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IT COST MANAGEMENT: 10 STEPS BUSINESSES CAN’T IGNORE

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By Matt Dando, Director, Strategic Business Value Consulting at Serviceware

 

In today’s ever-accelerating digital era, and as we recover from a global pandemic, digital transformation has stepped more firmly into the limelight. Over the last 18 months, digital initiatives have accelerated, with investment in the cloud also increasing dramatically. Digitalisation is arming CFOs and CIOs with data, but understanding what to do with it can be overwhelming, especially when battling to manage cost data from the various vendors associated with both cloud and existing on-premises investments.

With pressure around sustainability acting as another catalyst for cloud adoption, never has there been a greater need for businesses to have a complete, detailed and transparent view of all IT costs. In fact, now is the time for businesses to ensure that they are managing IT costs effectively – not just in terms of cutting, but also optimising, investments, and reinvesting in the tools and technologies that can and will enable them to keep up with the wider business strategy. Luckily, there are 10 simple steps that businesses can follow in order to ensure a comprehensive, detailed and streamlined control over all IT costs.

Step 1: Building a comprehensive IT service catalogue

The starting point for IT cost control is the creation of an IT service catalogue. This catalogue outlines individual IT services, information about their purpose, location and costs, to create a detailed overview. Having a clear and complete definition creates standards for available services and bridges the gap between different departments.

Matt Dando

Step 2: Effectively monitoring IT costs

One of the most important tools for the efficient tracking of IT costs is the control of the value chain, from the smallest cost units to finished business units. With the help of service catalogues, benchmarks, the use of IT Financial Management (ITFM) or what is often referred to as Technology Business Management (TBM) solutions, comprehensive access to this data can be guaranteed, creating a ‘cost-to-service flow’ that identifies and controls the availability of IT costs.

Step 3: Assessing IT budget management

Even with perfect transparency of IT costs, there are different approaches to allocating IT budget – centralised, decentralised and iterative. With a centralised approach, the budget is determined in advance and distributed to operating cost centres and projects in a top-down process, allowing for easy, tight budget allocation. With this approach, however, there is the risk of overlooking projects that offer potential growth opportunities. With the decentralised approach, the process is reversed. Operating costs are precisely calculated before budgeting and projects are determined. The downside is that budget demands might exceed available resources.

Finally, the iterative approach tries to unify both methods. Set budgets, overhead and prospective projects are put together to make a detailed assessment of the most viable course of action. Although the most lucrative approach, it also requires the most resources. None of these approaches are necessarily superior. Instead, it depends on the available resources, and the enterprise’s structural organisation.

Step 4: Managing IT budget for growth

Before allocating IT budget, it is important to define costs into two categories: ‘run’ and ‘grow’ costs. ‘Run’ costs usually include operating costs, while ‘grow’ costs refer to all services and products that are intended to change, transform or expand the business. Benchmarks and standard definitions can help with this categorisation, but do not necessarily have to be followed, as long as cost allocation remains consistent. When definitions have been clearly determined and projects assigned, the IT budget needs to be allocated and decisions need to be made on how to split the budget. Whilst a split of 70% run/30% grow is the norm across most enterprises, there is no one-size-fits-all approach, and decisions will rely on varying factors such as availability of resources and the goals of the enterprise as a whole.

Step 5: Keeping a positive gross profit margin

By following the steps above, organisations can achieve complete transparency with regards to which products and services are offered, where IT costs stem from, and where budgets are allocated. This makes it easier to analyse how much of the IT budget is being used and where costs lead to profits and losses. If the profit margin is positive, the controlling processes can be further optimised, and, if the profit margin is negative, appropriate, or timely, corrective measures can be initiated.

Step 6: Staying tax compliant

One additional important factor in comprehensive IT cost control is tax compliance. The more the enterprise of a company operates internationally, the more relevant it is to stay on top of varying international tax regulations. IT products and services that are marketed abroad are subject to country-specific tax laws and, to ensure that they are adhered to without errors, it is necessary to provide correct transfer price documentation. This in turn depends on three factors:

  • Transparent analysis and calculation of IT services based on the value chain
  • Evaluation of the services used and the associated billing processes
  • Access to the management of service contracts between providers and consumers as the legal basis for IT services.

By achieving the transparency enabled by the previous steps, it is possible to demonstrate international tax compliance.

Step 7: Benchmarking IT service pricing

The first step in pricing IT services is to collect benchmark data. These can be researched or determined using existing ITFM solutions that are able to obtain them automatically from different – interconnected – databases. Next, a unit cost calculation is necessary in order to define exactly and effectively what individual IT services – and their preliminary products – cost. This enables businesses to easily compare internal unit cost calculations with the benchmarks and competitor prices, before making decisions about pricing.

Step 8: Providing factual cross-driver analysis

A properly modelled value chain makes it clear which IT services or associated preliminary products and cost centres incur the greatest costs and why. This analysis allows for concise adjustment to expenditure and helps to avoid misunderstandings about cost drivers – for example, the importance of infrastructure on the generation of IT costs. Then, strategies can be developed to reduce IT costs effectively and determine more careful use of expensive resources.

