If you cannot explain your IT costs, you cannot manage them
This is part 1 of a series on IT Financial Management (ITFM). The series explores IT cost transparency, showback and chargeback, modern budgeting and forecasting, managing value through benchmarks and KPIs, freeing up budget for innovation, and building a mature ITFM organization as a source of competitive advantage.
“We do not know exactly where our IT spend is going, let alone how to explain it.”
“Our reporting is too manual and too fragmented.”
“By the time the numbers are accurate, it is too late to act on them.”
Sound familiar? You’re not alone. For many CEOs, CFOs and CIOs, IT spending is still a financial black box. They know the total spend. They see the budget lines. The story behind them is missing. And that’s a serious management problem. Because if you don’t know where your IT euros are going, decisions about cloud, data and AI are made without a clear financial picture. In the boardroom, IT becomes a cost to contain rather than an investment to manage for value.
"ITFM is not about spending less, it's about spending better."
Why tooling is rarely the real starting point
At Eraneos, we often see organizations turn to tooling in search of certainty and control. That is understandable. A new dashboard or platform promises faster reporting and greater visibility.
But the root cause usually lies elsewhere: in the way costs have historically been recorded, in fragmented data, and in unclear responsibilities. The CFO sees IT as an unexplainable cost. The CIO ends up defending rather than steering. If those foundations are not in place, new tooling may make reporting look more sophisticated without making the organization any better able to manage IT spend.
The real starting point is a shared understanding of what IT delivers, what it costs and who is accountable for the decisions behind that cost.
What IT Financial Management changes
IT Financial Management is not an additional administrative layer. It gives finance, IT and the business a shared view of IT spend and a common language for making decisions. It helps leadership teams answer three fundamental questions:
What are we spending money on?
ITFM provides visibility by service, application, business unit and project. It makes clear what is being delivered, what it costs and who uses it.
What is driving the cost?
It links budgets and forecasts to actual demand, consumption and operational data. Variances become visible earlier, making it easier to distinguish between growth, price increases, technology choices and inefficiency. The budget becomes a steering tool to control, not a ritual.
Where should we reduce, maintain or increase investment?
ITFM highlights duplication, costly legacy environments and opportunities to optimize. Just as importantly, it identifies where further investment is likely to create more value.
Without this foundation, every digital transformation is financially blind. ITFM is not about spending less. It’s about spending with greater intent and positioning IT as a credible partner that adds business value.
When the conversation changes
Consider a typical question in a quarterly review: “What does it really cost us in IT to support our commercial operations?”
Without cost transparency, that question triggers a manual exercise across finance, IT and the business. Spreadsheets are gathered, figures are re-entered and definitions are aligned. The answer may arrive just in time for the meeting, but it is likely to contain assumptions and will quickly become outdated.
With a shared cost model, the same question can be answered in the room. The CIO can show which services support which business areas and what those services cost. The CFO can look at licences, infrastructure, support and external suppliers. Business leaders can see the services behind their IT spend and the choices that influence it.
The conversation changes. Instead of asking, “Why has IT become more expensive?”, leaders can (and should) ask, “What is driving this increase, and are these the trade-offs we want?”
Higher costs may be the result of increased demand, supplier price changes, deliberate investment decisions or inefficiency. Those are very different situations, requiring different decisions. Once the distinction is clear, the discussion can move from cost control to value, priorities and trade-offs.
Four practical disciplines
Better IT cost management rarely begins with a major transformation program. It starts with four practical disciplines.
Create one shared view of IT costs. Finance, IT and the business should agree which services they want to distinguish, which cost categories belong to those services and at which level reporting should take place. Use recognised standards where possible rather than designing a model from scratch. In our experience at Eraneos, this discussion is often the turning point. It forces clarity about what IT provides, for whom and at what cost.
Keep the model useful, not perfect. The best cost model is not the most detailed model. It is the model people understand and use. Avoid unnecessary complexity and allow the model to evolve as the organization, technology landscape and management questions change.
Bring financial and operational data, and make it repeatable. As long as data from finance systems, configuration management databases, cloud platforms and HR systems is manually combined each month, reporting will remain slow and unreliable. Automate where possible and make reporting a repeatable process.
Embed in the management cycle. Make IT cost insights a regular part of quarterly reviews, portfolio discussions and budget cycles. Assign clear ownership of the cost model and reporting to someone with the mandate to maintain and improve it. Without this discipline, organizations often revert to Excel within a year.
Organzations that establish these disciplines spend less time finding and correcting figures. They spend less time debating the data and more time deciding what to do with it. They also identify optimization opportunities that can free up several percentage points of the IT budget, creating room for targeted reinvestment.
A question for your leadership team
Ask yourself three questions:
- Can you confidently explain where IT spend goes today, broken down by services, applications and business areas?
- How long does it take to provide a reliable answer when the board or an auditor asks about IT costs?
- Does your organization share a clear view of how much of the IT budget supports day-to-day operations, and how much is invested in growth and transformation?
If the answers are mostly “approximately” or “with considerable effort”, then discussions about IT priorities, value and risk are built on unstable ground. Cost reduction becomes a defensive exercise because no one can clearly see what should be reduced, protected or increased.
Don’t start with tooling. Start with one leadership conversation. Bring together the CIO, CFO and business leaders, and ask: Which questions about IT costs can we not answer properly today. Those unanswered questions are the starting point for an ITFM roadmap.
Until they can be answered with confidence, IT decisions will continue to be made without the full picture. If you want to position IT as a true business partner, getting these fundamentals in order is no longer optional, it’s essential. Every month that passes by, is another month of steering half-blind.
Next in this series
The next article explores how to make IT costs visible and tangible where decisions are made. We look at showback and chargeback: linking costs to departments, products or value streams, and bringing accountability closer to the business.
Following articles will cover modern budgeting and forecasting, managing value through benchmarks and KPIs, and freeing up budget by shifting investment from run to grow.
