While federal, state and local governments have been using IT to support their organizational governance and financial management for several decades, the idea that governance and financial management techniques should be applied to the use of IT is a relatively new one. IT financial management goes beyond simply recapturing costs using chargeback. It gives policymakers, administrators and organizations the information needed to make informed decisions about the financial side of using and investing in technology.
The benefits of IT financial management range from improvements in operational efficiency to improved organizational flexibility. Specifically, IT financial management:
Encourages users to reduce costs and improve efficiency. It's not just that they are now being charged for IT services, as chargeback is already a common practice among many public organizations. With IT financial management, users also have the metrics to manage their consumption of IT services. They can see how their behaviors and choices affect technology costs and how technology expenditures align with the agency mission.
Provides adequate financial resources for effective use of IT. IT financial management supports true "cost transparency," making it easier to understand the cost of IT services and support a more accurate budgeting process. There are no hidden fees or surprise midyear adjustments.
Accurately and easily identifies and assesses costs, expenditures and funding sources. Not only is this essential for proper budgeting, planning and financial management, the use of some funds is legally proscribed. It's often illegal to use highway funds, for example, on anything other than highway projects. IT financial management can ease the process of matching infrastructure costs and expenditures to funding sources.
Ensures accurate cost recovery, financial control and regulatory compliance. Agencies are often required to make financial information available to the public or provide detailed reports to federal and state agencies. Because the IT financial management system accurately identifies costs, expenditures and funding sources, the data and audit trail needed for cost recovery, financial control and regulatory compliance is readily available.
Enables benchmarking of the cost of internal services against those available from outside providers. Users often find it difficult to compare the cost of services available internally to those they might be able to find on the open market. IT financial management offers users a "service catalog," with a menu of services available along with an associated price. Users can immediately see the value that the IT organization delivers compared to outside services and make their choices as they see fit.
Promotes better communication between IT and policymakers. IT financial management moves discussions about technology away from bits and bytes to a discussion about overall value, service levels, cost savings and alignment with agency mission.
Of course, while the benefits are clear-cut, implementing better IT financial management is a daunting-looking task. However, there are best practices that can make the process smoother and the ultimate results more successful. Public CIOs can follow three basic guidelines:
- Consider IT financial management as an opportunity to inform and educate users on proper behaviors, proper choices and proper management of their technology consumption.
- Drive down the cost of the processes associated with IT financial management, such as gathering the data, producing the bills or creating the reports. In performing a monthly process, even the smallest reduction in time or money can add up to big savings over time.
- Measure and bill against mission, not against technology. The agencies you support have a mission to fulfill. What does bandwidth consumption have to do with their mission? Show them how their technology costs are aligned to the performance of their mission by tying basic infrastructure costs to applications.
Inform and Educate
Implementing an IT financial management system is not just about gathering the cost information. It also involves providing information to the users in a form that is useful and actionable. Furthermore, cultural issues are often critical to the success of IT financial management -- the information is there for people to use, but will they use it?
Best practices in this area include:
- Provide users the metrics to manage their own consumption. Users are often frustrated that they don't understand IT charges or feel they have no control over what they are charged. The reports and bills given to an agency should detail the exact charges and be presented in a way that allow users to change their behavior and control future costs.
- Use the information to guide users in making informed choices. It's not unusual for an agency to use a desktop that's 10 or more years old all with the view of saving money. IT financial management reports might compare the cost of maintaining an older desktop -- the total cost of ownership -- against a new desktop. The organization might actually save money by replacing the older desktop, and the IT financial management system should provide information needed to understand such issues.
- With information comes the need for education. Many organizations also find that IT financial management increases the need for end-user training. If you want users to make better decisions about how to use technology efficiently and effectively, then they will need to be trained on the right way to use technology.
- You need to put the right information in the hands of the right people, those who understand how the expenditures align with the agency's mission. This means that the information should be shared with executives and, if appropriate, managers and supervisors. End-users often lack the necessary perspective to know whether the technology charge is appropriate, within budget, higher than necessary, etc.
