Branimir Valentic
September 15, 2015
When taking part in some of the ICT-related conferences, I meet many people working in many different industries and company sizes. Of course, since working environment dictates daily activities and the issues they live with, there are always many different stories. One thing is always among “the topics” – Financial Management.
There are many elements and activities within the scope of the Financial Management process, but most of them are not visible to the outside (of the IT organization) world. We already discussed the three main activities of the Financial Management process according to ITIL in the article Financial Management for IT services – theory and practice – budgeting, accounting, and charging. Well, charging is an activity that is highly visible and that will provide proof about the quality of the services you deliver. How? It’s simple: if customers are satisfied with your service – they will pay for it. The next question is – how much are they willing to pay or, to take the opposite point of view, how much can you charge them?
There are several options, depending on what type of organization you are.
There is a big difference depending on whether you are a Type I, Type II, or Type III organization (you can recall more details in the articles ITIL Service Provider types – Type I: Internal service provider, ITIL Service Provider types – Type 2 or Shared Services Unit, and ITIL Service Provider types – Type 3 or External Service Provider). Or, if we simplify it, whether you are supporting your own organization (internal IT) or providing your services to external customers on the market.
The point is, if you are internal IT (Type I or Type II organizations) – you have to comply with many internal (financial and accounting) rules, and you actually don’t have to bother with too many details about charging or, in this case, recovering costs.
But, if you are providing services to external customers – it’s a different story. In that case, you are limited by the market and rules that are purely business oriented. That means that you have to take care about the cost side, but also about competitors, market, revenue, business model, etc.
I spent quite some time in this role – leading an internal IT organization. And, I can tell you, although it seems simple – it’s not. Other than having to fight with politically oriented issues, one of your biggest concerns will be – costs. There are several models for charging as internal IT:
Figure 1: Charging options for internal IT organizations
Once you try to sell your services, the moment of truth comes. You will get direct feedback from the market about how much your services are worth, if anything. Other than having to compare yourself with other competitors (which is always a good idea), there are several models of how to form the price:
Figure 2: Charging options for external service providers
Although charging models sound complicated, they can be implemented pretty simply, but you have to know your options. And you are not alone in “the game.” In the case of internal IT, there are financial policies or principles (set by financial people) that you must use. If you are sending invoices outside the company – talk to sales people and management. It will give you a clear picture of what to do.
No matter what kind of organization you are, you have to validate how much your service is worth. Charging gives you the answer.
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