COST MANAGEMENT FOR INFORMATION TECHNOLOGY SECTOR

COST MANAGEMENT FOR INFORMATION TECHNOLOGY SECTOR

Introduction:

Cost Management is an integral part of the business management that works on the basis of estimates, wherein various activities such as collecting the data, analyzing the data and mechanism evaluation of the process and reporting.

ITIL (Information Technology Infrastructure Technology)

ITIL is the framework designed to standardize the selection, planning, delivery, maintenance and overall lifecycle of Information Technology services within a business. ITIL framework enables I.T. administrators to be business service partners.

I.T.financial management helps an I.T. organisation to determine the financial value of I.T.services provided to the customers. ITIL refers to the activity as service valuation based on the cost of the service and value added by both the I.T. service provider and the customers own assets.

Accounting, Charging and Budgeting are the three important customer facing ITIL Processes.

I.T.ACCOUNTING:

I.T.Accounting helps the organisation to monitor the I.T.expenses against budgeted goals and prevent budget deficits and losses. I.T. accounting provides an organisation with a standard language that internal and external customer’s business partners, and I.T. can use to evaluate the cost and benefits of I.T. services, standard rates and standard approaches to measure utilization or consumption of services. This helps to improve customer satisfaction.

I.T. Accounting is the process of collecting financial information for I.T. services and organizations. It helps the organization to determine the financial cost, benefits and risks of an IT service. By using accurate I.T. accounting information, an organisation can effectively value the services to satisfy its customer, manage demand and maximise the return of its investment through service portfolio management.

Cost classification Cost and benefit types and customer service recording are the three important characteristics of I.T.Accounting Framework.

I.T. CHARGING:

It is the process of billing for the I.T. service rendered to internal or external customers. The charging process uses two main sets of information:

1] Rates based on accounting information, forecasts of current and future customer demand,

2] Usage information based on actual measures and estimates.

I.T.Chargeback: 

It is an accounting strategy that applies the costs of I.T. services, hardware or software to the business unit in which they are used.

I.T. Showback; Showback offers departmental visibility into I.T. resources usage without charging departments for their use. When a Showback occurs, a document similar to a billing statement is sent to the I.T. department showing them the cost of an individual department’s usage but it is not expected to pay for it.

The IT charging activity combines the rate of service and the measure of consumption or utilization to create a bill or charge for the internal or external customer. The formula for cost price is as under:

Service rate X Service utilisation = Cost or Assessed Cost.

I.T.BUDGETING:

Budgeting is the process of planning and controlling the activities of an organisation. It is a financial plan for the objectives during the period covered by budget, which is predicted on the base of historical data. I.T.budgeting identifies all future I.T.expenses related to a particular service, operation or customer for a given period of time.

Preparation of I.T.Budget:

For preparing the I.T. budget ongoing expenses and project expenditure amounts are considered.

Ongoing expenses include expenses of staffing and compensation, hardware, software-licenses, subscriptions, clouds services, internet and telephone, support contracts, network infrastructure, client computing resources etc.

Project expenditure includes consulting expenses, general and administrative expenses, security hardware and software etc.

Types of I.T.Costs:

1] Development Cost:

This is the cost of developing new applications and devices having their value included as assets, which affect the fixed asset cost during their period of use. Development cost is divided into particular activities through specific drivers. Each of these activity is composed of the costs of collaborations, structures and other costing items linked to each activity.

2] Production Cost:

It is composed of Data Centre and the Support Cost. The Data centre has numerous services whose objective is to process data. The support cost must be treated together with the Data Centre Cost to maintain the data centre in operation and to follow its indicators.