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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.

• 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.

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.

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.

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.

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.

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).

The following CCs cover topics that are related to FF in some way:

BARBenefits Assessment and Realization

An evaluation of the potential benefits and risks associated with investment opportunities which may require funding

BARBenefits Assessment and Realization

Governing the benefits to be derived from funding allocations

BGMBudget Management

b

BOPBudget Oversight and Performance Analysis

Analysis of actual expenditure versus original forecasts to improve future funding and financing decisions

BOPBudget Oversight and Performance Analysis

Understanding IT financial performance

BPBusiness Planning

Identification of IT activities that may require funding

CFPCapacity Forecasting and Planning

Scenario modelling of business strategy and operations to ensure future capacity needs are accommodated in the funding process

TCOTotal Cost of Ownership

Details of direct and indirect costs` associated with an IT service or asset

TCOTotal Cost of Ownership

Determining the cost of owning IT assets and running IT services