IT FINANCIAL SERVICES MANAGEMENT

1. IT FINANCIAL SERVICES MANAGEMENT PRESENTED TO: SIR OMMAR HAYAAT. BY MUHAMMAD SUHAIL ASLAM AND SABIR AHMED. MS-IT BIZTEK KARACHI. PAGE 1

2. Financial Managementfor an IT Service Organization

3. Agenda Running Internal Services Organizations like a business Roles of Financial Management for Internal Services Organizations Overview of some leading financial management practices for Internal Service Organizations Recommended Next Steps

4. External Competition– Customers perceptually benchmark them against External Service Providers, creating external competition and outsourcing pressures. . Demand Management– They are funded as a utility to provide lowest-common-denominator, “one size fits all” service. No ability to scale resources to demand. Demand perpetually exceeds supply. P S D Q Operational Effectiveness– They have historically been run as a cost center with management emphasis on sticking to budget, rather than service quality, reliability and cost effectiveness. Now these things matter, and traditional competencies are insufficient. Unclear Value Proposition – The value they deliver to the business in relation to your costs cannot be demonstrated. Their customers assume the worst. Many Internal Service Organizations face similar challenges

5. CFO Issues with IT We often hear recurring and disturbing themes from our clients that many CFOs think: IT is a cost to be controlled and reduced. IT investments are high risk, relative to other potential investments. IT projects continually go wrong. Too many business problems seem to have an IT-based solution. IT organizations do not understand their costs, and their ability to conduct financial planning is poor. There are large pockets of “hidden” IT spending Other IT service providers can deliver value and control their costs better than an internal IT organization. IT organizations have no clear idea about their efficiency relative to others and the market. A partial list of issues / challenges facing Chief Financial Officers.

6. Fundamental Cycle of Tasks When Running Any Business: These Also Apply to Services such as IT PAGE 6

7. The Service-Based IT Organizational Framework PAGE 7

8. Service Fulfillment: Process, People, Structure and Tools PAGE 8

9. Contrasting Traditional IT vs. Service-Based IT Organizations The differences between a Tradition IT organization and a Service IT organization require vastly different behaviours, not only from IT, but also from its business customers as both groups learn new interaction styles. PAGE 9

10. “Value Center” • “Self-funded” • Service is not free • Service Delivery Organization has a financial statement • Accurate budgeting and forecasting required – costs are known • “Client” focus • Compete with external service providers • Cost Center • “Guaranteed” funding • Service is free • Real costs of Service is elusive • Estimated budgeting and forecasting • Internal focus • Compete with self and peer organizations Implications of Financial Management for a Service-Based Organization From To PAGE 10

11. Capabilities Financial and Business Management Needed Competitive Analysis * Financial Management * Product Development * Product/Service Bundling * Pricing Strategies Demand Management Business Development * Relationship Management * Sales * Marketing * Communications * Market Research Skills Gap Resource Management Strategic Sourcing * Capability Management * Skills Management * Recruitment/Retention * Continuous Development * Compensation/Rewards Process Management Process Engineering * Measurement * Quality Assurance Current Capabilities Needed to Manage a Service Organization PAGE 11

12. The Strategic IT Financial Management Maturity ModelEvolution Through Five Stages • Stage 1: IM/IT spending is a “black box.” The budget is a single number. Business does not know how the budget is spent. • Stage 2: IM/IT spending is a “glass box.” The budget is still a lump sum allocated as the CIO sees fit, but business has some input. • Stage 3: IM/IT spending is a simple portfolio. The budget has two goals: Keep the lights on and invest in the business. • Stage 4: IM/IT spending is a comprehensive portfolio; IT is viewed as an investment portfolio. • Stage 5: IM/IT spending is an enterprise portfolio; IT expenditures are business expenditures. PAGE 12

13. Run, Grow and Transform - Gartner’s Standard Definition There are 3 basic categories in which IT assets and investments can provide value to the business. Spending Categories & Business Value New Revenue This is IT spending that supports major business transformation. This can be IT replacing traditional business processes, supporting new lines of business, new products and services and new business models. Emphasis: ROI Income Growth Protecting Revenue and Margin Support Revenue Growth IT spending that is dedicated to “grow” the business activity supports organic business growth – this is typically fuelled by increased customer demand. Emphasis: ROI IT on IT Optimization Regulation IT spending to run the business includes the IT support of day-to-day operations – IT on IT improvements are also classified as run. Run the business activities are necessary to keep the core business functions operating. Emphasis: Protect business & efficiency PAGE 13

14. IT Financial Management Mission and RolesThe “Process” of IT Financial Management Source: OCG (http://www.itil.co.uk) PAGE 14

15. IT Financial Management Mission and RolesThe “Roles” of IT Financial Management There are many job tasks and competencies associated with IT financial management that vary from organization to organization. Not all IT financial managers are involved in all the activities discussed in this research. However, many IT financial managers perform the majority of these tasks. The main job functions of IT financial managers can be grouped into the following categories. • Financial Planning • The financial planning aspects of IT financial management may include: • IT budget development • Capital planning • Break-even and ROI analysis for projects and initiatives • Project prioritization • Financial Management • The financial management aspects of IT financial management may include: • Development and implementation of service pricing and chargeback models • Contract management • Procurement • Asset management • IT cost reduction • Financial Analysis • The financial analysis aspects of IT financial management may include: • Post-implementation auditing of projects • Financial modeling and what-if analysis • Activity-based costing • IT cost trend analysis • Measurement • The measurement aspects of IT financial management may include: • IT cost benchmarking and unit cost analysis • IT value measurement (for example, the development of key performance indicators and balanced scorecards) Source: How to Define IT Financial Management Competencies and Roles PAGE 15

16. Frameworks for Tracking IT Costs: You’ll Need More Than One PAGE 16

17. Definition TCO is the holistic view of IT costs and issues across enterprise boundaries over time. Bill Kirwin, Gartner Hardware and Software Downtime Operations End-User Operations Administration TCO Is More Than Just Costs Five Key Elements to Gartner TCO Influencing factors • Company specifications (industry, size $, region, end-user type) • Asset Base (type, size, age, etc.) • IT Environment Complexity (end user, hardware & software) • IT Best Practices Deployment PAGE 17

18. What Is the Point of Doing TCO? • Establish a basis for understanding the economic aspects of IT assets and their use. • Better understanding of how IT investments support — or don't support — enterprise business goals and processes. • Gain objective information on costs and savings opportunities in "right-sizing," internal resource allocation and alternate service delivery options. • Identify and implement strategies for improving operations and performance. • Gain comparative, competitive data against other world-class organizations. • Understand key metrics and measurements needed to better run IS operations and provide value back to the enterprise. PAGE 18

19. Action Plan Work with the Service Delivery Organization to define services in business value terms, specifying: • What the services are, • How they're bundled or packaged, and • What benefits they deliver Establish a Baseline of Current Spending – Distinguishing between: • Costs to run the operations (“Keeping the Lights On”) • Projects (Discretionary Investment) Establish Total Costs for Services • Keeping this separate from funding Help to manage Demand - Communicate results and resources consumed • Breaking the culture of ‘free services’ PAGE 19