The challenges of ISD financial management

Faced with (r)evolutions in digital usage and the acceleration of technological innovation, the financial management of an IT Department is more essential than ever for the company and its Business Departments. Good IT financial management allows you to concentrate on analyzing and anticipating needs. 

In an increasingly competitive environment and a tense economy, the financial management of an IT department needs to be agile in order to take account of innovations and to be able to rapidly redirect investment capacity. The 3-year investment plan is no longer set in stone! Controlling operating costs in the short term, but above all in the medium and long term, also greatly enhances the financial capacity to implement value-added solutions.

With over 35 years' experience in information systems in a wide range of sectors, including 5 years in interim management, Christel Loitron, interim CIO and member of the Infortive community, takes part in the "CIO Management" module of the CIO EXECUTIVE CERTIFICATE offered jointly by Infortive Transition and CentraleSupélec Exed. 

ISD financial management to improve communication

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Throughout the course, she talks about her many experiences: 

"The IT budget is often seen as a cost center, even a money pit, where no one understands why it costs so much. The ISD financial managementfinancial management, with the implementation of a few basic tools, has enabled me tosignificantly improve communication with the ComEX and the Business Departmentsto give visibility and transparency and also to involve the Business Sector more closely in key choices for the company.."

The IT department evolves into a business partner role

Today, General Management has high expectations of the way in which the company's financial management and the IT Department's economic management are linked to achieve its objectives. The financial management of information systems enables the CIO to evolve towards the role of business partner, demonstrating his or her contribution to the company's performance. And this is one of the many challenges facing the CIO function!

It's no longer possible to manage an IT department solely on technological aspects.

The IS Department is cross-functional

It works closely with the Finance Department, making an effective contribution to improving the company's management indicators, EBIT and EBITDA (find out more about EBIT and EBITDA), as well as contributing to the management of human resources and the development of internal resources policy (versus outsourced services, for example).

Align with strategic corporate objectives

In addition to providing operational solutions at controlled costs, the IT Department must respond to the company's strategic challenges and control the ROI generated. The financial management of the IT Department must therefore be based on adapted tools and processes, and innovations to industrialize or at least simplify the function. 

Measure team maturity and implement appropriate management tools

"The first thing I do when I join an IT department is to measure the level of maturity of the teams (IT and Business) in the concepts of IT department financial management. This will enable me to build an awareness programor even a more advanced training program, adapted to the company's context. To take a concrete example, if the company is owned by an investment fund, the priority will be to reduce OPEX expenditure, even if this means increasing CAPEX. Not easy in a context of cloudification and pay-per-use invoicing", says Christel Loitron.

And while setting up a budget is fairly straightforward, what makes the difference between the CIO who steers his budget and the CIO who "navigates by sight" is the one who puts in place the tools to monitor expenses incurred and costs incurred on a monthly basis, with the ability to keep a forecast for the year.

During the CIO EXECUTIVE CERTIFICATE course, students are introduced to the basic concepts that Christel Loitron is accustomed to using in the field: simple diagrams to explain CAPEX (capital expenditure) and OPEX (operating expenditure), costs (one-off, recurring, licenses, implementation, maintenance, operation, etc.), cost centers, analytical projects, costs measured in man-days, such as salaries and contracted services, and all purchasing concepts (of many kinds: hardware, software, network, etc.), covering the entire perimeter of the company..), covering the entire company perimeter, including customers. 

Building your budget

Once all these concepts have been mastered, you can start to build the budget, i.e. identify the resources R1, R2, R3,... which will be consumed by activities A1, A2, A3,... and carried by departments S1, S2, S3,... for the benefit of Departments/BUs D1, D2, D3,... To do this, you will use a tool, usually an Excel spreadsheet, or software adapted to IS budgeting in companies with a good level of maturity. 

The role of management control

Ideally, the IT Department's financial management should be accompanied by a dedicated IT management controller who has a thorough understanding of accounting tools and is able to communicate with the IT Department's various contacts. Generally speaking, when this exercise is carried out, the budget obtained is well in excess of General Management's expectations... The optimization and arbitration exercise then begins. We need to work with visual tools to present them to the ComEX (or CoDir) and enable the Business Departments to arbitrate.

The X, Y, Z diagram

"I really like the X, Y, Z diagram, which presents the project's added business value, ROI, cost, criticality, workload, project duration, etc. Axes to be defined according to the company's priorities. It goes without saying that a "real" ROI calculation has to be made upstream, and then measured downstream. This method, tried and tested on many occasions, is always a success and makes choices easier. In short, give maximum visibility and transparency to decision-makers!"

Budgeting is essential, but not sufficient

Teams need to be trained to monitor their budgets! A process for ordering and validating invoices must be put in place. A simple tool, such as a flow chart showing the actors, tools, actions and thresholds on an A3 document, is all that's needed to get started. Once you' ve got the tools in place, you can automate the process as soon as the volumes become significant. 

CIO financial management: a guarantee of value creation for the company

The CIO's financial management challenges are therefore considerable:

• Strengthen IS-business collaboration, to work better together (a prerequisite for successful digital transformation) and present activities in a service-oriented way,
• Enable each ISD manager to draw up a budget for his or her area, and to monitor it effectively throughout the year,
• Place the company in a position to define a culture of economic performance for IT, with a view to creating value while meeting digital investment needs,
• Provide management with the visibility and transparency they need to understand costs.

The CIO's impact on needs analysis and anticipation

Faced with (r)evolutions in digital usage and the acceleration of technological innovation, the financial management of an IT department is more essential than ever for the company and its business divisions. Good IT financial management allows you to concentrate on analyzing and anticipating needs. 

To conclude, Christel Loitron encourages us once again: 

"I'd say that every euro saved in the IT department directly improves the company's EBIT and/or EBITDA. And when you present the year-end forecast, thanks to this controlled and rigorous management, you announce that you will only spend 90% of the maintenance budget allocated to you, the whole ComEX applauds you. It's a true story!"

And who doesn't love a good round of applause? (We certainly do!).