Understanding ITIL Financial Management

ITIL Financial Management is part of the Service Strategy phase within the ITIL framework. This phase also includes service portfolio, demand and business relationship management, as well as strategic management topics.  

ITIL Financial Management is part of the Service Strategy phase within the ITIL framework. This phase also includes service portfolio, demand and business relationship management, as well as strategic management topics.

The Service Strategy phase leads to best practices across the enterprise. This article focuses on helpful efficiencies in finance that improve business operations. IT organizations with complex expenditures can benefit from this information.

By 2021, global IT spending will exceed $3.5 trillion, so now is the perfect time to adopt ITIL financial management.

What’s Included in Financial Management for IT?

Service valuation is a big part of IT financial management. It includes all factors impacting the value of the service to internal or external clients. Accounting, pricing and budgeting are the major functions of professionals in IT financial management.

Benefits of using ITIL framework for IT finance include:

  • Developing a comprehensive inventory hardware and software assets
  • Determining what assets are crucial to business operations.
  • Improving efficiency and lowering costs.

Let’s look at some of the different components individually.

What Are the Accounting Components to Consider?

Accounting determines the efficiency of the IT department from cost-benefit analysis and classification perspectives.

What Are the Cost-Benefit factors?

The following factors help you determine the lifetime costs of projects:

  • Initial expenses
  • Training and staff expenses
  • Maintenance expenses
  • One-time or periodic expenses such as upgrades and licensing renewals

Offset the expenses with expectations for:

  • Reduced labor costs and waste
  • Greater productivity

How Are IT Assets Classified in Financial Reporting and Analysis?

Classify and track the following components:

  • Staffing
  • Hardware
  • Software
  • Shared costs (allocations)
  • Infrastructure
  • Overhead

What Are the ITIL Financial Management Budgeting Components?

IT budgeting requires allocating funds to a mix of day-to-day expenses and innovations to keep the company up-to-date with its competitors, including:

  • Capital expenditures: This includes major repairs, software licensing and upgrades or hardware costs.
  • Operating budget: These expenses include the “keep the lights on” costs of running the business, such as hardware and software management and support. Red flags in this area include assets that cost a lot to maintain without providing equal value to the company. Tasks that are evaluated under this umbrella include maintaining uptime and availability; managing fixes and upgrades; and security efforts versus new initiatives in cloud, digital, or virtualization solutions.
  • Strategic spending: New projects that transform business operations and make the business more competitive.

How Are Service Charges Determined?

Charges are the prices clients pay for your companies products or services. To determine the appropriate cost, prices charged by competitors are a big factor. However, there has to be enough revenue to cover the cost of service delivery, including IT solutions and overhead.

This is harder to put a number on for IT services consumed by internal customers — including the cost of management software, help desk services and software and hardware dedicated to internal cost centers. In this case, the costs are absorbed by allocating IT costs to the departments that use each of these assets.

What About Inventory?

ITIL Asset and Configuration Management covers inventory management. Having a well-categorized inventory makes it easier to provide accurate forecasts and prevents lost sales due to backorders and inefficient delivery operations.

In this phase, business leaders audit all aspects of inventory tracking, such as:

  • Unique identifiers, Name and Description
  • Description
  • Location and status
  • Supplier information

Continuous Improvement Through Financial Management

ITIL financial management covers all aspects of managing IT financials and makes costs, benefits and assigned value a key component in ranking and prioritizing for technology spend to get the biggest bang for your buck.