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.

As seen in figure 1, 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 predicted to have a compounded annual growth rate of 7.4% through 2026 (Agamirzian, Narisawa et al., in Forecast Analysis: Enterprise IT Spending Across Vertical Industries, Worldwide). 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 (Alryalat, M., Adebiaye, R., & Alryalat, H. wrote in their 2017 paper: Maximizing IT Investment Returns: Strategic Alignment of Information Technology towards Corporate Performances).

EY’s approach to IT Financial Management

There are four main deliverables, as displayed in figure 2, at the core of EY’s approach to ITFM. Together, these enable your organization to mature its ITFM discipline. As ITFM becomes a core part of running your technology function, it allows you to build and nurture the following six key business capabilities.

 EY's approach to IT Financial Management

Figure 2: EY's approach to ITFM

  • Deliverable 1: Cost Model

    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 (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.

    EY’s approach to cost allocation modelling enables the distribution and allocation of costs based on the TBM taxonomy. The cost model uses data from various sources (e.g., financial systems, asset management, CMDB, ITSM and HR) and combines these with best-practice allocation/distribution mechanisms. The cost allocation model is ultimately an activity-based costing (ABC) model, which displays the relationship between resources, activities, cost objects and the consuming business units or external customers.

  • Deliverable 2: Technical Solution

    EY’s framework can utilize multiple technical solutions, ranging from Microsoft Power Platform to more industrialized third party ITFM enterprise solutions, such as Apptio or Nicus Software, depending on organizational needs.

  • Deliverable 3: Knowledge transfer

    A structured approach to knowledge transfer is fundamental for ensuring that the changes implemented through an ITFM-project are institutionalized in your organization. EY’s approach to knowledge transfer will also improve end-user engagement and accelerated adoption of the new ways of working. EY will ensure the knowledge transfer of ITFM through establishing a digital content hub, which will consist of a variety of customized learning material and innovative training sessions, tailored for your organization’s needs.

  • Deliverable 4: Change Management

    Based on the internationally recognized framework for change management, The EY Change Experience, EY’s approach to ITFM ensures a best practice change experience for your organization. This empowers you to successfully navigate through complex, continuous change, and realize the associated benefits.

    EY’s Change Experience is delivered through an agile and iterative approach. This supports transformation across the enterprise, adapts to your unique environment, and helps deliver sustainable business value and a superior workforce experience.

EY’s delivery model for IT Financial Management

EY’s delivery model for ITFM is based on deep domain expertise and a rich client history. The model has four distinct phases, as displayed below in figure 3.

 EY's approach to IT Financial Management

Figure 3: EY's delivery model based on four distinct phases

  • Mobilization


    • Ensure an effective launch of the initiative
      • Make sure everyone involved agrees on the scope and goals of the project
    • Identify and engage necessary stakeholders
    • Identify and onboard IT- and financial/business controllers who can support data discovery and assessment​
    • Get access to relevant data sources and internal reports
    • Create a mutual understanding of the current cost model, and ensure mutual understanding of ITFM and the TBM taxonomy  


    • Detailed project plan​
    • Identification of project stakeholders
  • Analysis


    • Assessment of:​
      • Data quality and structure, and TBM taxonomy alignment​
      • Current tools and allocation models​
      • ITFM capabilities​
    • Identify risks and opportunities depending on the current state​
      • Assess whether the existing solution is sufficient to build upon, or if there is a need to migrate / replace the solution
    • Understand today’s service catalogue
    • Establish a clear understanding of existing data sources, frameworks and cost models (AS-IS)
    • Identify requirements for the solution 


    • Current state analysis and gap analysis from desired end-state
  • Design


    • Design a cost model according to the desired end-state, including allocation keys, data sources, etc.
    • Prepare a development plan
    • Ensure that the model and technical solution cover relevant requirements
    • Undertake a sign off on the model design


    • Future state analysis including:​
      • Key requirements​
      • Cost allocation model design​
      • Recommended options, including expected benefits​
      • Technical implementation roadmap​
    • Minimum Viable Product (MVP) of the cost model
    • Change and knowledge transfer plan  
  • Development and implementation


    4A – Development of the model and technical solution

    • 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 – Knowledge transfer ​

    • Develop and deploy a digital hub for ITFM with user manuals, solution documentation and other training material
    • Conduct training sessions and ensure knowledge transfer ​


    4A – Development of the model and technical solution ​

    • Implemented cost model​

    4B – Knowledge transfer  ​

    • Documentation and training material available through a digital hub
    • Completed training sessions according to plan​

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 to lose control over their IT costs, and made it difficult for IT management to demonstrate the value of IT.

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