Financial Management for IT Services (ITSM)

Financial Management for IT Services (ITSM)

Financial Management for IT Services (ITSM) is an IT Service Management process area. It is an element of the Service Delivery section of the ITIL best practice framework. The aim of Financial Management for IT Services is to give accurate and cost effective stewardship of IT assets and resources used in providing IT Services. It is used to plan, control and recover costs expended in providing the IT Service negotiated and agreed to in the Service Level Agreement (SLA).


For an internal IT organisation, the goal is described as:

"To provide cost-effective stewardship of the IT assets and resources used in providing IT services"

For an outsourced IT organisation or an IT organisation which is run as if it were a separate entity (ie, with full charging) the goal may be described as:

"To be able to account fully for the spend on IT services and to be able to attribute these costs to the services delivered to the organisation's customers and to assist management by providing detailed and costed business cases for proposed changes to IT services"


Financial Management for IT Services contains 3 sub-processes:
* Budgeting
* IT Accounting
* Charging


Budgeting enables an organisation to plan future IT expenditure, thus reducing the risk of over-spending and ensuring the revenues are available to cover the predicted spend. Additionally it allows an organisation to compare actual costs with previously predicted costs in order to improve the reliability of budgeting predictions.

IT Accounting

IT Accounting is concerned with the amount of money spent in providing IT Services. It allows an organisation to perform various financial analyses to gauge the efficiency of the IT service provision and determine areas where cost savings can be made. It will also provide financial transparency to aid management in the decision making process.

Several Cost Elements can be used to control your accounting:

Capital Costs: Any type of purchases which would have a residual value as hardware and building infrastructure

Operational Costs: Day to day recurring expenses cost like rental fees, monthly electrical invoices and salaries.

Direct Costs: Any cost expenses which are directly attributed to one single or specific service or customer. A typical example would be the purchase of a dedicated server which cannot be shared and is needed to host a new application for a specific service or customer.

Indirect Costs: One specific service provision which cost needs to be distributed in between several customers in a fair breakdown. A fair example is the cost associated to overall Local Area Network on which every customer are connected to. Breakdown could be done using total amount of users per customer or total amount of bandwidth usage per customer to accurately distribute the cost of providing this service.

Fixed Costs: Any expenses established for long periods of time like annual maintenance contracts or a lease contracts. Variable Costs:


Charging provides the ability to assign costs of an IT Service proportionally and fairly to the users of that service. It may be used as a first step towards an IT organisation operating as an autonomous business. It may also be used to encourage users to move in a strategically important direction - for example by subsidising newer systems and imposing additional charges for the use of legacy systems. Transparency of charging will encourage users to avoid expensive activities where slightly more inconvenient but far cheaper alternatives are available. For example, a user might browse a dump on screen rather than printing it off.

Charging is arguably the most complex of the three sub-processes, requiring a large investment of resources and a high degree of care to avoid anomalies, where an individual department may benefit from behaviour which is detrimental to the company as a whole. Charging policy needs to be simultaneously simple, fair and realistic.

Charging need not necessarily mean money changing hands (Full Charging). It may take the form of information passed to management on the cost of provision of IT services (No Charging), or may detail what would be charged if full charging were in place without transactions actually being applied to the financial ledgers (Notional Charging). Notional Charging may also be used as a way of piloting Full Charging.

Related ITIL Processes

Several processes in the ITIL model provide information to the Financial Management for IT process..

ervice Level Management

Service Level Management provides key information regarding the level of service required by the customer (SLAs) and therefore forms the basis for calculations of all three sub-processes. Customers can only be charged for services agreed in the SLAs and based on the Service Catalog.

Configuration Management

Given that the aim of Financial Management for IT is the stewardship of IT assets and resources, it is imperative that information from Configuration Management and in particular from the CMDB is available.

Capacity Management

Capacity Management are charged with planning and controlling the IT capacity requirements of the organisation. Changes in capacity requirements - which usually increase - will inevitably lead to changes in costs. This may mean unit costs will increase because capacity has to be increased in an emergency or it may mean unit costs will drop as a result of purchasing newer technology, economies of scale or increased purchasing power from an external supplier.

Change Management

Changes are often linked to costs. It is vital that Financial Management for IT is involved in the Change Management process so that the on-going analysis of costs can take place. Where changes are frequent IT Financial Management may choose either to include anticipated changes in the original cost model or to adjust the cost model once the IT Service has stabilised.

Key Performance Indicators (KPIs)

In order to assess whether Financial Management for IT Services has been successfully deployed, the following Key Performance Indicators may be examined:
* do the predicted budgets match the actual expediture?
* has user behaviour changed to follow the corporate IT goals?
* are charges seen by users and customers to be simple, fair and in line with organisational goals?
* does the IT organisation provide the expected level of income/profit?
* does management feel more confident in their ability to predict costs in IT planning?


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