Understanding the Limitations of the General Ledger
The Role of the GL in Financial Reporting
The GL serves as the source of truth for financial reporting, maintaining high referential integrity due to its annual audit requirements. However, its primary focus on financial transactions means it lacks the depth needed to manage and analyze IT spend comprehensively.
Complexity of IT Financial Management
ITFM requires the ability to view technology spend through various lenses, in order to manage costs more effectively. The GL’s linear approach to financial data makes it difficult to achieve the multifaceted views necessary for running IT like a business.
The Four Views of ITFM by Gartner
Asset View
The GL can categorise IT assets, such as hardware and software; however, it struggles to capture the detailed costs associated with these assets. The asset view is essential for understanding the financial impact of IT investments, yet the GL’s limitations make this challenging.
Technology View
Translating GL spend into technology services like servers, storage, and networks requires multiple cost centers, complicating financial management. Managing IT costs with such granularity is cumbersome in the GL, leading to inefficiencies.
Business Services View
Aligning IT costs with business units and services is vital for showback and chargeback processes. However, maintaining detailed service catalogues within the GL adds complexity and makes it difficult to provide accurate cost allocations.
Investment View
Differentiating between costs associated with running, growing, and transforming the business is crucial for strategic planning. Tagging and classifying spend accurately in the GL is challenging, hindering effective investment management.
Additional Views of ITFM Spend
Fixed vs. Variable Costs
Categorising IT spend as fixed or variable provides valuable insights for cost management. However, managing these views within the GL is impractical due to its limited flexibility.
Product and Customer Journey Views
Viewing IT spend as products or customer journeys helps align IT services with business outcomes. Implementing these views in the GL is complex and resource-intensive, making it an inefficient solution.
Example of Complexity in the GL
Managing Invoices and Detailed Costs
Splitting invoice lines for detailed cost tracking is necessary for comprehensive financial management. However, this approach is impractical within the GL, as it requires significant manual effort and increases the risk of errors.
Limitations in Aggregating Data
Creating comprehensive reports from the GL is challenging due to its limited ability to aggregate and analyze data across multiple dimensions. This impacts resource efficiency and requires specialized technical skills.
The Need for an ITFM Tool
Benefits of ITFM Tools
ITFM tools are designed to generate multiple views of IT spend accurately and rapidly. They handle granular consumption data, such as server host names and desktop serial numbers, building trust in IT service consumption.
Complementing the GL
ITFM tools act as a subledger to the GL, managing views, transparency, consumption, and service data effectively. They provide the flexibility needed to scale and adapt to evolving business requirements.
While the GL is essential for financial reporting, it is not designed to manage the complexities of IT financial management. ITFM tools like MagicOrange offer the detailed insights and flexibility needed to optimize technology spend and drive business value. By complementing the GL, these tools ensure comprehensive cost transparency and effective financial management. Contact MagicOrange today to learn more about optimizing your IT financial management practices.
