It’s a cliché to state it but: Modern businesses run on IT. And those who build, procure, provide, and support IT services play a valuable role in business success. But could the corporate IT organization do even better?

Of course, there’s more that can be done to provide new IT services, improve the customer experience (CX), deliver higher levels of availability, and reduce the volume and impact of business-affecting issues. But what about providing better financial stewardship of the monies invested in “keeping the IT lights on” each and every year? Because any monies saved will have a positive effect on the business’ bottom line.

Or, looking at it from a different perspective, could the corporate IT organization better understand “the numbers” related to what IT costs such that these can be weighed up against the business value IT services help to co-create? And in doing so, open the full portfolio of corporate IT services to appreciate which services are worthy of greater investment and which could probably be cut back or even discontinued.

Or are we doomed to a two-tier IT financial management regime where IT project spend – the 30% of the annual IT investment – is tightly controlled. While the “keeping the lights on” spend on It services – the 70% – is repeatedly spent, year after year, with little more than a “last year’s budget plus or minus x%” conversation.

Are You “Running IT Like a Business”?

Corporate “run the business” IT costs are commonly over two-thirds of the total annual IT spend, yet most IT organizations still don’t understand how these “day-to-day” IT costs are driven. Nor how, for example, changes in consumption patterns and/or the offered service levels can affect both unit and total IT costs. It’s a strange situation when you consider that IT organizations have been talking about “running IT as/like a business” for at least a decade. Any successful business wouldn’t be such without fully understand what it costs to create, deliver, and support its products and services.

Not only cannot IT organizations claim to be operating “like a business” with an absence of insight and transparency into what individual IT services costs. There’s also no way that IT organizations without some form of IT financial management capability – or IT business management if you will – can engage in value-based conversations.

Stop for a moment to ask yourself:

“What percentage of our IT spend directly contributes to corporate goals?”

Your project and portfolio management colleagues might have all the answers when it comes to project spent – the 30%. But can you, hand on heart, say that you know enough about the cost-to-value “mapping” for IT services? If you can’t, you’re sadly in the majority – and this needs to change.

Do You Need to Know What Your IT Services Cost?

Think about your ability to answer what will appear relatively simple questions from your CEO, CFO, and – if it’s not you – your CIO. Maybe something like:

Either way, IT organizations need to be able to provide timely and accurate answers to financially-oriented questions. Answers that senior executives, and other stakeholders, can be content with. And, even more importantly, IT organizations need to be providing effective financial stewardship that optimizes both costs and business value.

So, What Went Wrong with the IT Industry’s Understanding of Costs?

One of the biggest issues, related to this, faced by IT organizations is that they have, until recently, not needed to know what IT services cost (well, they probably have, if they wanted to operate optimally, but no one was asking awkward questions). And, with so much to do in supporting business operations and growth, there was little time and incentive to do so.

One could also argue that IT organizations have typically lacked IT business and financial management capabilities. They might do well at budgeting and accounting (for what’s been spent) – albeit at a high, rather than IT service, level – and even be proficient at forecasting. But they lack the people (and skills), processes, and enabling technology to truly understand what IT services cost and why. Then, beyond this, the ability to match IT costs to the business value it co-creates.

Improve by Starting with a Service-Based Cost Model

If you want to do more to understand, control, and optimize what IT, and IT services, cost in your business – and you should – there’s a need to create a transparent framework within which all incurred costs can be recorded and allocated to specific IT services, customers, locations, or other entities/activities. In other words, “servicize” your IT financial operating model.

And it’s only by building this IT “cost model” that your IT organization will be truly able to understand, and report on, how costs are incurred and driven in delivering IT services. Plus, if you can see the benefits of influencing demand and consumption patterns (for IT services) within your business, it will provide a great foundation for IT “showback” or chargeback

Contact ITBMO to help you create, enhance, and operationalize your service-based cost model in a more simplified manner.