Know your IT cost of goods sold

As IT has become more pervasive in most organisations, it has migrated from a supporting role to an enabling role for products and services. As a result, IT costs represent a growing and sometimes significant part of the products and services your organisation offers total cost - yet many firms lack the IT financial transparency to understand the implications. At one level, this limits executives' ability to optimise or manage their gross margins, while at another level it may even distort the firm's financial accounting reports. Understanding your IT cost of goods sold can lead to a more agile and competitive organisation.

IT costs manifest themselves in diverse ways across the enterprise, and because few organisations chargeback for IT in a consistent and detailed way, accurate financial accounting is unattainable. IT costs may be incurred for:

• General enterprise wide administrative purposes-email and global ERP systems.
• Business unit administrative purposes-inventory management and point of sale systems.
• Sales and marketing purposes-CRM and territory management systems.
• Direct product or service purposes-applications enabling employees to produce or sell products.

Although these IT costs are associated with a number of different activities, many organisations account for all IT costs the same way-lumping them all into general and administrative costs. This is true whether or not these costs are charged back to the business units. This treatment distorts financial statements and hampers executives' decision-making.

IT financial transparency enables smarter business decisions

With complete financial transparency, IT not only splits out IT costs by activity, but charges back all IT expense at the service level based on consumption by the customer. This provides business executives with information that they can use to make key decisions.

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