IT financial management

IT financial management - ,ThirdEdition;; 2009 extracted...

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Information Technology Control and Audit, Third Edition  ;  by   Sandra Senft  and  Frederick Gallegos Auerbach Publications   © 2009; extracted from DePaul ebooks for classroom use. Chapter 12: Financial Management As more business processes have been converted to information technology (IT) applications and the  Internet infrastructure has grown, IT spending as a percentage of total spend has continued to increase in  many industries. In addition, increased regulatory requirements are driving demand and related IT costs  higher. However, pressure remains on keeping operating budgets flat (Gartner). Therefore, it is critical for  IT to have a solid financial framework to meet these conflicting demands. In an environment where there  is an unlimited demand for technology and limited resources available, the IT spend has to be controlled  and managed. At the same time, it is important to protect against underinvestment in technology. The organization is responsible for determining the appropriate level of investment in technology as part  of the overall business plan and profit and loss goals. IT cannot plan or budget in a vacuum, but rather  takes direction from the organization it supports to determine what and how much to budget. The drivers  of cost for IT include the number of employees, customers, locations, and the type and scope of  applications. An organization may decide it wants to move from a call center support desk to a Web- based application for customer self-service. This new application will drive the amount budgeted by the IT  organization for the initial development costs and the ongoing support costs. “After years of double-digit  spending increases in IT, CFOs and their finance staff articulated the need to bring discipline to the  management of technology funding, as well as the ever-present desire to improve yields on IT  investments” (Working Council for Chief Financial Officers, 2003). This trend has increased the need for  financial control over IT investments and operating budgets. IT spending is controlled by implementing a  solid financial framework that defines decision-making rules, prioritizing IT investments, ensuring that  benefits are realized from IT investments, managing to an operating budget, and understanding and  managing IT costs. Financial Management Framework A solid financial framework establishes the rights and responsibilities of business and IT management in  making financial decisions. Investments in IT as well as normal operations require decisions on significant  financial transactions on a regular basis. These transactions can commit an organization to a technology, 
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