If IT Financial Management (ITFM) was as simple as widely presumed, we’d be seeing IT expenditure dropping globally with the continued adoption of cloud services.
For example, in 2020 it was expected that 83% of enterprise workloads would move to the cloud. That move happened but the results didn’t come with the extensive cost reduction benefits that businesses envisioned. Organizations are actually spending more despite the workload migration.
In fact, IT spend is predicted to hit $4.2 trillion by the end of 2021 — which translates to an 8.6% increase from 2020. Worse yet is that these companies are suffering revenue declines. According to the same Gartner report that reveals the cost predictions, “IT spending is accelerating ahead of revenue expectations”.
What can you or businesses like these who have migrated to the cloud do to reduce or optimize costs? This is where IT Finanicial Management can help.
In this guide, we’ll cover the basics of IT Financial Management, how costs can be reduced with ITFM, and best practices for success.
Table Of Contents
What Is IT Financial Management (ITFM)?
IT Financial Management came about after it became apparent that simple cost-cutting strategies cannot quite match up to the new breed of complex IT systems.
Small to large organizations are now running multilevel hybrid architectures that are built on extensively flexible computing infrastructure. And while the holistic flexibility might seem particularly favorable to demanding workflows, it’s actually a double-edged sword that can lead to a lot of resource wastage.
Consider, for instance, enterprise cloud platforms like Amazon Web Services (AWS). Its dynamically scalable solution is billed on a pay-as-you-go basis.
The whole setup appears low-cost at first — but, as you continue procuring additional resources to support your organization’s ever-growing IT needs, it can soon become difficult to keep track of the usage metrics across all your departments and IT operations. This is how businesses ultimately find themselves accumulating high AWS charges, which only get worse with time.
Thankfully, you can pull yourself out of such a crisis with strategic IT Financial Management. ITFM, as it’s known in short, introduces tangible reference points that help you not only monitor the costs, but also analyze the cloud usage patterns
ITFM is a set of practices, tools, and resources that collectively keep close tabs on your IT spending, and then generate detailed insights into all the relevant cost parameters.
The whole process starts with the collection of usage and expenditure-related data, which is then categorized accordingly, before being evaluated to determine the specific assets and resources that have been eating into your IT budget. At least with such in-depth analysis, you can proceed to optimize your IT spending for increased business profitability.
IT Financial Management doesn’t always lead to cost reduction. Rather, the resultant spending optimization focuses on streamlining the IT assets and resources based on their capabilities, value, business benefits, plus overall ROI. Underutilized elements are eliminated, while those that happen to be perfectly aligned with the business objectives are retained.
How Can Costs Be Reduced With ITFM?
While there are many ways that ITFM manages to reduce IT costs, the fundamental principle is that they’re all guided by the insights that are generated from IT spending and usage analytics.
IT Financial Management isn’t just about the amount of money that your organization is spending on IT. Instead, it dives much deeper to conduct a detailed cost analysis based on where and how you’re spending on IT.
This granular visibility subsequently provides a baseline for performing the cost-benefit analysis of various components — from where you then get to minimize your overall expenditure by identifying and eliminating wasted spending.
Consider this case example where an enterprise CIO understands that they’re overspending, but can’t quite figure out what’s consuming the extra funds. Imagine that over a period of one year, the company somehow accumulates a cloud usage bill of $135 million, despite earlier estimates showing that they’d only need about $110 million.
On his part, the CIO, acknowledges that they’ve overshot their budget by at least $25 million, but lacks the capacity to dig through the usage data and determine why. This makes it impossible to attribute the extra funds to a specific set of operations and resources.
Now, in such a situation, you’d use IT Financial Management tools and practices to not only identify the wasted spend, but also reduce the costs by preventing a possible recurrence in the future.
A good cloud cost intelligence platform would, for instance, compare all the underlying engineering activities with their resource usage, and then provide a breakdown of the IT spending across each company department. You’d also get tools for comparing the costs incurred by various system resources and cloud assets.
