How IT Finance Maturity Can Achieve Lean IT

5 minute read
IT Finance Maturity and Lean IT

Businesses have dramatically changed the way they consume and rely on IT.

However, IT financial capabilities have remained relatively unchanged for decades. Inflexible accounting, budgeting, and tracking remain the dominant features of this critical function. This capability gap impairs their ability to achieve lean IT in an era of constant change and disruption.

Today, business partners require a much broader range of analytical insights about business services supported by IT. IT finance should strive to explain what was spent with greater granularity, as well as the where, when, why, and how.

For example, IT finance should be able to answer these basic questions quickly and routinely:

  • How much is spent on IT innovation, projects, and “keeping the lights on”?

  • How much spend is on known or unknown “shadow IT”, and how much is on central IT?

  • What are the fixed and variable costs of IT?

  • Is projected ROI on invested IT capital achieved? Why or why not?

  • Are IT costs skyrocketing? Why?

  • Are support contracts almost expired?

  • When will assets lose service life and useful life?

  • Where and what technology resources are managed around the world?

  • What is the cost of providing a business service?

  • What is the cost of supporting infrastructure, applications, and resources?

  • How well are operational and capitalized expenditures optimized?

  • What is the three to five year forecast for any or all of the above?

Now that technology has seized front and center stage in business, IT finance should now enable unambiguous, reliable IT value maximization capabilities.

The IT Finance Maturity Problem

Decades of data and process immaturity, combined with ceaseless technological change, has created an IT finance maturity problem. This unintended consequence cannot be blamed on either Finance or IT, but maximizing IT business value depends on much clearer data on IT costs and the value they provide to various business functions. How to get to this point efficiently—and to stay there—is the challenge.

The appropriate remedy requires a purposeful, long-term approach involving both finance and IT. Quickly jumping into a “cost management tool” implementation without clearly understanding how IT finance maturity affects finance capabilities leads to an inefficient use of resources and time. An efficient approach is to assess the current maturity state objectively, identify specific process and data improvements necessary for maturity growth, and then create a roadmap to achieve those process and data improvements. This prudent approach toward IT finance maturity will result in proper evaluation and selection of an appropriate “cost management tool.”

A Practical IT Finance Maturity Model

An IT finance maturity model that is objective and based on capability outcomes is a practical model for any industry. Seven distinct stages describe an organization’s current maturity state and future maturity possibilities: Defining, Aggregating, Correlating, Analyzing, Standardizing, Automating, and Transforming. Each maturity stage corresponds with attributes of a new status quo, and progressing to higher stages leads to an acceleration of analytical and business strategy enablement capabilities.

A well-executed and repeatable maturity assessment recognizes that overall maturity is the sum of its parts. Assessing the way cost accounting, asset management, reporting and analysis, and other processes affect overall maturity will reveal what needs to be improved in each area in order to attain a required maturity state. This assessment approach produces a clearly defined roadmap of process and data improvements that an IT value-maximizing business should undertake.

7 Stages to IT Finance Maturity


IT Finance Maturity Stages

 


Attributes of Status Quo

Stage 1 – Defining

Unable to aggregate IT costs or IT costs are managed at too high a level.

 

Significant confusion about IT’s basic financial impact. Unable to understand cost or value of providing business services.

Stage 2 – Aggregating

Aggregation of costs and revenues that are sufficient for basic financial reporting and accounting of IT.

 

Costs can be aggregated and managed by categories and sub-categories but costs and value of business services are still unclear.

Stage 3 – Correlating

Qualitative or quantitative correlations used to rationalize cause-effect relationships.

Cost categories and sub-categories can be correlated but require custom allocation methods to quantify costs and value of business services.

Stage 4 – Analyzing

Process efficiencies enable more time to be spent on overcoming data transparency issues and on more rigorous analyses.

Decisions, IT finance credibility, and business partner relationships improve significantly although analyses of cost and value of business services are done manually. Quality and effectiveness of analyses are limited by the granularity of data transparency.

Stage 5 – Standardizing

Best practices arise, and templates are created to share best practices across teams and sub-teams.

Business partners share analytical techniques collaboratively and effectively. Standardized cost structures are implemented. Cost analytics at business services level, application level and other cost center levels are done.

Stage 6 – Automating

All processes relating to standard cost and value management are fully automated.

Human intervention no longer provides inputs or generates outputs for standard analyses or models. Delivery of cost and value of business services are evergreen. Finance productivity escalates with the introduction of innovative techniques afforded by more time.

Stage 7 – Transforming

Automation at the enterprise level. New frameworks and economic models of IT emerge.

Routine tasks are completely re-defined. Technology investments are viewed in actionable frameworks based on business value.  Technology innovations are routinely selected based on business value maximization.

 

 

 

Shareholder Benefits and IT Value Creation

Advancing from one stage to the next reaps progressively greater rewards. Stage 1 (defining) to stage 3 (correlating) are necessary foundations for succeeding at Stage 4 (analyzing), where true costs and value determinations become possible. At stage 5 (standardizing) and stage 6 (automating), embedded efficiencies continue to compress manual effort which leads to the release of financial productivity proportional to talent and methodology. Stage 7 (transforming) results when new economic models of IT emerge to make opportunities for competitive advantage and shareholder value much more visible and actionable than at earlier stages.

The IT finance maturity model avoids vagueness and can be used as a practical reference. Unlike other management maturity models, it is specific, quantifiable, practical, and diagnostic. These characteristics make it a suitable starting point for a company that wishes to advance their IT finance capabilities by objectively addressing their current maturity, required maturity, and data availability and reliability, before jumping into a “cost management tool” implementation.

By being deliberate about improving IT finance maturity, businesses will begin to see and create more value from IT. By using a more prudent, long-term approach to maturity awareness and advancement, IT finance puts itself on a path to evolve into a highly productive Finance function that truly helps to ensure the success and value maximization of IT.

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IT Finance Maturity Stages

The IT finance maturity model avoids vagueness and can be used as a practical reference. Unlike other management maturity models, it is specific, quantifiable, practical, and diagnostic. Each maturity stage corresponds with attributes of a new status quo, and progressing to higher stages leads to an acceleration of analytical and business strategy enablement capabilities.