Home > Articles > Software Development & Management

This chapter is from the book

Improve Value-Added Financial Management Activities

Accurate financial information can be used to improve service and lower cost through more a range of advanced IT financial management activities, including service valuation, service provisioning, cost optimization, investment analysis and demand modeling.

We summarize three of these activities and selected practices below and continue this discussion in Chapter 5 on how to use business cases to implement service investment analysis and service portfolio management approaches to maximize IT investments.

Service Valuation

As an IT organization develops and matures, IT financial management values services contained in the IT service portfolio. This linkage clarifies the service offerings and the rates for internal and external customers. It also provides discipline for the IT pricing. For example, if a customer would like a service beyond those services offered on a service catalog, the organization would establish a process to determine if this exception is truly feasible and cost-effective.

The cost, or provisioning value, of the service is based on actual IT accounting information. Establishing the value over and above the cost, referred to as the service value potential, is more difficult. We recommend that as your service valuation matures, you leverage the below approach to define the tangible and intangible benefits from IT investments.8 As the customers begin to perceive that the IT organization consistently provides a positive return on IT investments, the IT organization will begin to act as a business partner to its customers. More mature pricing allows for more accurate collection of fees for IT products and services through SLAs, and more accurate pricing of IT products and services in the IT service catalog.

Service value from tangible benefits of IT services are directly observable and measurable. They include IT investments that reduce cost, improve quality of service, and expand available system and storage capacity. Tangible benefits specifically tied to financial measures include direct cost savings as a result of a completed and implemented IT project. These costs are often quantified in a business case (summarized in Chapter 5) that might also include future cost avoidance from a variety of sources, such as lower maintenance costs from a newer IT system.

To determine the value of a service, an IT organization might also quantify cost savings as a result of continuous improvement activities, such as improved quality of service through continuous improvement activities related to server outage history, server utilization statistics, business criticality, outage impact, service levels, and processing speed. For example, a tangible benefit of an enterprise resource planning (ERP) solution that replaces a number of existing applications might be consolidation of software and hardware, which might lead to cost savings.

Intangible benefits are much more difficult to measure. Professor Baruch Lev of New York University and others define intangible benefit as a perceived value to an organization of an activity, but this benefit may not be directly observable or measurable. This difficulty of identifying intangible costs is in part related to the current accounting regulations, which do not allow companies to record all intangible assets as an asset for financial reporting purposes. Professor Lev has pointed out a number of examples in his writings. For example, he cites Cisco's Internet-based product installation and maintenance system generated $1.5 billion in savings from 1996 to 1998.9 This system—aside from the actual hardware and software costs—was not allowed to be recognized as an asset for accounting purposes. However, the IT organization should no doubt have included these cost savings in its quantification of benefits in a business case. As an organization that views IT as a positive ROI or a business partner, it begins to develop processes to identify and account for these intangible benefits to determine the service's value. Table 4-10 highlights different examples to measure intangible benefits through a process developed by Baruch Lev and others.

Table 4-10. Sample Ways to Measure Intangible Benefits

Quantitative Example

Standardized Categories

Empirical Evidence

Reduced risk of cyberattack

Reduced risk

Fewer IT costs related to spam and malware

Improved server uptime

Greater reliability

Increased uptime and, as a result, lower opportunity costs

Improved metrics for quality of service

Improved quality

Fewer service desk calls and lower cost of service

Reduced costs for service transactions

Improved speed

Increased cycle time and lower cost of utilizing IT resources

Demand Modeling

As the IT financial management process matures, an IT organization works with its customers to understand and forecast demand. By understanding this demand, an organization can understand future financial needs and evaluate investment options to maximize ROI. For example, an organization can model the demand for a given service at different prices to determine what additional capacity may be needed.

Without this demand modeling an organization may incur unnecessary cost or not be able to meet a customer's requirements. For example, in the case of a reactive IT organization, instead of knowing that a server might soon reach capacity and planning for a new expense, the reactive organization often purchases this server on an ad hoc basis. As a result, the organization might not have the time to collect quotes from alternate vendors to purchase this server at the lowest cost. Because these IT resources are budgeted on a reactive basis, the organization also might not be able to decide whether this server purchase is actually necessary.

If financial management practices had been in place, the organization could have used information from the IT charging and accounting process to model future demand and understand the cost of unpredictable increased capacity. Instead of purchasing this resource on an ad hoc basis, effective demand modeling with accurate financial management information could have enabled the IT department and business work together to develop a detailed business case to maximize their investments by perhaps determining that virtualization of existing servers could in fact provide additional capacity and be a cheaper solution to the problem.

Optimizing Costs through Service Provisioning Optimization

IT organizations must take a systematic approach to optimizing the cost of providing a given service. In Chapter 8, "Success Stories: Improving Service and Lower Costs," we discuss in detail the successful efforts of the Department of the Navy CIO to execute systemic application and infrastructure consolidation to evaluate the cost-effectiveness of the services that they provide.

Improving the cost of providing the service and determining whether this service should be provided by the IT organization is the function of service provisioning optimization. This activity takes a systemic, rigorous look at specific services and determines their financial viability and areas for improvement. There are a number of ways to measure the financial effectiveness of your services:

  • Conduct a financial analysis: Conduct a financial review of the service using standard cash flow techniques to determine the service's viability.
  • Benchmark your service against competitors to find areas for improvement: By benchmarking your service against other financial measures, you can determine which area may need improvement. For example, specific cost types, such as hardware or software, may need to be consolidated to be cost-effective.
  • Develop a business case for your service and alternatives: Subjecting your service to a business case can help determine whether it is viable and meets specific business objectives.

It is unfortunately all too common to find a range of IT services being supported that have only one customer or that generate revenue that is easily exceeded by the commitment of resources to maintain these applications. By rigorously scrutinizing these activities with accurate financial information, services can be provided at a high level of value based on the service and cost.

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.

Overview


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information


To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.

Surveys

Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.

Newsletters

If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information


Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.

Security


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.

Children


This site is not directed to children under the age of 13.

Marketing


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information


If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.

Choice/Opt-out


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information


Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents


California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure


Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.

Links


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact


Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice


We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020