IT Financial Management

The processes and tools providing the key capabilities to effectively account for, manage and analyze IT costs and communicate the value of IT to the business.

Related topics Consulting Technology

What EY can do for you

There is a growing need for IT Financial Management (ITFM) tools and capabilities in today’s technological environment.

The digital transformation is fueling IT spending and increasing the complexity of IT environments. Unfortunately, this development has caused many organizations to lose control over their IT costs and made it difficult for IT management to demonstrate the value of IT. 

As a result, the need for a solution enabling organizations to effectively account for, manage, and analyze IT costs and communicate their value to the business has greatly increased. EY has developed a proven approach to ITFM that allows organizations to regain control over their IT costs.

The technology business management map
  • The challenge: increase in IT spending and complexity

    The third industrial revolution — the digital revolution — radically changed the way we generate, process and share information (Davis, N wrote in his 2016 article: What is the fourth industrial revolution). This rapid pace of disruption forced organizations to adapt or suffer the consequences. As a result, today's organizations operate vastly different from past organizations. As we now stand on the brink of the fourth industrial revolution, organizations are yet again faced with disruptive forces. With breakthroughs in areas such as IT automation, cloud, advanced data analytics and low-code development platforms (LCDP), executives must navigate a technological landscape characterized by extreme uncertainty and an unprecedented pace of change. 

    Therefore, it is no surprise that a Harvard Business Review study revealed that 74% of surveyed executives expect their IT environments to become significantly more complex over the next 18 months. Furthermore, roughly 50% say this complexity has created a sense of chaos in their organization (The 2020 Harvard Business Review study: BizOps: Connecting IT to Business Outcomes). This is coupled with a surge in IT costs, as worldwide IT spending is set to increase by almost 13% over the next two years (Mlitz, K displayed in his 2021 survey: Total information communication technology (ICT) market spending worldwide from 2016 to 2023). In short, while the digital transformation has been a key driver of both economic growth and productivity, its downsides are also coming to light as firms are faced with increasing IT complexity and costs. 

  • The consequences: diminishing control of IT expenditures

    At EY, we have seen firsthand how our clients’ needs for digitalizing can lead to a lack of overview. If left unmanaged, costs can spiral out of control as they are caught in a vicious cycle of increasing IT complexity and an increased share of IT solutions (e.g., SaaS solutions) being procured and dispersed throughout the organization. This comes in addition to the technical debt already accrued from legacy IT systems. The diminishing control of IT expenditures has a multitude of potential consequences. 

    Absence of data-driven decisions making it increasingly difficult to budget IT costs

    As the IT landscape becomes more complex, it becomes increasingly more difficult to understand where costs are generated. This can, in turn, lead to decisions being made on poor, if not outright wrong, data. In fact, bad data has been estimated to cost most firms an average of 15–25% of their annual revenue (Redman, T. C wrote in his 2017 article: Seizing Opportunity in Data Quality). When the true cost drivers of IT are hidden, accurately forecasting costs becomes a significant challenge. This consecutively decreases the IT budget’s utility as a planning tool, as it becomes reduced to a rough estimate based on aggregated figures rather than accurate cost projections, reflecting the organization’s true cost drivers. 

    Value of IT becoming less apparent and weaker alignment of IT and business

    When cost transparency decreases, the probability of the IT function being viewed primarily as a cost center increases. CIO Magazine found that roughly half of 722 surveyed IT leaders say their departments are viewed mainly as cost centers by business colleagues (Johnson, M displayed in her 2014 survey: Traditional vs. Digital CIOs: Survey Reveals a Growing Divide). The disassociation between value generation and cost allocation poses a challenge for IT management as it undermines the importance of the IT function to the organization. This significantly impacts the strategic alignment between IT and the business. Without a common language and a similar perception of value generation and cost allocation, the synergy between IT and business strategies suffers. This can have detrimental effects on the outcome of IT investments, as research has established a clear link between the alignment of IT and business strategy, and the payoff from IT investments (Bryd, T. A., Lewis, B. R., & Bryan, R. W. wrote in their 2005 paper: The leveraging influence of strategic alignment on IT investment: An empirical examination).
     

