Managing your company’s tech is an important, but complex task – and that’s where IT financial management (ITFM) comes in.
IT financial management is all about keeping track of your IT spending, making sure it aligns with your business goals and ensuring you’re getting the most value from your technology investments. It’s not just about cutting costs – it’s about making sure every penny you spend on IT works harder for your business.
In this article, we’ll cover what IT financial management is and why it’s so important, as well as 3 best practices for effective IT financial management.
What is IT financial management (ITFM)?
IT financial management (ITFM) is the process of managing the financial activities of an organisation’s IT department. It involves analysing, planning and controlling the costs associated with IT operations, projects and services,
Essentially, the purpose of ITFM is to give IT leaders the right tools to effectively manage, account for and analyse IT costs to ensure the organisation is getting the most value for its money.
IT financial management involves a range of key activities, including:
- Budgeting and forecasting: ITFM involves creating an annual or periodic IT budget and predicting future costs for IT resources. It’s about planning ahead and avoiding getting caught off guard.
- Cost allocation: This is about assigning IT costs to specific departments, projects or services to show what they’re each responsible for.
- Cost optimisation: ITFM focuses on cutting unnecessary costs without losing performance – e.g. by managing cloud usage better or getting more value from software licences.
- Value demonstration: IT teams often have to justify their spending to the rest of the business. Part of ITFM is showing how IT spending leads to business benefits, like driving growth or improving efficiency.
- Compliance and governance: IT spending has to follow the rules. This means making sure everything complies with financial regulations and best practices – from software licencing to data security.
- Vendor and contract management: Managing relationships with third-party vendors is key. It’s about handling contracts, negotiating deals and ensuring vendors deliver what they promise – and that the business gets the most out of its investments.
In short, IT financial management integrates financial planning with technology management to help organisations optimise costs, make smarter investments and get the most value from their IT resources.
The benefits: Why IT financial management is important for your business
IT financial management comes with numerous benefits that go far beyond just keeping your IT budgets in check.
ITFM helps you manage your IT investments more strategically while driving value – and that’s important if you want your business to succeed.
Key benefits of ITFM include:
- Better financial planning: With ITFM, you can base your forecasting on past spending patterns and future needs. This means fewer budget surprises and more informed financial decisions, and it also helps you allocate your resources to the right IT projects.
- Cost transparency: ITFM makes it clear where your money is going. It gives you detailed visibility into IT spending and allows everyone to see how much they’re consuming and why. This transparency helps in understanding which services are worth the investment and which ones might need trimming.
- Increased accountability: Because costs are allocated to the right people and departments, each team becomes more conscious of their IT consumption and spending. It holds everyone accountable – and that drives better decision making about IT resource use.
- Better decision making: ITFM gives you real-time data and insights on costs and usage. This allows you to make informed decisions about which services to scale up, cut back or invest more in.
- Risk mitigation: With ITFM, you can better manage financial risks. It ensures compliance with financial regulations and proper handling of software licences – and that helps you avoid fines or legal issues.
And much, much more. In short, IT financial management helps you save money, make more informed decisions and align your IT spending with your strategic goals.
3 best practices for effective IT financial management
Now that we’ve covered why ITFM is so important, it’s time to get into how to do it right. To help you get a better idea of what that involves, here are three best practices for effective IT financial management.
1. Align IT spending with business strategy
For your business to succeed, it’s important to make sure that every penny you invest in technology makes a difference. By aligning your IT spending with your business strategy, you can transform IT from a cost centre into a value driver for your business.
To achieve this, you need your IT department to fully understand your business’ short and long-term goals so they can focus their budget on the projects and technologies that’ll deliver the most value.
Regularly communicate to stakeholders how IT investments support business goals, and check up on projects along the way to make sure they’re still giving you the most value for your money.
2. Implement cloud cost management
Cloud services are an important part of IT infrastructure, but if they aren’t managed properly, they can eat away at your budget. That makes cloud cost management vital for ensuring you get the most out of your cloud investments without overspending.
Use cloud cost management tools to track your resource usage. Set up budgets and automated alerts for when usage gets close to your budget limits – this helps your IT team take action before the costs get out of control.
3. Foster collaboration between IT and finance
To get the most out of IT financial management, your IT and finance teams need to be working towards common goals – this’ll help your teams make informed decisions around technology investments and keep IT spending aligned with your business’ financial health.
Make sure your IT and finance teams have regular meetings to discuss upcoming projects, ongoing costs and how IT initiatives impact the business’ overall financial health.
Both teams need to understand each other’s priorities, and finance needs to be involved in the IT budgeting process early on. This’ll help ensure that the financial forecasts are realistic and align with your business strategy.
Wrapping up
Effect IT financial management isn’t just about balancing the books – it’s about making smarter, more strategic decisions that empower your business.
With the best practices above, your teams are all set to drive tangible business value, stay in control of your IT costs and make informed decisions about your business’ financial health.
