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Take a Holistic Approach to IT Financial Management

Foster meaningful conversations about IT spending to drive the best business decisions.

Organization-wide immaturity around technology expenditure and investment decisions is often behind much of the pressure that IT leaders experience.

  • IT investment decisions are often made based on instinct, not data.
  • There’s not enough flexibility in the system to pivot and reallocate IT funds when business conditions change.
  • IT is still generally seen as a cost center, not a strategic partner, and has struggled to communicate its value to its business stakeholders in terms they understand.

Our Advice

Critical Insight

  • Conversations about technology financials aren’t happening nearly enough, partly due to lack of experience and expertise on the part of IT management in how finance works and poor understanding on the part of the business about what technology is, does, and can do.
  • Other key factors are hampering constructive IT financial management conversations, including an absence of adequate governance mechanisms, low visibility into the true nature of technology spending across the organization, and difficulty linking IT costs to business benefits.

Impact and Result

  • Mature your IT financial management program into a continuous and sustainable process that enables greater transparency, meaningful conversations, and better decision making.
  • In this ITFM capstone report, learn about the state of ITFM today and how we got here, core principles to inform how you think about ITFM, and a vision of what good ITFM looks like.
  • Get started on your ITFM maturity journey by leveraging Info-Tech’s approach and collection of resources and services.

Take a Holistic Approach to IT Financial Management Research & Tools

1. Capstone: Take a Holistic Approach to IT Financial Management – Good ITFM improves decision making by improving transparency and enabling more meaningful conversations with stakeholders. Let us help you chart a path to achieving ITFM maturity.

IT financial management (ITFM) is a critical tool for generating and demonstrating value to stakeholders. It drives meaningful conversations with your business partners and leadership team while laying bare the necessary trade-offs to achieve shared goals. In this point-of-view capstone report, we will explore what mature ITFM looks like and provide you with both principles and a approach overall ITFM improvement.


Capstone: Take a Holistic Approach to IT Financial Management

Foster meaningful conversations about IT spending to drive the best business decisions

Info-Tech’s ITFM Practice Perspective

Start with transparency.
Have meaningful conversations.
End with better decisions.

The increasing complexity of technology and investment in IT places pressure on the people and processes involved. As an IT leader, you are entrusted with running your department like a business, sitting at the executive table as a valued partner, and making decisions that best serve your organization. You have an obligation to fulfill and stakeholder expectations to meet, neither of which is a straightforward task.

IT financial management (ITFM) is a critical tool for generating and demonstrating value to stakeholders. It drives meaningful conversations with your business partners and leadership team while exposing the necessary trade-offs to achieve shared goals.

Info-Tech’s main ITFM objective is to empower you with best practices and tools to alleviate some of this pressure and position you to excel as a true leader in the business. We will support you along your journey and help you deliver measurable results that you can be proud of.

In this point-of-view capstone report, we will examine:

  • The current state of ITFM and how we got here.
  • Some core principles Info-Tech believes should drive ITFM practice.
  • What good ITFM should look like.
  • Info-Tech’s approach to helping you overcome obstacles to reach your destination.

The ITFM Practice at Info-Tech believes that good ITFM refines decision making by improving transparency and enabling more meaningful conversations with stakeholders. Let us show you how.

Executive Summary

The practice of ITFM is immature and underleveraged Meaningful IT-business conversations are not the norm Convert pain into gain by growing your ITFM maturity
IT financial management (ITFM) is a key governance discipline whose potential remains untapped because:
  • IT is seen as a cost center, not a strategic partner.
  • Investment decisions are often made based on instinct, not data.
  • The system is not flexible enough to pivot and reallocate when business conditions change.
  • IT has struggled to communicate its value to business stakeholders in terms they understand.

Organization-wide immaturity around technology expenditure and investment decisions is often behind the pressure that IT leaders experience.

Conversations about technology financials don’t happen often enough. This is driven by:
  • Lack of experience and expertise on the part of IT management regarding how finance works.
  • Poor understanding on the business side about what technology is, does, and can do.
  • Absence of adequate governance mechanisms.
  • Low visibility into the true nature of technology spending across the organization.
  • Difficulty linking IT costs to business benefits.
  • Lack of conversation and partnership regarding technology investment decisions.
Mature your ITFM program into a continuous and sustainable process that enables greater transparency, meaningful conversations, and better decision making.

In this ITFM capstone report, learn about:

  • The state of ITFM today and how we got here.
  • Core principles to help you understand ITFM.
  • A vision of what good ITFM looks like.
  • Info-Tech’s approach to ITFM and how we can help you reach your ITFM maturity goals.

Get started on your journey.

Info-Tech Insight
The practice of corporate financial management has not kept pace with monumental changes in technology or accounted for IT’s role in realizing business objectives. Financial management must catch up, inform great business decisions as per its purpose, and help demonstrate IT’s real value.

HOW WE GOT HERE

What exactly is ITFM?

“Through cost, demand, and value, ITFM brings technology and business together, forging the necessary relationships and starting the right conversations, to enable the best decisions for the organization.”
– Monica Braun, Research Director, ITFM Practice, Info-Tech Research Group

What ITFM is:

As a formal practice, IT financial management (ITFM) evolved from traditional accounting and budgeting. Today, it goes beyond these tactical activities, encompassing the strategic discipline of cost optimization.