Step 9: Accounting and invoicing IT costs

IT cost control through the value chain enables efficient usage-based billing and invoicing of IT services and products. If IT costs are visualised transparently, they can easily be assigned to IT customers. This increases the transparency of the billing process, and provides opportunities to analyse the value of IT in more detail. There are two options for informing managers and users about their consumption: either through the showback process – highlighting the costs generated and how they are incurred – or through the chargeback process, in which costs incurred are sent directly to customers and subcontractors.

Step 10: Managing supply and demand

The manual nature of Excel spreadsheets poses a risk to data integrity and should therefore be avoided, as they are impossible to keep up to date all the time and require significant effort to maintain. A holistic analysis and greater cost transparency results in a larger, more detailed overall picture of IT service consumption, which allows conclusions to be drawn in a timely manner to enable the optimisation of supply and demand for IT services in various business areas.

Optimising and maintaining IT cost control

Following the above steps will ultimately enable businesses to reach new levels of efficiency and maturity – and, more importantly, create a secure, transparent, and sustainable IT cost control environment. Budgets can be optimally utilised, IT costs can be cut and overall productivity significantly boosted. However, businesses that ignore this advice will be severely hindered if they do not stay on top of the ever-changing conditions of the current market landscape.

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Four ways traders can manage risk

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By Dáire Ferguson, CEO at AvaTrade

 

Understanding the markets in which you are trading is incredibly important to optimising profit, as well as manging risk and loss. While trading can be incredibly lucrative, it can often be difficult to judge which way the market will move – especially when executing shorter-term traders, where unknown factors can cause unexpected movements. Being aware of the risks is vital to avoid unnecessary losses and to optimise the trading experience.

Dáire Ferguson

There are several techniques that can be employed to make sure the risks associated with trading are controlled, rendering the trading experience smoother and more enjoyable. From beginners to experts, having these tactics in your arsenal will enable traders to be savvier, and more confident.

 

Understanding the risks

To really be able to manage risk, it is imperative to understand the two types of trading risks.

 

Leverage

Leverage is where traders stake only a percentage of the value of the underlying asset they wish to trade on but accept exposure to the full value of the profit and loss that comes with the asset’s price changes. This enables traders to take sizeable positions for comparatively less trading capital, thus providing an opening for big wins and substantial rewards.

However, with this comes the risk of similarly significant losses. As an example, if a trader opens a £100 trade on an asset worth £1,000, using leverage of 10:1, this means that if the assets value increase by 10 per cent, the trader’s money will be doubled. But if it drops by just 10 per cent, the trader will lose all their stake. This balance of high risk and high reward necessitates careful management. Leveraging typically applies to purchasing and trading contracts for difference (CFDs).

Volatility

Volatility is characterised by unexpected fluctuations in the prices of assets and is defined as the rate at which pricing rises or falls given a particular set of returns. Volatility applies to all assets, but the regularity and size of price changes differs hugely across different asset groups. In fact, in some markets, volatility is actually predictable. The cryptocurrency market is well known for its fluctuations, characterised by frequent and, often, significant changes in price.

There are scenarios in which volatility can be desirable for some traders as it fosters greater profit margins. However, it also sharply increases the potential for large losses. Nevertheless, there are a number of ways to spot incoming market fluctuations. These include economic volatility, geopolitical tensions, and changing policies.

 

Managing the risks

 

Choose the right broker

So, what can traders to do manage these risks? The first step is to choose the right broker. Having the right broker can go a long way to limiting the risks that come with trading, including managing counterparty risk. For example, when you purchase CFDs, you are purchasing a contract with a broker – not the asset itself. Therefore, traders must be 100 per cent certain in the knowledge that the broker they’ve chosen to operate with is capable of making good on the value of that contract.

Traders who are just starting out on their trading journey should look to open a trading account with an established name that is well regulated in a variety of jurisdictions. Higher-quality brokers will generally have a wider range of risk management tools and offer better features, which will allow traders to manage the buying and selling of assets in a better, more sophisticated manner.

 

Take out protection on riskier trades

For new traders, or those who are looking for extra support, it is worth considering taking out protection against losses for a set period of time. Certain brokers offer risk management tools that provide thorough protection against such losses. These tools generally require just a small fee, not unlike the premium on an insurance policy. These risk management tools allow users to stay in the trade, riding out any short-term drops in value and benefitting from a positive overall momentum of the position. Therefore, if the market moves in a different direction to what was originally expected, users only lose the cost of purchasing the protection and can recover their losses.

 

Set-up stop-loss orders

Another form of protection against losses is through a stop-loss order. This is an instruction that is executed automatically when certain conditions are met. Therefore, stopping losses from falling below a certain point, and setting a limit on how much an investor can lose on a trade. In the case of a stop-loss order, the position is sold at a predetermined rate – below the current market price for a long position, or above the current market price for a short position.

