Providing Affordable IT Management to SME's Financal Management for IT services
Upon writting, this is the final instalment of the first blog for each ITIL discipline (if that makes sense!). Why have I left Financial Management to last? Well three reasons actually………
1) After leaving school I trained as an accountant for 4 months. I was bad at it and I mean BAD. After 3 days at looking at a balance sheet trying to find £1.5mill I started to think “what’s the point”? At that point I knew accountancy was not for me
2) When I took my ITIL training the guy who presented this topic was boring and therefore I have always found it the least interesting of all of the ITIL topics
3) In terms of availability and keeping systems going it adds the least value.
Don’t get me wrong, Financial Management has value and does feed into other ITIL processes BUT it is a means to an end and does not really stand alone (unless you are interested in cross charging departments or subsidiary companies for their services). So what does ITIL say about financial management?
Well first of all it says its good practice to have a budget, listing all of your IT costs and planning your expected expenditure (in detail) over 12 months and normally projected several years forward. It also says that once you have your budget, you should track your spend and monitor any variances. So all good accountancy practices so far and no new ground breaking stuff……………
Then it goes onto charging and creating a cost model. Why would you want to charge? Well for a small business you probably would not want to (and actually in my experience, most large businesses do not cross charge for IT services as the cost of administering it outweighs the benefit obtained) but there is a way and an opportunity if it does fit your business model.
In simple terms, a cost model works as follows (let’s work on an organisation with 3 departments: sales, buying and distribution)
Step 1, for all of the charges look for your “direct costs” – these are costs that CAN be apportioned to a single department (eg the route planning software could be only used by distribution). For each department, allocate their direct costs
Step 2, what’s left on your budget are your “indirect costs”, these are costs that can not be apportioned to a single department.If you can share a cost between departments (eg maintenance cost of the network could be pro-rated by the number of users in each deprtment), this is called an “absorbed overhead”. You work out your absorbed overheads from your budget and once again allocate these to each department
Step 3, what is left on your budget is your “unabsorbed overheads”. These are costs you can not allocate out (eg disposal costs, blank CD’s etc). You then have to take a decision of how you allocate these between the 3 departments. You could divide the whole cost by 3 or your could weight it based upon the amount of direct and absorbed costs the department has carried. Either way you need to allocate the costs out.
Once you have done that, add up each departments cost and you have your cost model – a simple way to demonstrate to a department, the true costs of its IT services. In the next chapter of this topic I will try to demonstrate how you can make this figure work for you
7th June 2009