- Access and distribution control also are critical factors. You need to control who has access to the information. The information also needs to be quickly and easily distributed, and it should be closely tied to the organizational hierarchy and budget structure -- supervisors get information on their reports, managers on their reports, executives on their reports, and so on. Most organizations find that the Web is the best medium for managing the distribution of the information.
- Don't start billing people immediately. If you aren't already charging for technology services, then work through a pilot period to prepare the agencies for being billed for IT services. One method is to start with "showback" rather than chargeback -- provide them mock invoices using real data, outlining how much they would be charged. Work with them to understand the charges, get the data correct, and control the expenses and budget for the real invoices.
- Every summary-level number needs to be backed up by detail. The summary information is good for a quick understanding of the overall picture, but the truly actionable information is usually in the details. Using online reports enables users to drill into the summary numbers to track down anything questionable or unusual.
- Speed is essential. You need to provide reports to people on a timely basis. The goal is to help organizations manage their expenditures. If the cost reports aren't delivered until six months after the event, then it will take six months for any changes made by the organization to have an effect on expenditures.
Keep the Process Efficient and Cost Low
Yes, IT financial management offers significant opportunities to reduce overall costs. There's no need, however, for the process itself to be slow, inefficient and expensive to develop and maintain. Organizations should focus on driving down the costs of implementing, maintaining and using the IT financial management system. The process requires pulling, integrating and cleansing data from across the entire organization -- sometimes even from outside service providers. The process is also done on a regular basis: certainly quarterly and most likely monthly, or even weekly or daily. Removing even the smallest cost from such a regularly repeated process can reap big benefits.
- This is not a one-time process, where the costs are researched, action is taken, and everyone goes back to doing what they did before. IT financial management needs to be incorporated into the organization's routine activities, where every month the users expect to receive and act on a financial management report. For the IT organization, efficient, repeatable processes are the key to success.
- Building the IT financial management application internally is not a robust process. It's a complicated application that requires processing large volumes of data on a regular basis. Instead of developing the application in-house, consider using an outsourced solution. This eliminates the expense of developing and maintaining an application, reduces implementation time dramatically, and gives you access to best practices and new features and functions that leverage the knowledge base of an entire industry.
- Workflow is important. Don't pave the cow paths, but think about how you can use technology to make the process of provisioning and managing costs more efficient. Drive down the costs wherever possible.
- Accept that your data is inaccurate, and plan for the effort and time needed to correct it. When you expose expenses to users, they are sure to find every erroneous charge. View this as a chance to double-check the accuracy of your systems, and expect that finding and correcting these errors is just a normal, necessary and healthy part of the process.
- Distribute via the Web. Using the Web to distribute reports has a number of advantages. It requires no special desktop install, it can support sophisticated access control processes, it saves the expense of printing and distributing hardcopy reports, and users are generally familiar with how to use Web-based applications.
Measure Against Mission, Not Technology
Finally, if implemented properly, IT financial management offers an opportunity to change the conversation among IT, policymakers and administrators from something like, "Why do my workstations cost so much?" to "What applications will we need to execute our mission effectively next year?"
The first step is to express the IT service catalog and the consumption charges in terms that end-users can understand. Users are often mystified by charges for "DASD I/O" or other technologies. Even if they understand the underlying technology, they may lack the frame of reference to know whether a charge is appropriate. It's up to the IT organization to tie the underlying infrastructure costs to the use of an application. Instead of "DASD I/O" broken out as a separate charge, it becomes bundled in a charge for, say, emergency dispatch system. It's easier for users to evaluate whether an application is worth the consumption costs, as the applications are more closely tied to the execution of the agency mission.
Ultimately IT financial management enables IT organizations and the agencies, departments and organizations they support to talk about technology priorities as partners, working toward a common goal.