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5.5  Planning for IT Accounting and Charging

5.5.1 The project
5.5.2 Feasibility study
5.5.3 The project plan
5.5.4 Designing the Cost Model and related processes
5.5.5 Performance indicators
5.5.6 Dependencies
5.5.7 Organisation
5.5.8 Tools
5.5.9 Training


This Section covers the evaluation and planning activities necessary to prepare for the implementation of sound IT Accounting and Charging systems within IT organisation. It is not exhaustive and is intended to provide specific activities within a formal project framework such as PRINCE2.

The planning phase can be expected to take 3-6 months, mostly dependent on the size and complexity of the IT organisation and the Availability of data. The preparation for IT Accounting can be carried out at any time but it is recommended that any new or amended IT Accounting System be brought into use at the start of a new Financial year. See also Paragraph 5.3.14.

5.5.1  The project

The first step in planning the introduction of, or Changes to, IT Accounting and Charging is to confirm the scope and requirements with agreed Terms of Reference (TOR).

The responsibility for IT Accounting and Charging in the operational Environment does not need to be decided at this point although in many organisations, the person most suitable for this Role would take the project management responsibility for its introduction.

The Project Board   This should comprise the following:

The project team    It is vital that the team has a fundamental appreciation of both the organisation's business and the IT Services organisation in order to understand the options available to management. Team members must understand the principles of IT Accounting and the following Sections are intended to provide the proper context and background for the work.

The board make all of their business decisions based on the recommendations of the project team's feasibility study and set appropriate budgets for the development and implementation project.

5.5.2  Feasibility study

Decisions about the scope and objectives of any implementation are based on the findings of the feasibility study, although decisions may be imposed because of management adoption of Profit Centre, or Shared Services initiatives.

The feasibility study objectives should include:

The following information should be included in the TOR for the study:

It is important for the project team to gain a clear understanding of the business of the organisation and highlight areas of doubt for a senior management decision. For example how to charge an intermediate Customer such as Personnel or Finance, who are using the systems on behalf of another business department.

When management approval has been given, a project plan must be produced for the development and implementation phase (based upon the outline plan produced by the feasibility study).

5.5.3  The project plan

Planning for the introduction of, or Changes to, IT Accounting and Charging must be carried out in an integrated fashion. The project may require discrete stages and the project plan must cover:

The project team must:

The initial analysis can be carried out by developing stand-alone spreadsheets or computer applications. On-going analysis and reporting is best carried out with the assistance of a proprietary package, designed for IT organisations.

5.5.4  Designing the Cost Model and related processes

To design the Cost Model, it is necessary to determine the way in which the businesses set out their IT requirements and even to assist in setting this in place if no formal Process exists. The IT organisation budget information and policies for IT Accounting and Charging are also needed. There are a series of steps that should be followed in developing the Cost Model:

Identify the planning cycle

It is important to analyse the planning cycles in the organisation so that the source, timing and content of required plans are identified.

Business divisions must produce business plans that include IT requirements (i.e. service requirements and workload forecasts) for their expected use of IT Services. These plans provide the information that enables the IT Executive to design the target Technical Architecture and produce the Operational Plan for the IT organisation. The production of these business plans is iterative and the IT organisation often develops a key role in advising on their production

A simple model of this process was discussed in Paragraph 5.1.2.

Establish current costs

Identify the IT Services that will be provided for the coming financial year, then estimating the total cost of resources needed to provide these services. Determine the Cost Units that are to be used for apportioning Indirect costs and calculate a Cost per Cost Unit for each, as described in Paragraph 5.3.6. Use this data to produce a first estimate of the Cost-by-Customer or Cost-by-service, whichever is required.

The data necessary to identify costs is not always readily available in most IT Service organisations. It may be necessary to know, for each Customer, the proportionate use of resources that are not currently accounted for, e.g. staff, accommodation, hardware, and software. Ideally, monitoring of resource usage should be automatic, using one or more software tools but some data is likely to be collected from paper records and reports or from stand-alone systems.

