Technology Cost Management Isn’t New

We’re Just Applying Proven Costing Methods to Technology

Technology cost management is often discussed as a new discipline, and the perceived newness can make the work feel complex or mysterious. How do we implement something that sounds so innovative and cutting‑edge?

The truth is simpler, and far more useful: technology cost management is the application of long-standing unit costing methods being applied to a new (technology) domain.

Retail, manufacturing, logistics, and utilities have been doing this work for decades. They’ve built mature practices around unit costing, allocation, and cost to value models because their operations demanded it. When you’re moving goods, producing physical products, or delivering services at scale, you need to understand what things cost and why.

Activity‑Based Costing: The Accounting Lineage Behind ITFM

If you trace technology cost management back far enough, you eventually land in the world of Activity Based Costing (ABC). ABC emerged in the 1980s and 1990s as organizations needed a more accurate way to understand the cost of complex operations. Instead of spreading costs evenly or relying on broad averages, ABC assigns cost based on the activities required to produce a product or deliver a service. ¹

Many practitioners will recognize the pattern. Modern ITFM and TBM practices draw on ABC principles:

Cost drivers: ABC uses measurable drivers (machine hours, labor time, transactions). ITFM uses consumption metrics (tickets, or users).

Cost objects: ABC assigns cost to the next order of magnitude (parts, components, assemblies, products). ITFM does the same, but with technology specific units (job, server, application, product, service, business unit).

Traceability: ABC’s goal is to explain why something costs what it costs. ITFM’s goal is the same.

In other words, ITFM applies ABC principles to the technology domain. The underlying logic remains the same, which is why practitioners who understand ABC concepts often pick up ITFM modeling quickly. The mental model is already there.

Technology Has Become Cost‑Critical Enough to Require Real Costing Discipline

For years, technology spending was treated as a single accounting line alongside other back‑office functions like HR and Finance. But as organizations modernized, digitized, and distributed their operations, technology became more essential, more complex, and more expensive. Which meant the single SG&A line could no longer provide the clarity leaders needed.

The work practitioners do today: building defensible models, allocating shared services, understanding consumption, and explaining cost drivers, is the same work other industries have done for decades. The terminology is different, but the underlying methods, concepts, and craft are the same.

This is fantastic news for practitioners!

It means the discipline doesn’t need to be reinvented. The work is about applying established costing methods to the technology landscape with the same accuracy and precision used in other industries. When that becomes clear, the work stops feeling like something that has to be built from scratch. Instead, it’s the continuation of proven costing practices applied to a technology domain that has reached the point of needing them.

¹ For a clear, open‑license explanation of Activity‑Based Costing, see the “Establishing an Activity‑Based Costing System” section in OpenStax, Principles of Accounting, Volume 2: Managerial Accounting, Section 6.3: “Calculate Activity‑Based Product Costs.” Licensed under CC BY 4.0.