What is technology business management?

TBM is grounded in a standard taxonomy and decision-making model that connects financial and operational data across IT, finance and business units. It equips teams with the structure, processes and insights needed to manage technology like a business.

Organizations ranging from small businesses to international corporations to public entities like the state of Washington have adopted TBM to improve transparency, clarity, consistency and efficiency of their technology departments.

The framework was originally developed by the TBM Council, a nonprofit organization backed by thousands of CIOs, CTOs, CFOs and other technology and finance leaders. As technology has evolved, so has TBM to cover modern delivery models such as cloud, software-as-a-service (SaaS), infrastructure-as-a-service (IaaS) and more.

By aligning cost, consumption and value, TBM enables organizations to prioritize high-impact investments, track the ROI of technology initiatives and ensure expenditure decisions support overall business strategy.

The TBM taxonomy is a standardized model that provides a shared language for how technology costs, services and value are categorized across an organization. It enables IT, finance and business leaders to collaborate more effectively by aligning on how costs are defined, allocated and understood.

The TBM Council governs and maintains the TBM taxonomy.

• Cost pools: These pools are standardized categories of IT spend that distinguish between operating and capital expenses. Common cost pools include labor, software, hardware, facilities and outside services. They provide the foundation for understanding what money is being spent on.
  
  
• Resource towers: This layer groups technology resources into functional categories such as servers, storage, networks, end-user devices and security. These “towers” represent how services are delivered and are typically aligned to technical operations.
  
  
• Solutions: Solutions represent the business-facing products or capabilities delivered by IT. Examples include CRM systems, data platforms or internal tools. This layer enables organizations to measure the value and cost of what IT delivers to the business.
  
  
• Consumers: This top layer identifies who is consuming the services, whether it’s internal business units, external customers or partner teams. Understanding consumption helps link cost and value to specific demand centers.

Within each layer is standardized terminology that fosters collaboration and understanding. In the cost pool layer, for example, you might have entries for “cloud service provider,” “SaaS maintenance,” and “internal labor.” Ideally, all expenditures can be filed into one of these categories. This categorization makes it easy to see and track where money is being spent within a technology organization, and easy for even those outside the technology team to understand.

A TBM model requires a data-driven method for mapping and allocating costs and resource consumption. By tracking costs from their sources to their uses, TBM powers value conversations with reports, analytics and benchmarking metrics.

Cost allocation is an integral part of TBM, and visibility into the cost and quality of IT services is crucial for the framework to be effective. TBM relies on trustworthy data. When data quality comes into question, stakeholders doubt the output.

Even spread

A simple division in which the number of entities that use an expenditure is divided by the cost of that expenditure. If an organization has USD 100,000 to spend on servers, and 100 servers, each server would be allocated USD 1,000.

Manually assigned percentage

A more ad-hoc strategy, MAP assigns those with experience in the specific area of the expenditure to decide which percentage of a total cost goes to each sector. If an IT department has a total of USD 200,000 to divide among three employees, a manually assigned percentage might give a manager USD 100,000 and two junior employees USD 50,000 each.

Manually weighted

This method is a slightly more complex version of a manually assigned percentage. Instead of percentages, a manager or team assigns individual recipients with a weighted priority. For example, that USD 200,000 spend on employees might be divided this way:

Manager (weighting of 5): USD 200,000 x 0.5 = USD 100,000

Employee 1 (weighting of 3): USD 200,000 x 0.3 = USD 60,000

Employee 2 (weighting of 2): USD 200,000 x 0.2 = USD 40,000

Consumption-based

In this system, the actual costs of operation are monitored, and finances are allocated based on that consumption. For example, rent might be weighted equally in New York City and Scranton, Pennsylvania, but in reality, the former will require a much higher percentage of total spend than the latter. After monitoring expenses, a consumption-based allocation can change those percentages to suit the real-life needs of workers.