In the end, ITFM combines all this information to compare the ROI of various cloud assets based on their costs and the corresponding business benefits. This offers you the chance to minimize the company’s IT expenditure by suspending the cost-ineffective elements or eliminating any excess baggage that could cause problems in the future.
Top 5 ITFM Best Practices
If you’re thinking of implementing IT Financial Management in your organization, here are five critical guidelines that you should consider following.
1. Align ITFM with your business vision
Every company has a unique build, structure, vision, and business objective. As such, they run IT systems that are distinctively tailored to their individual business processes and delivery needs.
Therefore, you can’t always expect the same ITFM framework to produce similar results in different companies. What you manage to achieve with your IT Financial Management depends on how well the whole thing is aligned with not only the IT infrastructure, but also your core business processes.
Therefore, you should consider configuring all the ITFM parameters based on your company’s structure and procedures. Start by defining your business vision, and then develop clear guidelines on what you intend to achieve with the corresponding IT operations.
2. Automate ITFM
If you’re a small business, you may be able to get away with IT Financial Management calculations on basic spreadsheet software.
The situation for enterprises, however, is quite different. Such businesses set up fairly complicated hybrid IT architectures, on which they consistently execute a wide range of tasks and operations at the same time. What’s more, you’ll notice that their resources are spread out across different departments, all of which are made up of multiple teams of employees.
All that translates to endless cost variables, which you really won’t be able to track manually.
You should, instead, bring in advanced cost management tools that combine cognitive automation and Artificial Intelligence.
If well configured, you can count on the tools to enhance efficiency through real-time cost monitoring, accurate spending reports, and AI-backed cost optimization.
3. Account for every dollar spent
An effective IT Financial Management framework leaves no stone unturned. It stretches out to cover the entire system and then proceeds to monitor all the relevant cost parameters in real-time. As a result, you can expect comprehensive IT spending reports that account for every dollar spent, down to the very last bit.
Now, that’s how you maximize accountability. It’s only by tracking and accounting for every single dollar that you can make well-informed decisions during cost optimization.
For example, an IT department could review the spending patterns to make accurate forecasts of their future system costs. Such levels of accountability, however, cannot be achieved manually. Rather, this is one area where you should leave the heavy lifting to robust IT cost monitoring tools.
In particular, organizations ought to invest in cloud cost intelligence platforms like CloudZero — as it’s perfectly aligned with the type of computing platforms that businesses are currently investing in.
4. Perform IT cost optimization
Cost monitoring and spending analytics are two extremely important elements of ITFM. But, the cost management process itself doesn’t stop there. Rather, IT Financial Management requires you to follow up the spending insights with relevant cost optimizations.
This is where you review all the data that you’ve collected from the system, and then conduct a cost-benefit analysis to identify the cost-effective IT assets to retain, plus the corresponding underutilized elements that contribute significantly to wasted spending.
Now, with the findings, you can ultimately proceed to optimize the IT costs. The procedure itself entails taking actions to minimize your current and future IT spending, plus maybe boost the value of the most productive assets through strategic investing.
5. Maintain continuous ITFM
IT Financial Management is not one of those occasional operations that you perform from time to time. It’s a never-ending process that consistently responds to the ever-changing IT landscape.
So, although cost optimization tweaks come every once in a while, you might want to keep the entire ITFM framework running continuously. This ensures that you’re always aware of not only your current spending patterns, but also the possible cost shifts in the future.
At least then you can also keep everyone in the loop about the organization’s spending trends.
It all comes down to one thing…
All in all, your IT Financial Management capabilities depend on one thing — the type of tools that you choose for system monitoring, spending analysis, and cost optimization. This is what forms the foundation on which everything else rides on.
Your best option is to choose an all-inclusive cloud cost intelligence platform that has been adequately tried and tested by the masses.
CloudZero, for instance, happens to be among the very few AI-driven intelligence platform that specializes in not only cost monitoring, but also cost per customer analysis, unit cost analysis, tagging and cost allocation, Kubernetes cost analysis, engineering cost awareness, and SaaS COGS measurement.
to see how CloudZero can transform cost optimization for your company.
The Cloud Cost Playbook
The step-by-step guide to cost maturity
