Service based finance is COBIT 5 required. Are you ready to support it?

If you’ve been following my series on COBIT 5, you know the new release of the COBIT standard will help IT organizations achieve greater customer satisfaction, operational excellence, and future orientation. But what it says about service based finance is important and something you should pay attention to. COBIT 5 gives enterprises an approach for getting the financial side of IT in order, with clear goals and metrics you can adopt.

 

COBIT 5 labels ITFM the budget and cost process. This process is about managing IT-related financial activities in both the business and IT functions, covering budget, cost and benefit management and prioritization of spending through the use of formal budgeting practices and equitable system of allocating costs to the enterprise. The overarching goal here is transparency and accountability about the costs and business value of solutions and services so that the enterprise can make informed decisions about IT. This is big! COBIT says ITFM is not about “counting beans”. It says ITFM is about transparency, accountability, and enabling enterprise decision making. And the way to achieve this is by putting together the cost and business value of solutions and service. In other words, you’ve got to get to IT service finance and costing.

 

COBIT 5 goals for budget and cost process

To improve quality, COBIT 5 suggests IT organizations measure themselves against four process improvement goals. Let’s explore each along with their recommended metrics. 

 

  1. 1.                  A transparent and complete budget for IT accurately reflects planned expenditure. Given the use of transparency here, this means IT budgets need to move from a component view of IT cost to a solutions and services view of cost. Two metrics are used to measure success the quality of budget management: the number of budget changes due to omission and errors and the number of deviations between expected and actual budget categories. Clearly, the first measures how good is an IT organization is at planning; and the second measures how well the IT organizations controls costs once things have been planned.
  2. 2.                  The allocation of IT resources and IT initiatives is prioritized based on enterprise needs. This once again argues that costing move from a component view to a solutions and services view. Two metrics are recommended here: the percent of alignment of IT resources with high-priority initiatives and the number of resource allocation issues escalated. The first argues for prioritization of resources from business objections and the latter looks at quality and fairness of the resource allocation process.
  3. 3.                  Costs for services are allocated in an equitable way. Allocating costs to customers not only should be by solutions and services but it should be done fairly. I believe this aims to ensure allocation models are fair and eventually based on usage. One metric is recommended to measure success here: percent of overall costs that are allocated according to the agreed-on cost models. This makes the case. It also argues for transparent, easy to evaluate allocation models.
  4. 4.                  Budgets can be accurately compared to actual costs. This argues that IT organizations need to be able to manage actuals versus plan. One metric is recommended to measure success: percent of variance among budgets, forecasts, and actual costs. In my quality post, I discussed the importance of predictability. This is what we want for IT finance.

So where should I start?

Once again, my suggestion is you start where the most immediate value can be driven. But if it were up to me, I would start by getting budgets allocated to solutions and services. What do you think?

 

Related links:

Blog post: 3 ways IT leaders can strengthen compliance and control

Blog post: Making COBIT 5 part of your IT strategy

Blog post: COBIT 5 guides IT leaders to better manage future orientation in their organizations

Blog post: 7 goals in COBIT 5 that will improve your operational excellence

Blog post: COBIT 5’s scorecard measures IT’s relationship with its customers

Blog post: COBIT 5 scorecard measures the quality of IT’s financial performance

COBIT 5

Solution page:  IT Performance Management

Twitter: @MylesSuer

Leave a Comment

We encourage you to share your comments on this post. Comments are moderated and will be reviewed
and posted as promptly as possible during regular business hours

To ensure your comment is published, be sure to follow the Community Guidelines.

Be sure to enter a unique name. You can't reuse a name that's already in use.
Be sure to enter a unique email address. You can't reuse an email address that's already in use.
Type the characters you see in the picture above.Type the words you hear.
Search
About the Author
Mr. Suer is a senior manager for IT Performance Management. Prior to this role, Mr. Suer headed IT Performance Management Analytics Product ...


Follow Us
The opinions expressed above are the personal opinions of the authors, not of HP. By using this site, you accept the Terms of Use and Rules of Participation