Effective IT management requires proactive and analytical financial steering methods to ensure successful IT- service operations. There are various decision making situations where financial planning and control are needed to support decision making by performing professional financial analysis. Increasing number of companies operate nowadays in group structures where IT services are delivered as centralized shared services. These arrangements set extra requirements for IT costing, pricing and invoicing of services especially in international environment where internal transfer pricing regulations are applied.
Performing IT specific financial planning and control is critical for successful steering and decision making with the following sub-topics:
IT costs and investments can be categorized into three different main types
The picture below illustrates the contents of each category and a typical breakdown of costs versus the desired cost breakdown.
Figure 3.8.1 Typical cost breakdown vs desired cost breakdown
This categorization is beneficial for benchmarking purposes and analysis, because most of commercial IT services follow this classification.
Company’s Financial Control function is in practical terms seldom able to provide accurate financial analysis of IT services due to the lack of special expertise needed to understand the cost structure and financial impacts of IT services. That’s why specific IT Controller is often working for CIO Office. However, tight cooperation between IT and Financial administration is needed to ensure full utilization of accounting systems and to avoid sub optimization.