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What Is IT Cost Management?

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  • Written By: Lee Prangnell
  • Edited By: A. Joseph
  • Last Modified Date: 08 October 2014
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Information technology (IT) cost management, also known as IT cost accounting, is a comprehensive financial methodology for controlling IT-related expenditure. This includes the evaluation, estimation and analysis of an organization's IT expenses, which might include computer technology and employee salaries, for example. Information and communication technologies are vital components of an organization's infrastructure. IT cost management is essential because it provides a strategic overview of all expenditures related to information technology, and it is required for operational efficiency and organizational success.

For a business corporation, including an existing business or start-up companies, IT cost management is a major component of its strategic business plan, which is a fundamental component of a functional business corporation. Within the strategic business plan, the IT cost management portion will include expenditure monitoring of several IT-related areas, including computer technology purchases, employee labor costs, indirect expenses and technology overheads. One prime example of a technology overhead is the ongoing cost of an Internet connection, the presence of which is essential in contemporary organizations. An example of employee labor costs is the expenditure associated with the human operation of the IT department, such as the salaries of a network engineer and a software developer.

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If, for example, a company does not engage in any level of IT cost management, this could lead to the demise of the business. Within a business plan, future estimations are included concerning IT-related expenditure. A business plan typically includes five-year financial projections. The financial figures within the IT cost management component of a business plan are dependent on the company's annual budget. If the section for managing IT costs is out of sync with the rest of the business plan, this could cause major cash flow problems for a company.

Software applications such as spreadsheets and specialized accountancy programs are heavily utilized in the area of IT cost management. Which individuals handle the management of IT costs depends on the nature of an organization. For instance, a director of a newly incorporated company might be solely responsible for devising the IT cost management strategy. A mature and large company, however, might have an entire accounting department that concentrates solely on IT cost management. Transnational corporations, which typically spend vast amounts of money on technology each year fall into this category.

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