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Friday, March 16, 2012

Introduction to Financial Management


Money – The Best and Worst thing invented by MAN. The purpose of running a business is to make money and generate profits. Like any other business, the IT service provider, whether run as a commercial business or not, needs sound financial management. It must ensure it has the right amount of money available to put its plans into action, to make sure that it understands how its money has been used, to determine if the money has been used effectively or whether a proposed new investment is sound. It needs to understand what individual services cost to deliver and how these costs should be divided among the service users, so that, among other things, it can assess the impact of changes in demand and levy charges for service use if appropriate.

Financial Management is about looking after the organization’s financial resources, making sure that they are prudently employed and that their use is properly accounted for. Financial Management makes sure the organization has an understanding of the costs of its operations, the structure of these costs and the things that influence them. It helps the organization make the best decisions about the services it should provide, the way services should be provisioned, the investments required for their delivery and the effect of changing patterns of demand. It evaluates the value of services to the business and, if relevant, a basis for setting prices for them. Working with Service Portfolio Management, it helps the organization determine the services it should provide and those it should discontinue or change in some way.

Financial Management helps with financial planning, making sure that the organization’s plans align with its ability to support the financial costs and manage the risks. It keeps track of expenditure so that it is clear how the money has been used. By routinely comparing expenditure and income with financial plans and budgets, Financial Management will identify potential problems and take appropriate action to keep the organization on track. Where the IT service provider charges for service, Financial Management will advise on how this should be done and what charges should be levied.

IT service providers must work in a rapidly changing world. Businesses, and the context in which they operate, are constantly changing, and the IT service provider must respond rapidly and effectively to these changes. Strong Financial Management enables the IT service provider to make better decisions and respond more rapidly to change. It enables better control over spending, ensures sound investment decisions and promotes value capture.

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