IT Service Financial Management

Basic Concepts

The costs of services or products can be based on several criteria:

Costs that may be attributed directly or indirectly to the delivery of the service or manufacturing of the product:

Direct Costs: these are costs that are specifically related to a single product or service, such as for example, web servers used for an Internet service.
Indirect costs: these are costs that are not specifically related to a single service, such as the IT organisation's connectivity, on which many web services and the general communications platform depend. These costs are more difficult to determine and are generally spread, pro rata, across the various services and products.

Costs that are dependent on "how much" (or not):

Fixed costs: these are independent of the volume of production and are normally related with the costs of fixed assets.
Variable costs: these include those costs that depend on the volume of production and encompass, for example, the cost of the personnel providing the service, consumables, etc.

Costs that depend on the time horizon:

Cost of capital: deriving from the repayment of fixed assets or long-term investments.
Operating costs: costs associated with the day-to-day functioning of the IT organisation.

It is essential to distinguish between the different types of cost in order to design a clear and consistent price policy.

Cost types are, in turn, subdivided into cost items. The diagram below shows a typical structure of cost types and items in an IT organisation:

* Transfer costs refer to the internal charges made for services provided by other departments of the company or institution.