Monday, June 29, 2009

Financial Order

An interesting, and in my opinion, welcome, trend taking place nowadays is the financial accountability that the IT departments are being held up to. In some cases, companies are choosing to subcontract out the work to outside IT firms that provide the results without going over-budget rather than their own IT departments that are constantly in arrears and perpetually asking for more funds.

The old paradigm was that IT would ask the board of directors for as much as they could and then try to deliver the promised work with the given funds. If the money ran out, then they would go back to the board for more. Needless to say this was not a solution that was going to work in the long term and IT departments are now facing the fruits of what they have sown. Namely, being thrown to the side as the work is given to those that can deliver as promised.

The long and short of it is that IT, even if it only service internal customers within the organization, must now handle its finances adequately. While it does not need to go into the complexities that the accounting and finance department of the organization may go into such as 401(k)s and IRA accounts and so on, certain basic bookkeeping and accounting is now mandatory for IT departments. Essentially, an IT department must now consider itself a separate company within its parent company; at least as far as its accounting and finances are concerned.

The solution is the application of adequate financial management within the IT department. The ITIL body of knowledge provides a framework for the application of financial management within the IT department as part of the larger framework of the overall financial department of the organization. Financial management essentially consists of three areas:

  • Budgeting

  • Accounting and

  • Charging

Budgeting consists of predicting the spending of money by the IT department during a budget period (usually a quarter or year). This involves creating spending plans and estimating the work to be performed and the cost of performing the work. The monitoring of the actual expenditure vs. the estimated budget and making correction to the budget as needed is also part of the budgeting process.

Accounting consists of providing detailed information of the expenditure incurred by the IT department on a day to day basis, comparing the actual expenditure to the budgeted expenditure and taking corrective action as necessary.

Charging consists of the recovery of the cost of IT expenditures in a simple, fair and affordable way. The IT department may choose to charge or not charge and simply provide budgeting and accounting information based on the policy set by the organization.

When Financial Management is successfully applied, the organization enjoys:

  • Superior financial compliance and control

  • Enhanced decision making thanks to availability of financial details

  • Superior portfolio management due to understanding of costs and benefits and the ability to accurately compute the ROI

  • Better operational visibility and control

  • Improved value capture and creation

The serious application of financial management is now a necessity in every IT department and seeking a bailout from the board is fast disappearing as a possible option. IT must now consider itself accountable over providing services as well as handling finances adequately.


  1. You're absolutely spot on. Any inefficiency in any segment of a business must be optimized. I offer a solution that is helpful to IT Departments who must be accountable for their expenditures.

    Check out our company - contingency based expense recovery and consulting.

  2. IT management needs to study life cycle management and re-consider leasing in place of outright purchase.

    ALSO...the secondary market (both new and used) provides opportunities for significant savings.