

IT Cost Tracker

Use this additional template to track and label your IT costs according to your new taxonomy classifications.

A screenshot of the cost tracking tab

Blueprint Benefits

IT Benefits

Business Benefits

  • Take the first steps in cleaning up your IT financial data and getting it to a usable state.
  • Discover both the location and overall quality of your entire portfolio of IT financial data.
  • Develop a foundational IT financial data taxonomy that can be used and reused for years to come.
  • Bridge the language gap that exists between IT and finance functions by agreeing on a common set of terms.
  • Enable more insightful and meaningful financial tracking, reporting, analysis, and stakeholder communication.
  • Significantly boost your department's IT financial management capability.
  • Gain a glossary of terms and method of classification that makes sense to both the business and IT.
  • Better understand exactly where IT is spending the funds it has been entrusted with.
  • Learn more about the different areas of IT expenditure (beyond software licensing) and what they truly cost.
  • Engage in more meaningful and data-driven dialogue about technology investment priorities.
  • Provide a much better and cleaner set of data for the central finance function to help identify gaps, reduce errors, and gain efficiencies.

Measure the value of this blueprint

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

Outcome

Project Metrics

Impact

Improved IT financial transparency

  • Business friction
  • Elimination of business friction

More accurate and reliable financial data

  • Number of errors in financial reports
  • Number of unknown or unanticipated costs
  • No errors
  • No unknown/unanticipated costs

Stronger sense of ownership within IT over its financial data

  • Completion rate of ITFM activities by management staff
  • Information omissions/errors in financial reports
  • 100% policy/procedure adherence
  • No errors

Better IT spend decisions

  • Reliability of data
  • Number of expenditure proposals supported by quantifiable business rationale
  • Data current to within two business days
  • Quantifiable business rationale included in 90% of expenditure proposals

Better provision of value to the business

  • Return on investment (ROI)
  • IT stakeholder satisfaction
  • 90% of business benefits realized within time period
  • Positive IT satisfaction rating from 90% of stakeholders

"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?

Introduction Discover Develop Implement

Call #1: Scope requirements, objectives, and your specific challenges.

Call #2: Explore financial data discovery approaches. Call #4: Identify financial data use cases. Call #7: Discuss taxonomy implementation approach.
Call #3: Review data discovery findings and obstacles. Call #5: Review taxonomy development best practices. Call #8: Identify other financial data improvement initiatives.
Call #6: Review taxonomy draft.

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

Contact your account representative for more information.
workshops@infotech.com 1-888-670-8889

Day 1

Day 2

Day 3

Day 4

Day 5

Set Your Objectives

Discover Your IT Financial Data

Develop Your IT Financial Data Taxonomy

Test Taxonomy and Plan Implementation

Next Steps and
Wrap-Up (Offsite)

Activities

1.1 Understand the role of taxonomy in financial contexts.

1.2 Review what constitutes financial data.

1.3 Understand what good financial data looks like.

1.4 Brainstorm IT financial data use cases and requirements.

1.5 Set the scope, goals, and success metrics for your taxonomy development initiative.

2.1 Document the types, sources, and formats of IT financial data in your organization.

2.2 Assess the overall quality of existing IT financial data and the associated reliability, usability, and accessibility issues.

2.3 Identify and evaluate existing finance-related taxonomies, including your organization's CoA.

3.1 Examine Info-Tech's IT Cost Model.

3.2 Discuss taxonomy development best practices.

3.3 Review IT financial use cases previously identified to establish what your taxonomy must represent.

3.4 Draft first two tiers of IT financial data taxonomy (including definitions).

4.1 Review/revise two-tier taxonomy draft and add selected third tiers.

4.2 Test taxonomy utility using real IT financial data.

4.3 Identify taxonomy implementation obstacles and opportunities.

4.4 Draft a high-level taxonomy implementation plan.

4.5 Brainstorm other IT financial data improvement initiatives.

5.1 Complete in-progress deliverables from the previous four days.

5.2 Set up review time for discussing workshop deliverables and next steps.

Deliverables
  1. List of IT financial data use cases
  2. Taxonomy development goals and objectives
  1. Inventory of IT financial data and sources
  2. Existing taxonomy evaluation
  1. First draft of IT financial taxonomy
  1. Final draft of IT financial taxonomy
  2. List of implementation obstacles and opportunities
  3. Draft of IT financial taxonomy implementation plan
  4. List of additional IT financial data improvement initiatives
  1. Completed IT financial taxonomy
  2. Completed IT financial taxonomy implementation plan
  3. List of related IT financial data improvement initiatives

DISCOVER

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

About Info-Tech

Info-Tech Research Group is the world’s fastest-growing information technology research and advisory company, proudly serving over 30,000 IT professionals.

We produce unbiased and highly relevant research to help CIOs and IT leaders make strategic, timely, and well-informed decisions. We partner closely with IT teams to provide everything they need, from actionable tools to analyst guidance, ensuring they deliver measurable results for their organizations.

What Is a Blueprint?

A blueprint is designed to be a roadmap, containing a methodology and the tools and templates you need to solve your IT problems.

Each blueprint can be accompanied by a Guided Implementation that provides you access to our world-class analysts to help you get through the project.

Need Extra Help?
Speak With An Analyst

Get the help you need in this 4-phase advisory process. You'll receive 9 touchpoints with our researchers, all included in your membership.

Guided Implementation 1: Set your objectives
  • Call 1: Scope requirements, objectives, and your specific challenges.

Guided Implementation 2: Discover your IT financial data
  • Call 1: Explore financial data discovery approaches.
  • Call 2: Review data discovery findings and obstacles.

Guided Implementation 3: Develop your IT financial data taxonomy
  • Call 1: Examine Info-Tech’s IT Cost Model.
  • Call 2: Discuss taxonomy development best practices.
  • Call 3: Review IT financial use cases previously identified to establish what your taxonomy must represent.
  • Call 4: Draft first two tiers of IT financial data taxonomy (including definitions).

Guided Implementation 4: Test the taxonomy and implement your plan
  • Call 1: Discuss taxonomy implementation approach.
  • Call 2: Identify other financial data improvement initiatives.

Author

Jennifer Perrier

Contributors

  • Carol Carr, CFO, Soroc Technology
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