ITFM’s main goal is to lay bare the financial implications of technology, namely:

  • The cost to acquire it
  • The cost to operate and maintain it
  • The cost to evolve, change, replace, or dispose of it
  • The measurable value that these costs generate

ITFM is a business discipline. As such, it’s critical to align the implementation and outcomes of ITFM practices with your organization’s goals and objectives.

What ITFM does:

A sound ITFM practice helps you address some important questions, such as:

  • How and where are my organization’s technology funds being spent?
  • Which technology projects are, or should be, prioritized and why?
  • What resources are needed to deliver on the promise of a technology investment?
  • What’s the true value of technology to my organization?

While ITFM’s main goal is to understand the financial implications of technology, its main benefit is to improve decision-making capabilities by:

  • Generating transparency.
  • Facilitating meaningful communication between IT leaders and stakeholders.
  • Fostering a service and partnership mindset organization-wide.

Where are we now?

Despite technology’s growth and pervasiveness, the business doesn’t yet truly understand IT’s purpose, role, and value.

  • IT is often still viewed as a cost center by those managing the corporate purse. Today, cost-cutting conversations far outweigh cost-optimization conversations.
  • While improved in recent years, the relationship between the head of IT and the CFO is rarely a partnership. The fact that many IT departments still report to the CFO indicates more a tactical lack of trust in IT’s cost management capabilities than a strategic interest in expanding IT’s impact through investment.
  • The organizational practice of financial management remains immature when it comes to technology and technology-supporting functions. The word that best describes the situation is disconnection. This disconnection is at its most obvious in the following areas:
    • Cloud cost management and optimization (also known as FinOps)
    • Business-driven initiatives that saddle IT with unplanned costs
    • The uptick in the relative percentage of operational expenditure (OpEx)
    • Ongoing re-justification of the same core spend items year after year

IT staff have doubts about ITFM effectiveness

Chart showing Cost and Budget Management

Source: Info-Tech Research Group, IT Management & Governance Diagnostic, Jan-Dec 2022.

So how did we get here?

IT spend and complexity have grown in lockstep

IT spend and complexity have grown in lockstep

Technological advances have come at a price: Hard costs and peace of mind

IT’s current financial context and challenges have been decades in the making.

The impact of technological change on business processes can’t be understated. IT spending has moved from adopting desktop PCs and on-premises data centers in the 1980s through to the data lakes, cloud solutions, AI, and hybrid workforces we see today. In comparison, accounting and financial management practices have hardly changed over the same time frame. For IT, everything has changed: scope of operations, magnitude of decisions, required conversations, how and where to spend. Unfortunately, the relationship between IT and Finance – regarding both the department and its processes – hasn’t changed much.
IT and Finance’s failure to adapt to new business realities in the early days of technology adoption and growth only served to compound existing imperfections in their relationship.
Finance didn’t…
  • See the signs of the business’ future dependence on technology.
  • Demand thorough investigation for technology investment.
  • Develop specific financial mechanisms to appropriately address intangible assets and non-capital spend.
  • Treat IT as a partner in business decision making.
IT didn’t…
  • Communicate in language the business could really understand.
  • Build its business acumen and financial fundamentals.
  • Ensure that the governance mechanisms necessary to successfully manage it were in place and working.
  • Treat the business as its partner in technology decision making.

Today, the CIO is at the center of a complex array of service supply and demand

Every interaction a CIO has includes some direct or indirect financial component.

CIO at the center of a complex array of service supply and demand

The CIO is accountable for a lot. They must ensure the right IT services are provided to the business while delivering on the internal administrative processes required of all leaders.

Behind each of these interactions is a relationship to be managed. These relationships differ – some involve a two-way give-and-take, some are strictly one-way service transactions, but all are governed by the rules of supply and demand.

IT is usually on the supply side of the equation. However, when it comes to funding, IT sits on the demand side, a position IT is less comfortable with.

We’ve arrived at a critical inflection point

What can be done to resolve the decades-long tensions once and for all and move forward?

The route to overcoming the disconnect between IT and the business is diplomacy, not battles. The goal is to build a bridge so that IT and the business can meet in the middle. IT must take the first steps in building that bridge by changing its mindset.

  1. Acceptance. See the situation for what it is and how it evolved. There are no villains here, just people trying to do their jobs.
  2. Education. Both IT and the business must begin learning about one another. Be curious, ask questions, and actively invite others to do the same.
  3. Patience. It takes time to dismantle what took decades to construct. You must make compromises in the near term. That’s okay – the trust you build by giving others space to absorb and adapt will pay off in the long term.

It’s time for the practice of IT financial management to catch up with the practice of IT. The change and upheaval of recent years offers an immediate and real opportunity to start the realignment process.

Foster meaningful conversations about IT spending to drive the best business decisions.

About Info-Tech

Info-Tech Research Group is the world’s fastest-growing information technology research and advisory company, proudly serving over 30,000 IT professionals.

We produce unbiased and highly relevant research to help CIOs and IT leaders make strategic, timely, and well-informed decisions. We partner closely with IT teams to provide everything they need, from actionable tools to analyst guidance, ensuring they deliver measurable results for their organizations.

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Author

Jennifer Perrier

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