The technology business management taxonomy

EY’s approach to IT Financial Management and the value it provides to your organization

EY has a good understanding of ITFM and what value it brings, and we have a well-established framework for enabling these values. EY’s approach to ITFM consists of three layers. These will enable your organization to strengthen and grow existing ITFM capabilities or introduce new ITFM capabilities to your organization.

  • Layer 1: The Technology Business Management taxonomy

    Organizations rely on generally accepted accounting principles (or GAAP) to drive standard practices for financial reporting and comparability between financial statements (Tucker, T wrote in his 2016 book: The Four Value Conversations CIOs Must Have With Their Businesses). Similarly, IT leaders need a generally accepted way of reporting IT costs. Using the Technology Business Management taxonomy (TBM) taxonomy, one can allocate, classify and organize all IT costs in a hierarchical manner that enables the business, CFO and IT leaders to better understand the true cost and value of IT. Implementing the taxonomy can significantly improve IT cost transparency and give IT leaders a better foundation to lead discussions on IT budgets and investments.

  • Layer 2: The technical solution

    EY’s framework can utilize multiple technical solutions, ranging from Microsoft Power Platform to more industrialized software, such as Apptio, Serviceware or ServiceNow.

  • Layer 3: The cost allocation model

    The cost allocation model enables the distribution and allocation of costs based on the TBM taxonomy. In addition, it combines the cost categories with information from various data sources (e.g., financial systems, asset management, CMDB, ITSM and HR) and allocation/distribution mechanisms. This creates meaningful and insightful visualizations of total costs. The cost allocation model is ultimately an activity-based costing (ABC) model, which displays the relationship between inputs, resources, cost objects and the business units.

IT Financial Management capabilities

EY’s ITFM project methodology
  • Mobilization

    Activities:

    • Project mobilization
      • Alignment and agreement of project scope, approach, timeline and deliverables​
      • Formal project kick-off​
    • Identify key stakeholders​
    • Identify and onboard IT and financial controller who can support data discovery and assessment​
      • Not fully loaded, but on-demand dependent on the need for context​
    • Get access to relevant data sources and internal reports

    Deliverables:

    • Detailed project plan​
    • Identification of project stakeholders
  • Current state analysis

    Activities:

    • Team will assess:​
      • Data quality and structure and TBM taxonomy alignment​
      • Tools and allocation models​
      • ITFM capabilities​
    • Identify risks and opportunities depending on the current state​
      • Assess whether existing solution is sufficient to build upon, or if there is a need to migrate / replace the solution

    Deliverables:

    • Current state analysis and gap analysis of implementing power platform solution​
  • Future state

    Activities:

    • Design of cost allocation model​
    • Assess and decide future cost allocation tool ​
    • Recommend, anchor and agree on the preferred cost allocation model and tool​
    • Develop a technical roadmap for implementation​

    Deliverables:

    • Future state analysis including:​
      • Key requirements​
      • Cost allocation model design​
      • Recommended options, including expected benefits​
      • Technical implementation roadmap​
  • Roadmap and implementation

    Activities:

    4A – Power platform​

    • Identify internal technical resources that will partake in the deployment project​
    • Implement and deploy the selected solution​
    • Present and anchor the final solution with the steering group​
    • Develop a change management roadmap​
      • Including identifying internal change agents​

    4B – Enterprise solution ​

    • Procurement process​
    • Implementation of enterprise solution​

    Deliverables:

    4A – Power platform​

    • Deployment of the selected solution​
    • Change management roadmap​

    4B – Enterprise solution ​

    • Vendor selection​
    • Implementation support​

Why is IT Financial Management relevant?

The digital transformation is fueling spending and increasing the complexity of IT environments. This development has caused many organizations lose control over their IT costs made it difficult for IT management demonstrate the value of IT.

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