If costs are not properly identified it is likely that the initial calculations will be shown to be inaccurate during the monitoring periods. This could entail a redesign of the system, at the very least, complex recalculation of the spreadsheets will be needed.

To paint a more complete picture of cost estimates, the Project Team must attempt to quantify the anticipated growth (or other Change) in Workloads expected in each financial year. This information might be present in the SLA, may be obtained from Capacity Management or from the User community. This workload information is necessary to establish the amount of work by Business units (i.e. the business units to be charged, if Charging is to be implemented) that is to be undertaken by the IT organisation and from this, the Unit costs for the future years.

Check the data and the model

To validate the Cost model, it is important to calculate and check the identified costs more than once. The model should be checked by performing a full balance check. This check should be made in more than one way, e.g. by totalling all the individual Customers' costs and proving that this equals the budget figures as shown in Figure 5.3 and also by totalling the individual service costs and proving that this comes to the same figure.

5.5.5  Performance indicators

The obvious measures of the success of the IT Accounting and Charging systems are that:

The business objective of either break-even or profit whichever is the objective of the organisation, should therefore be met.

However, even the most accurate Cost Model may become invalid because of changes in Customer behaviour, perhaps resulting from changes in the behaviour of their clients. While accuracy in the calculations of the costs and associated charges is the objective, there are additional aspects of success that can be measured and used to determine the effectiveness of the IT Accounting system. Examples of other performance indicators that could be used include:

5.5.6  Dependencies

The three most important project dependencies are:

The most important Dependency is that there is senior management commitment to the introduction of IT Accounting and/or Charging systems. Senior managers must also be prepared to specify what they require from the systems and how these systems should interface with other systems in the organisation (e.g. Capacity Management). A fully functioning system also depends on the Availability of detailed and accurate information.

Professional IT Accounting skills are required to help ensure the IT Accounting and Charging systems are well designed. Where accountants are not available, company auditors may be able to advise.

5.5.7  Organisation

IT Accounting is an integral part of the IT Services Management structure and must be permanently staffed. IT Services Management is responsible for the IT Accounting discipline and whoever performs the Finance Manager role should report directly to IT Services Management.

IT Finance Management is responsible for the day-to-day operation of the IT Accounting and Charging systems and ensuring that the planned structure is operational. The Project Management Office and other IT Services managers also have responsibilities for preparing and checking budgets and for assisting IT Finance Management in determining suitable IT Accounting methods.

It is likely that IT Finance Management needs support to carry out the work. In a small organisation the process of Service Level Management and the disciplines of IT Accounting and Charging could probably be combined so long as sufficient assistance is available to support the day-to-day activities. It is also common to share the responsibility for the IT Accounting aspects of IT Accounting and Charging with the Finance department.

Responsibility for IT Accounting and Charging for IT Services should belong to the IT organisation, since it is their task to ensure that the business objectives underpinned by IT are met; responsibility for IT Accounting of IT Services cannot be placed anywhere else.

5.5.8  Tools

Except for very small IT Services organisations, it is not practical to attempt IT Accounting without the Availability of a suitable application or software tool. Facilities required include the management of ledgers, reporting of resource usage, and the calculation of costs according to the chosen Cost Model. Tools are available to provide the data that IT Accounting and Charging require but most IT organisations use standard spreadsheets for developing budgets and Cost Models.

Frequently, the General Ledgers and Purchasing systems are already in place, and the tools for producing Cost and Charging analysis require methods of importing data from these. Service Desk and integrated Service Management processes are likely to be able to provide data to be input to cost calculation but care must be exercised that the development and implementation of such facilities does not lead to systems which are too expensive to maintain.

5.5.9  Training

Everyone involved with IT Accounting should be provided with appropriate training about IT Accounting. It is also recommended that they understand the fundamentals of Capacity Management, Change Management, Configuration Management and Service Level Management issues.

Many training organisation offer courses with titles similar to 'Financial Management for non-Finance Managers' which cover the understanding of Budgeting, annual reports and balance sheets necessary to undertake the implementation of IT Accounting for IT Services.

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