4.4 Financial Planning and Control

Effective management of business technology requires proactive and analytical financial steering to justify operational performance, investment feasibility and allocation of costs. Management, along with decision making, is dependent on transparency with clear structures and processes surrounding financial management.

Figure 4.4.1 Financial management views

Financial transparency and planning

Financial transparency shows how accumulated costs are transferred to service consuming fees and how actuals correlate to plans. Financial planning ensures:

• Reserving future cash flow to business technology elements (budgeting)
• Measuring the actual spend by business technology elements and comparing actuals to planned costs to identify deviations and suggest corrective actions (controlling)
• Allocation of business technology costs to business units and -capabilities as service fees (invoicing)

Cost transparency is not easy to achieve. Spends accumulate on general ledger level while budgeting is done on business technology element level and business is invoiced on a higher business technology services level. The best practices to tackle cost transparency are using a standardised taxonomy and grouping costs to pre-defined cost groups and services. As well as utilising a rule-based cost modelling system to automate calculations.

Technology Business Management (TBM) taxonomy defines standard cost sources, technologies, resources, services and capabilities to provide leaders with the facts they need to communicate the value of technology and make fact-based decisions. Standardised taxonomy also enables effective collaboration and communication between business management, business technology management and service development and delivery management. A simplified view of the taxonomy is illustrated below.

Figure 4.4.2 Technology Business Management (TBM) taxonomy

Financial feasibility

Financial feasibility provides feasibility analysis about proposed, on-going and completed development initiatives and feasibility of on-going services throughout their lifecycle by assessing:

• Financial feasibility of proposed development initiatives with the demand and development portfolio steering. Analysis is based on a business case with payback and/or net present value calculation (Pre-feasibility)
• Financial feasibility of an on-going development initiative with the project steering. Analysis will help to make go/no-go decisions to identify initiatives that should not be continued even with high sunk costs
• Financial feasibility of completed initiative by measuring the realised costs and business benefits and comparing them to the previously approved business case. The analysis is important for lessons learned purposes (Post-feasibility)

Financial steering

Financial steering contributes to strategic planning and service portfolio steering by providing insights about optimal allocation of financial resources. It provides insights on:

• Cost levels by making benchmarking total cost levels and more specific service cost levels with similar organisations. Benchmarking justifies cost saving initiatives or additional investments (Benchmarking)
• Right balance between build and run as well as between investments (capex) and operational costs (opex). These ratios are highly dependent on current business status, but usually organisations aim at saving operational costs and investing more on development (Build/run ratio)
• Right allocation of money to different value streams. The value stream ranking high in created or expected business value should get more money and vice versa. Value streams and their investment profile is a key topic in strategic planning. Money allocation creates demand while cost allocation is result of supply (Demand-supply balance)
• Business value of the on-going services to justify further investment or service retirement. Traditional business case calculation is not adequate as it is targeted for investment calculation, while the on-going business value calculation is based on current asset value of the business technology.

Financial management should not be seen only as a function operated by finance. To be effective, it requires contributions and collaboration from multiple business functions, including business technology, and is enabled by using standardised models, terminology and ways of working. Transparency, accurate planning and treating financial management as a strategic capability allows businesses to create and demonstrate the value of technology.