[Leila Dige and Max Meyer co-authored this article]

In order to compete with the speed and agility of startups, organizations need efficient, disciplined financial management practices that detail how their money is spent and how each investment ties to specific business outcomes. This requires decision-making frameworks and management systems that use credible, timely information to empower leaders to quickly evaluate a situation and determine a course of action. Often, the fastest-moving organizations either are those with the most streamlined financial management practices, or the most careless. Developing these sound financial practices can give leaders critical information they need to act with confidence during uncertain times.

IT financial management is a journey. CIOs can mature throughout this process by managing costs, increasing cost transparency and partnering with the business to communicate the true value of transformation initiatives.

Establish a framework for service-based cost models

Many organizations still manage their budget based on traditional general ledger categories such as hardware, software, labor, and the like. The difficulty with this approach is that it provides a financial view that is not particularly helpful for IT. Business functions might track revenue by the accounts served or services provided. To improve cost transparency and promote accountability, IT leaders should do the same, tracking and managing costs based on the services provided, whether end-user, business or technology services.

Technology Business Management (TBM) is one of the most common service-based cost models we have encountered with our clients. The TBM framework allows organizations to track how costs and initiatives align to different cost pools, IT towers (e.g. compute, network etc.), services and business units. This helps drive cost accountability among IT teams by establishing baseline and ongoing costs for the services provided to the organization while providing business owners with the true cost of IT services.

With the help of Metis Strategy, an international financial services organization implemented a similar framework to gain more clarity about how it’s nearly $500 million budget aligned with business goals and created value for the company. We first analyzed the labor and managed service spend on key IT services such as application support, IT service desk, network and telecom, and other business functions. With this breakdown, the client was able to identify cost per employee based on location, job type, and which application or service the employee supported. This increased transparency ultimately allowed the organization to save or reallocate $15 million in costs.