As prices inflate and pressures to innovate continue, IT financial management is the phrase of the year for 2024. A distinguished analyst at Gartner says, “Organizations are shifting the emphasis of IT projects towards cost control,” and strategies like FinOps and technology expense management are the new way to keep a lid on spending. But as business leaders design an approach for being more fiscally conscious, there are important preparations that must be done before a program can even get started.
In mapping out key requirements, IT and financial leaders face critical questions to scope the underlying work necessary for success. Forrester analysts and studies alike warn that optimization programs can be threatened by labor limitations and a lack of maturity, which together result in slow returns. Here’s a look at four prerequisites that can have a direct impact on your time-to-insight, which ultimately means your time-to-savings and the ROI of your IT financial management program.
Prerequisite #1: Building an Inventory of Services and Assets
How will you audit your cloud services (IaaS, SaaS and UCaaS), mobile devices, and wireline telecom circuits, tracking down details like vendor, costs, contracts, users, locations, and hardware manufacturer. How long will that take? Do you have a centralized platform to serve as your repository? What will be required to maintain that inventory particularly as your software applications and tech services change over time?
Building the initial inventory is often the biggest hurdle and a known pitfall that can inhibit financial management success.
Estimating How Long Your Inventory Build Process Could Take
The time it takes to build your inventory will directly impact how soon you can see and evaluate your costs to find new ways to save money. One Tangoe client spent 2,000 hours (about 2.5 months) trying to catalog their telecom environment of 32,400 circuits when they quit and called Tangoe for help. Do the math here, and you’ll see that the client struggled to catalog as little as 16 circuits per hour. In contrast, Tangoe’s team of technology cost management consultants started fresh and built their inventory in 350 hours, accurately cataloging 92 circuits per hour.
This story explains why process automation is key in getting any cost optimization program off the ground. Auditing services and technologies, like those from Tangoe, can be essential. But maintenance is also important. Once a telecom catalog is established, for example, Tangoe requires less than one hour per year to monitor, manage, and maintain a single circuit. Meanwhile, manual in-house processes can take as much as 12 hours per year per circuit.
Learn how Tangoe makes inventories easier.
Prerequisite #2: Collecting and Managing Invoices
IT financial management is essentially a disciplined study that intimately understands existing costs and spending trends. Thus, the speed and efficiency of handling invoices plays a large part in controlling IT budgets. How long does it take you to process an invoice? How many full-time resources are committed to your IT expense management practice? Consider the following steps as vital for fiscal management:
- Capturing information in all the right internal financial systems
- Routing and receiving invoice approvals
- Validating the accuracy of charges against your current contracts
- Identifying billing errors, making and following up on claims
- Allocating IT costs across departments and lines of business – a key activity in understanding which tech investments produce a positive ROI
- Reconciling actual expenses against budgets to identify cost overruns
- Paying invoices on a timely basis to avoid service disruptions and ensure business continuity
The speed of expense information processing directly affects your speed to insights.
Calculating Your Invoice Management Times
Tangoe estimates most companies require 5-10 minutes to simply capture invoice information properly, whereas a fully automated system can process invoices in 8 seconds. Much more time is needed to handle the remaining tasks above, with some estimating it takes 50 hours to manually manage a single invoice.
Don’t forget that cloud infrastructure invoices compound the complexity of financial management, due to the high number of line items and charge fees, which can easily reach in the hundreds and even thousands. For most it’s too much to decipher without the support of IT financial management software.
Here’s another rule of thumb: For every 25 service vendors you use, you’re handling somewhere between 100-300 invoices and roughly 2,200 cost allocations.
Prerequisite #3: Collecting and Managing Service Contracts
Like invoices, managing service contracts are equally important in any cost optimization effort. After all, you can’t lower the cost of contracts if you’re not out in front of them. That means it’s critical to understand how many people and how long it takes you to handle vendor contracts and procurement processes, including:
- Proactively tracking contract renewals on a calendar
- Alerting procurement teams and stakeholders to stay ahead of procurement cycles
- Tracking market price trends for like services
- Auditing current service usage and assets in use to make informed purchasing decisions
- Execute RFP processes and renegotiating contracts with favorable terms
- Acquiring pricing quotes, approving orders
- Building a system of governance to better control orders of high frequency like mobile phones, mobile data plans, software licenses, or telecom services
See how Tangoe helped a logistics leader drive $1.4M in mobile and telecom contract savings
Dollar Values can be Your Guidepost for Human Resource Requirements
In knowing if your contract and procurement team is prepared to take on a concerted cost optimization program for IT, map the maturity of your program and know the dollar value of your procurement annually. IT budgets of $50-200M could easily need 3 to 10+ people depending on how automated your processes and systems are.
Prerequisite #4: Tooling IT Financial Visibility and Management with Software
Another key consideration is how you will tool your effort. Will you build or buy a technology software platform to enable financial management and optimization? Here are some key things to think about in building versus buying a solution.
Centralized Management and Integration: How will you break down data silos to gather critical cost information from a variety of vendors and sources, integrating data in a centralized system? How will you ensure your platform will continue to work with new services as the corporate list of vendors and tools in use evolves and changes? How will your platform build bridges between an increasing number of IT service dashboards and your corporate financial systems? How will you tie costs/invoices and contracts to projects, departments, and lines of business in ways that help you measure ROI on your technology investments and see the business value of your digital transformation initiatives?
Cost Governance: How will you create custom spending thresholds and alerts capable of notifying stakeholders before cost overruns occur, providing warning signs of when costs are approaching their limits? How will you notify IT when an employee expenses a new cloud software on their personal card? Do you have ways to flag low-value expenses less than $500 or $1,000? Consider that cloud software and application costs typically fly under the radar, which calls for SaaS management.
Advanced Technologies: Are you using the latest AI technologies, advanced analytics, and Generative AI tools to accelerate the pace of optimization and more intelligently generate or automate cost savings? How will you source the expertise to train your AI engines using best practices in expense management?
IT Financial Management: Knowing Whether to Build or Buy
Forrester warns that DIY efforts are on the rise but work only for large enterprises that have 15-45 engineers and at least $1M to commit to building a cost management technology platform from the ground up. So, it’s easy to see how a fully managed service for IT financial management can pay for itself.
For instance, telecom expense management services charge anywhere from 1% to 5% based on how much IT spending you have under management. Meanwhile payouts average between 20% and 40% according to Tangoe’s client success records. Using conservative calculations, that’s a 15% net savings.
What could you achieve if your budget stretched 15% further?
Starting on the Right Foot
In conclusion, implementing an IT financial management program requires careful consideration of key prerequisites to ensure its success. Building a comprehensive inventory of services and assets, efficient handling of invoices, proactive management of service contracts, and strategic selection of cost optimization tools are crucial steps. The significance of process automation, as demonstrated by Tangoe’s client stories, underscores the importance of a well-planned and streamlined approach to achieve both time-to-insight and long-term cost savings. With these prerequisites, you’ll be getting started on the right foot.