Multi-dimensional

This method adds significant complexity, but also provides deeper understanding. In a multi-dimensional system, individual expenditures are recognized to have multiple aspects. For example, imagine that a business is allocating spending for a cloud storage solution. Multi-dimensional allocation incorporates not just “storage needed per employee,” but also network costs, the number of times the storage is accessed and cost of that access or the time spent using the service. Each individual aspect can be manually weighted.

TBM helps organizations assess the business value of technology by going beyond basic spend metrics. It combines financial transparency with operational context. It does this by leveraging KPIs, unit economics, integration with FinOps principles and a standardized taxonomy that maps costs to business capabilities and outcomes.

Many organizations start and end analysis of IT value with spend metrics. There’s value in simplicity, but it’s more productive to treat basic spend metrics as an invitation for further analysis, rather than an endpoint. Second-level analysis could include questions such as: What’s driving variance? Which cost centers are outliers? Which parts of IT are poorly optimized?

IT needs to measure, optimize and operationalize management practices for IT spend—both for traditional on-premises solutions and cloud-based IT.

Traditional IT financial management (ITFM) tools often fall short, especially in decentralized, hybrid-cloud environments. TBM provides a single source of truth for technology cost and value data, replacing disconnected spreadsheets or siloed reports with a unified model that supports smarter decisions across the enterprise.

TBM provides a structured approach to both managing traditional IT investments and embracing the dynamic nature of cloud spending. It helps ensure that every dollar spent is aligned with strategic business objectives.

Speed to market is an IT value that depends on agile methodologies. Agile development models depend on public cloud services that scale on demand but come at a cost. In the meantime, organizations must still manage, modernize and rationalize existing technologies while optimizing costs.

As cloud computing continues to take precedence in IT strategic planning, integrating cloud cost management within the TBM framework, throughout the entire ecosystem, becomes imperative. TBM platforms integrate agile methodologies by tracking, analyzing and integrating cloud services. This integration can help ensure a more comprehensive approach to optimizing IT spend, leveraging the scalability and flexibility of cloud solutions while maintaining control over costs and maximizing value to the business.

TBM KPIs incorporate the needs of product-led value workstreams. Agile metrics monitor productivity across the software development lifecycle, but product portfolios are ultimately judged for the time between the request for delivering a product and actual delivery. Product managers require a trendline of business value delivered by portfolio per quarter. This helps improve time estimates and flag resource constraints if business needs outstrip a team’s productive hours. Measuring and monitoring business value output enables product managers to meet delivery commitments.

Application rationalization (AppRat) is a key initiative for many TBM practices. AppRat requires that the organization first segment applications (by revenue driver, by revenue supporter and KTLO), then determine the action to take in each segment (invest to maximize performance, optimize performance and cost and minimize cost to meet service level agreements).

The key performance indicators, or KPIs, for AppRat success are not technical—or even particularly complicated. Successful AppRat initiatives shrink portfolios, remove duplicate business capabilities, and cut application spend. However, creating a baseline for application costs is not easy. Asserting that you’ve cut total application spend depends on knowing what your costs were before the rationalized effort.

An IT cost model built on a TBM taxonomy with defensible cost allocations (from a general ledger, through on-premise infrastructure and up to applications and services) is a prerequisite for confidence in business value metrics. AppRat is a business value conversation, but you need operational and financial detail within TBM to have it.

TBM looks at four broad KPI categories:

• Cost-for-performance KPIs help IT continuously improve the cost efficiency of its services while maintaining quality.
  
  
• Business-aligned portfolio KPIs enable IT to focus its time and resources on the services, applications, technologies and vendors that drive the most value for the business.
  
  
• Investment in innovation KPIs help IT and its business partners to better govern and collaborate on the right level of project spending.
  
  
• Enterprise agility KPIs facilitate the creation of a more agile cost structure for IT and accelerate effective decision-making.

