Assessing the key elements of IT cost control
A holistic overview over your IT resources will allow for better IT cost control. In this article we will go into more detail on what this process of IT cost control should look like ideally. While we highlighted some of the quick benefits of IT financial management in our last blog entry, this time around we will go one step further and address the key follow-up question: “Now what?”
A brief overview over the significance of IT costs
Once you are aware of your resources, you want to be able to oversee your IT costs throughout the value chain, from the General Ledger, through cost centers and assets, all the way to finalized business services. Preferably, you will be able to tell which and how many resources from the different cost centers ended up contributing to a specific business capability. I already hear people asking:
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Proper IT cost management is essential to the successfull expansion of an enterprise. There are many things to consider when it comes to optimizing the underlying processes:
- What does my IT cost?
- Where do the costs come from?
- How do I optimally allocate my IT budget?
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Another good question, there are different ways to go about it. Traditionally, companies would use excel sheets or similarly tedious ways of supervising their IT costs. Today there are tools for IT financial management (like for example anafee) which will simplify the process. Moreover, they can give you a full overview over what costs are allocated at each station of the value chain. But what does this look like in detail?
The cost-to-service flow
As the name suggests, the cost-to-service flow includes the detailed allocation of costs throughout their way from the General Ledger to fully realized business capabilities. Ultimately, your goal is to identify the Total Cost of Ownership (TCO) of specific business units or capabilities, tracing all costs back to their origin. ITFM tools like anafee allow for a holistic overview over this cost-to-service flow:
Here you can see where IT costs stem from and where they ultimately end up. Commonly, total IT costs come from a General Ledger and are distributed into different cost centers. These primary costs include things like internal/external labor, hardware/software, or telecommunication. Cost center resources are then assigned to the IT Towers, i.e. technical and upstream products (e.g. IT management, data storage). Next, these IT resources are delegated to provide IT products and services. Finally, these products and services are then used to realize business units and capabilities. While this is a rather generalized diagram of the model, ITFM tools will allow you to track your IT costs in detail. anafee in particular will allow you to devise a transparent cost model to optimize cost allocations.
Total transparency and control is key when it comes to IT costs. They are the foundation on which successful IT financial management is built. Furthermore, they open the doors to make concise, goal-oriented business decisions. In our next entry we will discuss another pillar of Technology Business Management: IT budgeting.