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Achieving Cost Transparency

Establishing an appropriate flow of financial data is the starting point for good financial management

17Aug

The value of cost transparency is, well, pretty transparent, and most CFOs – as well as IT leaders with financial management responsibilities – readily make it one of their primary goals. Cost transparency can often be a vague concept, though. Simply knowing how much is being spent doesn’t give you cost transparency. Achieving true transparency requires a renewed look at what data is being collected, and why.

In a big data environment, an exponentially large volume of transactional data is available, in addition to 'adjacent' data incidental to the transaction, far beyond what is required for traditional accounting. Unfortunately, much of this data is left underutilized or ignored because financial systems and processes aren’t designed to handle it. Transactional information with accounting relevance, such as dollar amounts for things like depreciation or software maintenance expense, categorized by the chart of accounts, are captured and managed, while adjacent information like types of licenses or volumes often aren’t.

Solving this problem requires identification of what type of data can be captured and then determining specifically what data to capture. Deploying a cost transparency initiative is more likely to achieve results if structured within a broader strategic framework, as answering these fundamental data questions isn’t always as straightforward as it would seem.

This level of cost transparency is provided by Technology Business Management (TBM), a multidimensional discipline which helps achieve synergies between IT and the business, and increase clarity in decision-making. Applying TBM can help to eliminate much of the mystery that exists in IT budgets, and highlight the true – but often hidden – costs of IT consumption.

The importance of capturing and analyzing the right data grows in direct proportion to the increasing complexity of the IT environment. This is especially true in an environment that utilizes more cloud and as-a-service offerings, which may serve multiple departments or lines of business, and may even be outside the immediate purview of the IT department.

To develop a strategy for cost transparency, do not begin with a goal of simply capturing better data; rather, begin by understanding why the data that currently exists does not meet the needs of the organization. After gaining that understanding, then you can develop a more comprehensive approach to identifying which data is needed. Using TBM to achieve this goal will reframe the IT spend, ultimately delivering a much more accurate portrayal of IT spending, while promoting better understanding of both business-side and technology-side operations.

Enterprises embarking on a cost transparency initiative should consider these six points:

  • 1. Glean what insights you can from the data you already have. Begin with available financial data and identify operational data to which it can be matched, including projects, assets, service desk tickets and application information. This exercise will help you begin to discuss financial data in the context of the underlying cost drivers, rather than the type of accounting cost identified in the financial systems.
  • 2. Develop a strategy to articulate how you will use information to support decisions or better understand cost in a business context. Identify where data gaps exist and understand what data is most valuable to have.
  • 3. Fill the gaps. Embrace technology and tools, along with key methodologies like TBM, that help you find, clean, organize and transform your data. Determine the value of your missing data as part of developing a business case for investing in technology that addresses the gaps.
  • 4. Don’t wait for the perfect technology to be in place; create processes to immediately inject the data you have into planning and decision-making processes. Build spreadsheets that capture relevant information, ensuring this information includes both the cost and business drivers, and use these to better understand how data will improve processes like demand management, chargeback and capacity management.
  • 5. Ensure your operating model supports the resourcing needed to make data a focus and develop and promote skills, especially analytical skills, so you can create and use the data made available.
  • 6. Remember, the true power of data is unlocked through the right analysis. Begin to develop key performance indicators (KPIs) that are meaningful to IT and the business. Then benchmark your costs to the market and create a services view of IT cost to drive better decision-making both within IT and across the enterprise.

Establishing an appropriate flow of financial data is the starting point for good financial management, but doing so with cost transparency requires a deeper look into the systems and processes that generate this data. Often, those systems fail to provide the insights needed to adequately manage costs, and you need to go a step further to gain perspective on the 'big picture' of how those expenditures truly impact the entire enterprise.

Bryan Mueller is a Principal Consultant at Information Services Group (ISG) in the Banking, Financial, Services, and Insurance Vertical and contributes to the ISG TBM (Technology Business Management) Practice. He provides critical business insight to help clients develop strategies and achieve business outcomes.

Sources

Previously published on CFO Thought Leader.

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