An introduction to the MOF Financial Management SMF
Our previous five blog articles in this series explain the role of the Microsoft Operations Framework (MOF), service management functions (SMF’s) and introduce the Planning SMF which is the first step in implementing MOF within your business. If the topics introduced below don’t make sense or perhaps you feel they’re missing context then please refer to the following articles for background context and explanation.
Blog Article 2: Plan for success.
Blog Article 3: The importance of aligning business and IT strategic planning.
Blog Article 4: Planning for IT reliability
Blog Article 5: Implementing better IT policies.
As a quick recap, the MOF IT service lifecycle encompasses all the activities and processes involved in managing an IT service: its conception, development, operation, maintenance, and ultimately its retirement. MOF organises these activities and processes into Service Management Functions (SMFs), which are grouped together in lifecycle phases. Each SMF is anchored within a lifecycle phase and contains a unique set of goals and outcomes supporting the objectives of that phase. The SMFs can be used as standalone sets of processes, but it is when SMFs are used together that they are most effective in ensuring service delivery at the desired quality and risk levels.
The Financial Management SMF belongs to the Plan Phase of the MOF IT service lifecycle. The following figure shows the place of the Policy SMF within the Plan Phase, as well as the location of the Plan Phase within the IT service lifecycle.
Figure 1. Position of the Financial Management SMF within the IT service lifecycle.
Why Use the Financial Management SMF?
This SMF should be useful for anyone with responsibility for measuring and evaluating the costs and benefits, or more comprehensively, the business value of IT services. It provides an understanding of the fundamental processes and activities involved and describes the context of financial management in terms of risk management and value realisation.
It addresses how to do the following:
- Establish service requirements and plan budget.
- Manage finances.
- Perform IT accounting and reporting.
Financial Management Overview
How does your organisation…
- Determine the value of IT services?
- Weigh financial risk and return to understand the value IT provides?
- Strike the desired balance between risk and expected financial contribution to the business?
Competent financial management will help you accomplish these objectives. The goal of the MOF Financial Management SMF is to provide IT relevant activities and considerations that improve financial management practices.
When management makes decisions about changes to IT infrastructure, systems, staffing, or processes, it uses financial data to justify the cost. However, cost tells only part of the story as value must be considered as well. The concept of value reflects service levels, business impact, and both hard and soft benefits. Financial management ensures that IT services and solutions have agreed upon value delivery expectations, as well as metrics for tracking and realising value, cost justification, and adequate budgetary support.
The primary Team SMF accountability that applies to the Financial Management SMF is the Management Accountability. The role types within that accountability and their primary activities within this SMF are displayed in the following table.
Table 1. Management Accountability and Its Attendant Role Types
|Role Type||Responsibilities||Role in this SMF|
|IT Manager||· Manages the overall business value realisation process for IT|
· Manages risk and approves expenditures
|· Ensures that the IT portfolio delivers desired business value|
· Drives accurate forecasting of IT resources
· Maintains known IT services costs and returns
|IT Finance Manager||· Manages the financial aspect of the IT organisation||· Ensures IT budget and accounting are accurate and timely|
|Business Relationship Manager||· Acts as communication interface between IT and the business and partners||· Validates that IT understands business requirements|
· Considers technology opportunities and constraints in business strategy
Goals of Financial Management
Successful financial management will help an organisation:
- Fully account for the cost of IT services while defining the expected contribution to the business.
- Attribute costs of services delivered to customers so that the costs can be recovered.
- Aid decision making by clarifying the costs, benefits, and risks of IT services.
- Contribute to business cases for changes to IT services based on a sound understanding of the cost benefit trade-offs involved.
The achievement of these objectives should result in several specific outcomes, which are detailed in the table below.
Table 2. Outcomes and Measures of the Financial Management SMF Goals
|IT cost accounting||IT costs accounted for and tracked|
Costs reviewed and improvements in progress
|Delivered business value||Each project evaluated for expected business value|
Project benefits consistently realised
|IT cost recovery||Customers charged fairly|
Charging model relevant and appropriate for the organisation
|Accurate IT budget||Comprehensive financial understanding within IT|
Actual budget is close to projected budget, without surprises
The following table contains definitions of key terms.
Table 3. Key Terms
|Operational costs||Costs resulting from the day to day running of IT, for example, staff costs, hardware maintenance, and electricity. Also referred to as non-discretionary spending.|
|Return on investment (ROI)||The ratio of money gained or lost on an investment relative to the amount of money invested.|
|Total cost of ownership (TCO)||The total cost of an item over its useful lifetime. TCO considers not only the purchase price, but also implementation and training costs, management costs, and support costs.|
|Value realisation||The identification, definition, monitoring, and evaluation of targeted business benefits that result from planned IT activities.|
How can I implement MOF?
Hopefully by now you’ll begin to understand the value that the Microsoft Operations Framework can bring to your business. The goals, outcomes and measures outlined above require many activities and considerations which form part of our day to day activities at First Solution. In fact, we’re experts in MOF and have even developed a unique ITIL IQ process that benchmarks a business’s current state, identifies their desired state and provides an action plan (called a Service Delivery Plan) that helps organisations of all sizes achieve their desired business outcomes. Most importantly, our unique ITIL IQ process begins with a Proactive Services Maturity Review (PSMR) which identifies a score (out of 100) that clearly communicates the current state of your businesses IT operational maturity. Armed with your ITIL IQ score, a non-IT professional such as a finance or procurement professional can concisely present to the IT Executive Officer the businesses current state, desired state, and ITIL IQ score with an action plan to improve the ITIL IQ score and thereby ensure that IT’s goals are aligned with the goals of the business and that both are progressing together. Once the IT Executive Officer has bought into the MOF concept we can help to develop an IT service strategy, IT service map, IT service portfolio and Service level agreements.
How can I better manage IT costs?
Simply get in touch to arrange a free Proactive Services Maturity Review and one of our MOF experts will conduct an interview with the IT Manager or IT Executive Officer within your business and provide an ITIL IQ score with which you can measure the performance of your IT function. Once you know your ITIL IQ score we can provide a Service Delivery Plan to help you improve it each month and measure and report progress back to you during a Monthly Service Review. And there we have it, an ITIL based solution to simply identify and measure the performance of your IT function. So, are you ready to better manage IT costs?