Capstone: Take a Holistic Approach to IT Financial Management

Foster meaningful conversations about IT spending to drive the best business decisions

Info-Tech’s ITFM Practice Perspective

Start with transparency.
Have meaningful conversations.
End with better decisions.

The increasing complexity of technology and investment in IT places pressure on the people and processes involved. As an IT leader, you are entrusted with running your department like a business, sitting at the executive table as a valued partner, and making decisions that best serve your organization. You have an obligation to fulfill and stakeholder expectations to meet, neither of which is a straightforward task.

IT financial management (ITFM) is a critical tool for generating and demonstrating value to stakeholders. It drives meaningful conversations with your business partners and leadership team while exposing the necessary trade-offs to achieve shared goals.

Info-Tech’s main ITFM objective is to empower you with best practices and tools to alleviate some of this pressure and position you to excel as a true leader in the business. We will support you along your journey and help you deliver measurable results that you can be proud of.

In this point-of-view capstone report, we will examine:

• The current state of ITFM and how we got here.
• Some core principles Info-Tech believes should drive ITFM practice.
• What good ITFM should look like.
• Info-Tech’s approach to helping you overcome obstacles to reach your destination.

The ITFM Practice at Info-Tech believes that good ITFM refines decision making by improving transparency and enabling more meaningful conversations with stakeholders. Let us show you how.

Executive Summary

Info-Tech Insight
The practice of corporate financial management has not kept pace with monumental changes in technology or accounted for IT’s role in realizing business objectives. Financial management must catch up, inform great business decisions as per its purpose, and help demonstrate IT’s real value.

HOW WE GOT HERE

What exactly is ITFM?

“Through cost, demand, and value, ITFM brings technology and business together, forging the necessary relationships and starting the right conversations, to enable the best decisions for the organization.”
– Monica Braun, Research Director, ITFM Practice, Info-Tech Research Group

What ITFM is:

As a formal practice, IT financial management (ITFM) evolved from traditional accounting and budgeting. Today, it goes beyond these tactical activities, encompassing the strategic discipline of cost optimization.

ITFM’s main goal is to lay bare the financial implications of technology, namely:

• The cost to acquire it
• The cost to operate and maintain it
• The cost to evolve, change, replace, or dispose of it
• The measurable value that these costs generate

ITFM is a business discipline. As such, it’s critical to align the implementation and outcomes of ITFM practices with your organization’s goals and objectives.

What ITFM does:

A sound ITFM practice helps you address some important questions, such as:

• How and where are my organization’s technology funds being spent?
• Which technology projects are, or should be, prioritized and why?
• What resources are needed to deliver on the promise of a technology investment?
• What’s the true value of technology to my organization?

While ITFM’s main goal is to understand the financial implications of technology, its main benefit is to improve decision-making capabilities by:

• Generating transparency.
• Facilitating meaningful communication between IT leaders and stakeholders.
• Fostering a service and partnership mindset organization-wide.

Where are we now?

Despite technology’s growth and pervasiveness, the business doesn’t yet truly understand IT’s purpose, role, and value.

• IT is often still viewed as a cost center by those managing the corporate purse. Today, cost-cutting conversations far outweigh cost-optimization conversations.
• While improved in recent years, the relationship between the head of IT and the CFO is rarely a partnership. The fact that many IT departments still report to the CFO indicates more a tactical lack of trust in IT’s cost management capabilities than a strategic interest in expanding IT’s impact through investment.
• The organizational practice of financial management remains immature when it comes to technology and technology-supporting functions. The word that best describes the situation is disconnection. This disconnection is at its most obvious in the following areas:
  • Cloud cost management and optimization (also known as FinOps)
  • Business-driven initiatives that saddle IT with unplanned costs
  • The uptick in the relative percentage of operational expenditure (OpEx)
  • Ongoing re-justification of the same core spend items year after year

IT staff have doubts about ITFM effectiveness

Source: Info-Tech Research Group, IT Management & Governance Diagnostic, Jan-Dec 2022.

So how did we get here?

IT spend and complexity have grown in lockstep

Technological advances have come at a price: Hard costs and peace of mind

IT’s current financial context and challenges have been decades in the making.

Today, the CIO is at the center of a complex array of service supply and demand

Every interaction a CIO has includes some direct or indirect financial component.

The CIO is accountable for a lot. They must ensure the right IT services are provided to the business while delivering on the internal administrative processes required of all leaders.

Behind each of these interactions is a relationship to be managed. These relationships differ – some involve a two-way give-and-take, some are strictly one-way service transactions, but all are governed by the rules of supply and demand.

IT is usually on the supply side of the equation. However, when it comes to funding, IT sits on the demand side, a position IT is less comfortable with.

We’ve arrived at a critical inflection point

What can be done to resolve the decades-long tensions once and for all and move forward?

The route to overcoming the disconnect between IT and the business is diplomacy, not battles. The goal is to build a bridge so that IT and the business can meet in the middle. IT must take the first steps in building that bridge by changing its mindset.

1. Acceptance. See the situation for what it is and how it evolved. There are no villains here, just people trying to do their jobs.
2. Education. Both IT and the business must begin learning about one another. Be curious, ask questions, and actively invite others to do the same.
3. Patience. It takes time to dismantle what took decades to construct. You must make compromises in the near term. That’s okay – the trust you build by giving others space to absorb and adapt will pay off in the long term.

It’s time for the practice of IT financial management to catch up with the practice of IT. The change and upheaval of recent years offers an immediate and real opportunity to start the realignment process.