Funding and Financing
The Funding and Financing (FF) capability is the ability to determine the funding level required for IT and to allocate it appropriately. The Funding and Financing (FF) capability covers:
- Setting the overall levels of IT funding.
- Establishing leadership understanding regarding issues and options for IT funding and financing.
- Establishing funding and financing governance structures and decision-making processes.
- Allocating IT funds to broad categories of IT activities – for example, for capital and operational expenditure.
Structure
FF is made up of the following Categories and CBBs. Maturity and Planning are described at both the CC and the CBB level.
- AProcess
Determines IT financing sources and the appropriate level of funding to allocate.
- A1Funding Sources
Establish sources of IT financing, which may include a centrally allocated IT budget, allocations from other business units, and external sources (for example, joint ventures, industry consortia, vendors, suppliers, clients, and so on). Understand the costs of financing and the expected benefits to be derived from each funding source.
- A2Funding Levels
Set the overall level of IT funding for the organization based on, for example, strategic priorities and competitive benchmarks.
- A3Allocation
Allocate funding to broad categories of IT activity (for example, infrastructure/product improvements, capability development) to align with objectives and derive business value.
- A4Performance Measurement
Use metrics to track, evaluate, and improve funding-related outcomes – for example, cost of funds, spend by category/initiative/business unit, return on investment (ROI), return on assets (ROA), and so on. Link funding to the benefits derived to determine the impact of funding.
- BAlignment and Oversight
Determines how funding decisions are made, governed, and communicated.
- B1Governance Model and Alignment
Define guidelines and decision rights for funding governing bodies and promote decision- making alignment with organization-wide decision-making cycles.
- B2Communication
Discuss funding and financing decisions with stakeholders.
Overview
Goal
The Funding and Financing (FF) capability aims to generate reliable and flexible sources of funding for an organization, so that it can provide adequate investment and enable the IT function to deliver services and solutions to the organization.
Objectives
- Set appropriate funding levels for IT to maximize development of the business capabilities that drive strategic or operational advantage.
- Consider alternative sources for technology funding, and understand their associated costs and expected benefits.
- Ensure transparent practices and objective governance when agreeing options for funding and financing.
- Benchmark IT funding against that of peer organizations to inform funding and financing decisions.
Value
The Funding and Financing (FF) capability enables improved decision-making in selecting appropriate funding sources, in determining adequate funding levels, and in the initial assigning of funds for IT.
Relevance
Possessing an array of flexible funding options to support technology expenditure can be important to facilitate business growth1, especially when organizations seek to leverage technologies to support business strategy and operations, but lack the necessary financial resources. An effective approach to managing and governing both the acquisition of capital (financing) and the investment of capital (funding) in IT can enable organizations to deliver technology-enabled business capabilities that drive strategic or operational advantage2.
By establishing an effective Funding and Financing (FF) capability, an organization can ensure that sufficient funds are consizstently available to allocate to technology investments. An effective Funding and Financing (FF) capability is informed by a thorough understanding of possible funding options, and of how to generate alternative options when necessary.
Scope
Definition
The Funding and Financing (FF) capability is the ability to determine the funding level required for IT and to allocate it appropriately. The Funding and Financing (FF) capability covers:
- Setting the overall levels of IT funding.
- Establishing leadership understanding regarding issues and options for IT funding and financing.
- Establishing funding and financing governance structures and decision-making processes.
- Allocating IT funds to broad categories of IT activities – for example, for capital and operational expenditure.
Improvement Planning
Practices-Outcomes-Metrics (POM)
Representative POMs are described for FF at each level of maturity.
- 2Basic
- Practice
- Perform due diligence to ensure key projects are adequately funded.
- Outcome
- The likelihood of key projects achieving a successful outcome is increased by the allocation of sufficient funding.
- Metrics
- Percentage of key projects with validated funding allocations.
- Percentage of funded projects that don't require additional funding or have cost over-runs.
- Practice
- Assess IT funding levels based on the previous year's budget, allowing for some adjustments based on uncontrollable increases.
- Outcome
- At a minimum, IT funding keeps pace with cross-industry cost increases.
- Metric
- Percentage increase/decrease in IT funding over the previous year's budget.
- Practice
- Establish a governance model for approving IT funding – for example, involving the executive offices of CEO, CFO, COO, CIO, and so on.
- Outcome
- IT funding decisions are made at the highest level, promoting consideration of short- and long-term perspectives when approving IT funding.
- Metric
- Percentage of funding expenditure approved within the defined decision- making process.
- 3Intermediate
- Practice
- Design multiple scenarios with predefined triggers to prepare the IT function for changes in funding allocation or demand.
- Outcome
- Funding plans will have greater flexibility if predicted scenarios emerge.
- Metric
- Percentage by which IT funding could readily increase or decrease.
- Practice
- Expand the ability of the IT function to receive funds from other sources beyond the central corporate source.
- Outcome
- In order to meet funding shortfalls, the IT function can integrate other funding streams in pursuit of the supporting business strategy.
- Metric
- Percentage and amount of IT funds by source.
- Practice
- Promote transparent and objective funding decisions.
- Outcome
- Clear and explicit decision criteria enable funding applicants to develop better proposals and/or funding applications.
- Metric
- Percentage of funding decisions that occur within an approved funding process.
- Practice
- Standardize the criteria for conducting due diligence on alternative funding sources.
- Outcome
- Unexpected consequences can be avoided post funding agreements.
- Metric
- Percentage of IT expenditure from alternative funding sources found to be in compliance with due diligence reviews.
- 4Advanced
- Practice
- Use benchmark comparisons to validate the organization's corporate strategies, information intensity regarding the organization's products/services, IT expenditure levels, corporate revenue, geographical locations, the preferred sourcing strategy, and so on.
- Outcome
- The use of benchmarking approaches doesn't misrepresent IT funding analysis, either favourably or unfavourably.
- Metric
- Percentage of IT expenditure benchmarked using a balanced multi-criteria approach.
- Practice
- Mandate a portfolio approach to provide visibility on organization-wide technology expenditure.
- Outcome
- All technology-related expenditure by the IT function and other business units can be understood, allowing opportunities for consolidation and the rerouting of funds to new opportunities.
- Metric
- Ratio of IT function expenditure on technology to other business unit expenditure on technology.
- Practice
- Ensure that funding performance measurement includes both tangibles and intangibles such as risk adjusted return on capital (RAROC) and shareholder value.
- Outcome
- There is a holistic understanding of the costs of financing and the expected benefits to be derived from these funds.
- Metrics
- RAROC.
- Shareholder value.
- 5Optimized
- Practice
- Continually review the alignment of IT funding levels with business objectives.
- Outcome
- Funding is aligned to maximize development of business capabilities that drive strategic or operational advantage.
- Metric
- Percentage of overall IT funding aligned to specific business strategic priorities/objectives.
- Practice
- Demonstrate that funding and financing of IT can be a strategic lever for the organization.
- Outcome
- All senior stakeholders understand the strategic value of funding IT correctly and from different sources, thus ensuring capital cost efficiency.
- Metric
- Percentage of senior stakeholders who understand funding and options available.
Reference
History
This capability was introduced in Revision 16 as a new critical capability.
It was deprecated in Revision 18.10, being updated by Funding and Financing (18.10).