Stop-loss orders remove the user from the trade at a set price drop. In comparison, risk management tools allow the user to ride out any short-term drops in value, with the potential to benefit from a positive overall momentum of the position.

 

Manage the capital-to-trade ratio

One simple way traders can reduce the risk of accumulating excessive losses is to keep their capital-to-trade ratio under control. This is the amount of capital left exposed to losses in trades compared to the total amount of capital traders have available to themselves.

A sensible rule for traders to follow is to not exceed a capital-to-trade ratio of 10 per cent, and not to risk more than two per cent of the overall capital on a single trade. This doesn’t mean always taking very small positions – it means traders should hedge their risks on whatever positions they choose to take.

It is important that before traders even begin to trade, they make sure that they understand the risks they face. Once they have taken the time to do that, they can begin to contemplate these four ways to manage those risks and then start trading. This is an exciting time to be entering the world of trading, and these considerations should ensure that the trading experience is as enjoyable and profitable as possible.

 

 

 

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Out of office, home and away, moving up, moving on; when security goes AWOL

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By

Steve Bradford, Senior Vice President EMEA, SailPoint 

 

The financial services industry has one of the highest rates of insider data breaches, costing on average $21.25 million in the past year alone. Whether it’s an employee acting with malicious intent, or through accidental data mishandling, staff have access to sensitive information and systems that make them a constant vulnerability. And this threat only escalates when staff go on the move.

With the summer holiday season upon us, thoughts will be turning to well-deserved time off, travel and downtime. However, for many, especially in the financial industry, the notion of waiting until the summer months to sample a new life was not feasible. In the period following Covid, the industry has suffered at the hands of the Great Resignation as burnt-out employees left for new roles. As a result, research from PwC suggests that financial services leaders have had to prioritise employee retention amid the swathes of staff exiting.

This exodus is not just a threat to the workforce itself. It also results in greater threats to resilience, security and compliance. Ensuring that the doors to the organisation’s data are appropriately locked behind them is vital whenever employees are on the move. When a staff member leaves a bank or financial institution, security leaders must ensure they have not inadvertently handed over the keys to the safe as a leaving present. Revoking any and all access and privileges to company data must be a priority.

 

Don’t leave the door ajar 

Disorganised, ill-managed and manually-processed access requirements and identity management protocols are an open invite for security breaches.

However, it is not just those leaving for good that pose a threat. Recently promoted your long-serving payroll manager to a longed-for role in financial oversight? That positive move could result in entitlement creep, where the permissions to data, apps, information and systems she enjoyed in payroll follow her to her new home.

Permission creepers are those staff who collect permissions and access rights as they go through their career, picking up credentials to systems and data as they go. Of course, to restrict the opportunities for hacking, insider threat or illegal or incompliant activity, permissions should only be granted when relevant and required for an individual’s job. However, too many companies allow permissions to creep by not taking a proactive approach to access. This can result in toxic permissions combinations, where employees are granted inappropriate access to the systems, making fraud and error far more likely.

Even a simple summer holiday can provide an open-door opportunity. We are all conscious about signaling to would-be home burglars that we are going away on holiday, and we will take steps to protect our property in our absence. The same principle applies to businesses with staff out of the office on vacation – potentially logging in from insecure locations or signaling to cybercriminals that their attention is elsewhere.

The results of leaving the door ajar are costly. According to the IBM Cost of a Data Breach Report 2021, the average cost of a data breach in the financial sector is $5.72 million.

Permissions creep, unrevoked access and unmanaged identity provide the perfect conditions for the insider threat to propagate. As Gaurav Deep Singh Johar, of the Information Systems Audit and Control Association explained, “While these challenges are present in any institution, insider threats pose a greater risk for banks. There is a big reputational impact, thanks in part to increasing regulatory oversight.”

 

Don’t let permissions security set sail into the sunset

Financial organisations are complex landscapes, with labyrinthine corporate structures and siloes that cast a dark shadow over access and identity visibility. However, identity security technology is moving fast. Now, automated systems powered by AI and machine learning mean that permissions can be automated and access granted on a need-to-know basis, based on individuals’ employment status, roles, and responsibilities.

An automated system will quickly track down and disable ex-employees’ accounts and automatically halt permissions creep as employees move about the organisation.

The same technology can now also be even more diligent than that, monitoring access requirements based on any change in the workforce, like people being out of the office.

The evolving variety and fluctuating workforce mean that the insider threat can only be met with automated, streamlined identity security that moves as quickly as employees themselves. Without intelligent, streamlined identity governance, banks cannot ensure they are in a state of compliance, nor ensure cybersecurity in real-time. They also miss out on opportunities to improve operational efficiency and reduce the risk of fraud and error. Automation also ensures the accuracy and completeness of data sets so critical for keeping on top of compliance and delivering critical services.

As financial workforces are on the move, home and away and to pastures new, now is the time for banks to give identity security its time in the sun. Do not let shifting sands collapse the walls around you. Wherever your employees are coming from and going to, robust security and sustained compliance start with automated identity management.

 

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