July 13, 2009 By Bob Svec
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:
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:
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.
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.
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