Underpinning these categories are specific metrics:

• Financial fundamentals
• IT spend vs. roadmap (OpEx and CapEx variance)
• Application and service total cost
• Percent of IT spend on cloud
• Delivery
• Product lead time
• Business value delivered by portfolio per quarter
• Innovation and agility
• Percent of IT investment on run, grow, and transform-the-business
• Percent of project spend on customer-centric initiatives
• Business value
• IT spend by business unit
• Customer satisfaction scores for business-facing services
• Percent of IT investment by business initiative

As organizations navigate the complexities of technology investments, the integration of TBM and FinOps—a cloud financial management discipline and cultural practice that aims to maximize business value in hybrid cloud and multicloud environments—has emerged as a crucial business strategy for enhancing cloud cost management.

TBM aims to facilitate data-driven decision-making in managing, planning and optimizing the costs, value and quality of all technology investments, while FinOps focuses specifically on the financial aspects of cloud services. FinOps is a key discipline within the broader TBM framework, providing cloud-specific financial accountability to complement TBM’s enterprise-wide value management.

The fusion of TBM and FinOps principles offers a comprehensive approach to tackle the unique challenges posed by cloud spending. Cloud computing, characterized by its scalability and flexibility, demands a dynamic approach to financial management. Integration helps ensure that organizations can not only keep pace with the rapid changes in cloud services but also optimize these investments to align with strategic business objectives.

This fusion approach extends the TBM framework to encompass the operational and financial nuances of cloud services, enabling organizations to:

• Optimize cloud costs: By applying FinOps principles within the TBM framework, organizations can achieve a granular understanding of cloud usage and spending, identifying opportunities for cost savings and efficiency improvements.
  
  
• Align spending with business value: This alignment helps ensure that cloud investments are directly tied to strategic goals and business outcomes and helps improve return on investment (ROI).
  
  
• Enhanced agility and innovation: Effective cloud cost management enables organizations to allocate resources more strategically, fostering innovation and agility in a competitive landscape. Automation can be implemented where appropriate to further streamline expenditures.

Incorporating FinOps into the TBM framework not only enhances visibility and control over cloud expenditures but also facilitates a culture of cost accountability across IT and finance teams. This collaboration is vital for driving optimal financial and operational performance, ensuring that every dollar spent on cloud services delivers maximum value to the organization.

While the previous section addresses the cloud-specific component of TBM, a complete TBM solution can be understood as the integration of ITFM, FinOps and strategic portfolio management (SPM). It unites these disciplines into a comprehensive value management framework designed to optimize investments across an IT environment.

IT financial management (ITFM) is essentially the practice of applying traditional business management tactics, such as budgeting and ROI analysis, to IT departments. This differs from traditional IT management in that, previously, IT departments were simply given a budget to stay within. ITFM integrates strategic alignment, full cost transparency and shared accountability between IT and the rest of the organization.

SPM provides an overarching set of capabilities and processes that an organization uses to decide how to focus available resources and funding across portfolios to meet its strategic objectives. Through SPM practices, an organization can allocate resources to align with organizational goals, prioritize projects and programs in the same way, and rely on data-driven decision-making.

TBM delivers a fully-burdened and accurate unit economic cost of IT, laying the groundwork for organizations to assess the revenue generated from a single unit of a business against the cost to service it. This evaluation is pivotal for unveiling the business value of spend, highlighting the direct impact of strategic decision-making frameworks, like the integration of TBM and FinOps, on unit-level economics.

Unit economics is critical for organizations to:

By understanding the unit economics of IT services, organizations can identify the profitability of specific services or products, guiding strategic decisions on where to invest or cut back.

Unit economics converts IT costs and quality into business-oriented KPIs, such as cost per transaction in a banking context or cost per patient day in healthcare. This breakdown offers a clear picture of how IT investments contribute to business objectives.

The integration of TBM and FinOps principles enhances the accuracy and relevance of unit economic calculations, particularly in environments with significant cloud spending. This precision supports more informed strategic decisions, aligning IT investments with business value.

Organizations often want a singular metric that encapsulates IT cost, quality and value in a business-centric KPI. However, unit economics are inherently organization-specific, reflecting the unique operational realities and strategic priorities of each enterprise. For example, hospitals might measure cost per inpatient day, while transportation companies may evaluate cost per mile.

