IT organizations support increasingly numerous, faster moving, and more innovative applications and capabilities for their business. Responsibilities like modernizing applications, managing public cloud, and leading technical innovation or digital transformations make IT a decidedly business-critical function of most enterprises.
But too often, IT is seen as a cost center versus a business-aligned value center and is left out of critical strategic and financial conversations altogether. Not having a seat at the table when it comes to major business decisions can leave the IT team, and thus the company, at risk of missing critical business objectives due to insufficient budgets, cost overruns, and lack of alignment.
To gain inclusion into strategy and planning, CIOs must run IT as a business, proving the value of services across the organization through meticulous insights and transparency into IT costs. This paper discusses how ServiceNow can be leveraged as the platform to implement an IT Financial Transparency (ITFT) strategy.
The Benefits of IT Financial Transparency
The goal of ITFT is organization-wide insight into IT finances—driving benefits beyond simply budgets. The ITFT spectrum ranges from aligning IT investments with business objectives through proving IT investments and performance are aligned with strategic objectives—all with visibility and transparency into the numbers and where they come from. The below diagram illustrates the five key pillars of ITFT as described by Gartner.
(source: Gartner and Align Financials)
Investment planning is the long-term look at where the business wants to go and what investments are required to get there. From opening markets in new territories, enhancing customer experience, and adding new capabilities, cost insights are key to driving these conversations. By tracking and reporting on the technology services that impact business, IT becomes a critical component of investment planning, which then drives IT’s annual budgets with more accuracy.
IT Budget & Forecast
Annual IT budgeting is often a painful, manual, and laborious process that no one enjoys. IT organizations also need to go beyond merely “asking for the budget” but must also provide the transparency into budget demand, consumption, and forecast. Most IT leaders would enjoy being able to tell the CFO, at any moment, exactly what portion of the budget is allocated to which business services and report on current consumption and forecasted consumption. This level of detail and accuracy allows IT executives to speak the CFO’s language while illustrating the good stewardship and impact of the IT budget. Within this ITFT pillar, we strive to maintain a dynamic view of the budget mapped back to the business for different services, projects, and processes. It’s not enough to know the total amount of IT’s annual budget. CIOs must track and report on the costs associated with people, storage, servers, etc. and their usage within each business unit and towards each business goal. This lets IT teams pivot and adjust based on business changes.
IT Cost Optimization
With clear insights into the planned and actual sides of their budget, CIOs can optimize the costs associated with technology. Hardware and software asset management, through purchase to deployment to decommissioning, allows IT to optimize costs associated with such items as vendor maintenance renewals, software license recapture and redeploy, and aligning budgeted resources to appropriately critical business services. IT cost optimization drives value and is an important area of focus, particularly during times of budget reduction.
Showback and Bill of IT Services
Reliable and transparent showback, chargeback, shameback, or billing practices means IT consumers can have greater confidence that they are paying only for services used. Consumer reports can highlight utilization rates for resources and costs of utilization using a detailed, granular, and fair cost allocation method. This level of transparency for consumers incents the appropriate behavior and aligns costly resources for the most business-critical projects. For the IT team, easily accessible reporting and spend data can help explain costs to internal customers.
Business Value of IT
Because ITFT focuses on budgets aligned to investment strategies, cost optimization, and transparently exposing the true costs of business services, CIOs can use this to showcase the value of IT to the business, in terms the CFO can relate to. These deep insights illustrate where IT is critical to the overall success of the business.
Where Do Most Organizations Start?
Many organizations start with showback or chargeback in an effort to illustrate value and provide IT consumers with more detailed and accurate information about the costs associated with resources consumed. Other organizations elect to start more internal to IT with cost optimization—often driven by budget restrictions that can be due to a lack of strategic alignment. The following illustrates the consumer-focused vs IT-focused approaches.
The consumer-focused approach focuses on providing transparency to the consumers of IT resources, whether they be on-premises or in the public cloud. The idea is to create a cost allocation model that is fair to all consumers, is based on consumption, and is easily understood. Without an ITFT solution, many IT departments resort to complicated spreadsheets with server, storage, networking, and other costs peanut-butter spread across all business unites, regardless of consumption or business criticality. With ITFT, we move to a service-oriented approach that provides a bill to the consumer of a service based on utilization of the underlying resources comprising that service (e.g. servers, storage, networking, application costs, facilities, FTEs). The costs of these resources are typically taken directly from the general ledger or other purchasing systems, making them very accurate and indisputable. This approach is also useful for the management of complex public cloud bills, showing IT consumers exactly what they’ve used and paid for.
The IT-focused approach looks at ways to make budgeting and cost optimization efficient within the IT organization itself. Through automation, CIOs can answer the question of “Where are we in the consumption of any tool or service at any point in the year?” without the need for difficult-to-manage budget spreadsheets and mad scrambles to compile budget information should a question arise. ITFT also helps IT organizations with asset management by tracking what they own, who is using it, and the associated costs throughout the deployment lifecycle. With this kind of insight, organizations can find hard dollar savings through actions such as eliminating maintenance contracts for decommissioned hardware and re-using software licenses after decommissioning versus repurchasing.
Develop a Framework for IT Capabilities in the Context of IT Financial Transparency
Technology touches so many aspects of modern businesses and these technological capabilities are often deployed without ITFT in mind. This weakens the ability to provide true cost transparency, cost optimization, budgeting and the other items mentioned in this blog with respect to ITFT. A framework like AHEAD’s digital delivery platform below can serve as a roadmap for ensuring each touchpoint is considered and incorporated into an ITFT plan.
An enterprise IT service management platform like ServiceNow can track and report on the costs, consumption, and business service alignment within each area above. Through this approach, CIOs have reliable insights into spend and usage of IT services across the business. For example, CIOs can have an up-to-the-minute view of the assets currently engaged by its EUC team and can report on them for planning or showback purposes. Application modernization projects can be tracked from the investments required, to their annual budget with costs associated with the consumption of microservices, public cloud containers, CI/CD pipelines, and integrated security components.
Leverage the Power of the ServiceNow Platform
The following diagram illustrates the five major ITFT pillars and how they map to an organization’s capabilities and processes. At the core of this ecosystem is the CMDB as the single record of truth for the organization. Starting with a solid CMDB, that is financially enabled, is critical to the long-term success of any ITFT project. General ledger and other procurement and lifecycle feeds are also important, as are the cost models and reports available through the system. As organizations continue to mature, investment planning and the annual budgeting processes are also incorporated. ServiceNow provides the platform to begin with a consumer-based approach around showback/chargeback, or an IT-based approach around cost optimization, while providing the platform to expand to more advanced use cases and capabilities as an organization matures in its ITFT journey.
ITFT is a complex topic with a lot of concepts that are new to IT professionals. Don’t worry – you don’t have to consume it all at once to begin realizing the value. If you’re curious about how ITFT can impact your organization or want to know how to get started, contact the AHEAD team.