The refined focus on unit economics, bolstered by the integration of TBM and FinOps, provides a nuanced understanding of how technology investments impact the bottom line. This approach enables organizations to navigate the complexities of modern IT landscapes, ensuring that strategic investments in technology drive tangible business outcomes.

In essence, the dedication to understanding and optimizing unit economics, within the context of TBM and enhanced by FinOps, offers a path to not only managing but maximizing the value of technology investments. This strategic alignment ensures that organizations can effectively measure, manage and communicate the value of IT in terms that resonate across the business.

TBM as a discipline aims to align IT spending and operations with business goals. When well-implemented, a TBM program can have several beneficial outcomes.

Without TBM, technology costs are often hidden in spreadsheets, duplicated across departments or bundled into vague budget lines. This lack of clarity makes it nearly impossible to optimize or justify spending.

TBM provides structured visibility into where money goes by standardizing how costs are categorized across labor, software, hardware, cloud, facilities and more. For example, the State of Washington overhauled its entire approach to IT cost transparency after struggling with inconsistent reporting and taxonomy. With TBM in place, they were able to centralize and clarify spend across agencies.

TBM’s clear delineation of IT services, and connection between those services and business value, enables technology leaders to reallocate resources quickly in response to changes. When evaluating new tools or reallocating resources, they can compare costs and value in context, instead of relying on gut instinct or fragmented data. This enables better, faster decision-making, especially when conditions or priorities change.

TBM provides a shared language that bridges IT, finance and business teams. It eliminates confusion over terminology, helping cross-functional stakeholders understand each other and work toward shared goals. The common language used by TBM is easy to understand, flexible enough to incorporate all necessary concepts and versatile enough for leaders from across the organization to participate.

TBM positions IT as a strategic partner, not just a cost center. It gives technology leaders the data and structure they need to show impact, advocate for investments and lead innovation. By connecting IT spend to business value, TBM helps technology teams drive outcomes.

Identifying potential risks is a major part of the value that IT teams provide, and TBM amplifies that value. The TBM taxonomy provides a standardized way to track the cost and benefit of risk mitigation efforts, such as cybersecurity, compliance and authentication. It integrates with the NIST Cybersecurity Framework, a set of guidelines developed by the National Institute of Standards and Technology (NIST) to help organizations manage and reduce cybersecurity risks. In addition, it can take a data-driven approach to help track the ROI of these efforts.

Especially, though not exclusively, in large organizations, IT cost sprawl can be pervasive. TBM’s centralized reporting enables the TBM team to catch unnecessary costs, such as duplicated service accounts, and enables easier negotiation for combined or bulk purchases.

While TBM has proven invaluable for many organizations large and small, public and private, no system is without its challenges.

Implementing TBM is no small task. It involves integrating data from disparate systems, controlled by disparate teams. Enterprises must select the ideal TBM software to manage this data, which often requires an initial cost outlay. It might also require a dedicated TBM team to maintain it.

Additionally, it can be difficult to retrieve and compile all the data necessary to allow TBM to reap all its rewards. The TBM Council holds to a theme of “perfection is the enemy of progress,” and suggests entering the data that is readily available, rather than waiting to get every last bit. The data input process might provide clues as to what information you need and don’t have.

TBM is a major overhaul in the way IT departments operate and view themselves, and in the way the rest of an organization views them. The IT leader or team might be uncomfortable laying out business objectives for each expenditure, and business leaders might not see the value of having IT sit at the decision-making table.

This can change over time as employees adjust to the new system, but there are bound to be growing pains.

TBM is not a set-it-and-forget-it system. To properly utilize the system, TBM software must be continually updated with new categories and new data. If data is not available in a centralized, easy-to-find and easy-to-understand location, the picture TBM paints can be inaccurate. This requires continual efforts in reporting, data entry, data collection and data analysis.