The cost model is the heart of any ITFM program. When it’s working, it gives leaders clear direction on how to cut waste, reinvest savings, and drive the business strategy forward. When it’s not, things break down. People lose trust in the numbers, decisions get delayed, and before long, the whole program is off-track.
In part one of this series, we looked at some big-picture reasons ITFM projects fail, factors like misaligned priorities and poor stakeholder education.
Now we’re digging into one of the biggest drivers of failure: the cost model itself.
We’ll cover where IT cost modeling often goes wrong, what a strong cost model actually looks like, and how you can build one that earns credibility and drives results.
Learn how to take your ITFM program to the next level in our free guide, 4 Steps to a Healthier ITFM Practice Beyond Spreadsheets
4 Common Cost Model Failure Modes
IT cost modeling tends to go off the rails in a few familiar ways, all of which get in the way of smart IT spending decisions.
1. Right-Sizing Issues
Some teams over-engineer their IT cost model, attempting to “boil the ocean” by building in every possible variable right out of the gate. Others swing too far the other way, stripping out detail in the name of simplicity or speed. In both situations, the result is the same: a cost model that doesn’t provide real clarity.
One company, for instance, had to build seven separate cost models just to process their IT spend data. That kind of workaround only adds complexity and slows down decision-making—hardly an agile approach.
2. Non-Responsive Modeling
Another common failure is a lack of responsiveness in the cost model. This often happens when you have “peanut butter spreading,” where shared costs are distributed using broad allocation rules like revenue or headcount instead of actual consumption.
One organization with five distinct business units saw this firsthand. A unit leader flagged a $5 million increase in IT charges, despite zero changes on their end. As it turned out, another unit had expanded, but the cost model spread those new IT expenses evenly across all five groups. Since the allocations were based on revenue (not usage), the costs landed in the wrong places.
This kind of disconnect shows up in other ways too, like when leaders make a tough decision to retire an application only to find out it didn’t really reduce their costs.
In both cases, the result is the same: leaders lose trust in the cost model and people stop engaging.
3. Inaccurate and Non-Defensible Data
Accuracy and defensibility go hand in hand.
This becomes a problem for companies that build their cost model using aggregated data stripped of operational detail. If users can’t drill into a number and see exactly what’s behind it, they’re not going to trust it, and they won’t want to rely on that data to make decisions.
“Peanut butter spreading” is also a problem here. If you’re stuffing costs like InfoSec or CIO salaries into application budgets just because those dollars have to land somewhere, you’re going to lose credibility. People know that’s not the real cost of their app.
4. Rigid Frameworks and Taxonomies
Some ITFM/TBM tools lock you into a rigid framework that assumes every organization should model IT costs the same way, using the same taxonomy and methodology. The problem for a lot of companies is that these standardized allocation taxonomies don’t reflect how they actually deliver IT services.
A prescriptive tool can be helpful early on when you’re getting your program off the ground. As it matures, however, your needs become more nuanced. Over time, your cost model should be able to account for things that don’t fit neatly into a standard framework.
For example, one organization had a major spend on copper wire, but there was no category for it in the TBM taxonomy. That meant they had to either force it into a bucket where it didn’t belong or leave it out altogether.
These situations are when rigid tools start getting in the way. While 85% of ITFM looks the same across companies, the last 15% is where it gets real. If your cost model can’t flex to accommodate that nuance, it’s going to fail.
The 3 Core Elements of a Robust Cost Model
A robust cost model that people can trust to drive strategic decision-making must be three things: accurate, defensible, and responsive. Let’s break down what each of these means in practice.
Accurate
An accurate cost model reflects real spending and aligns with how IT is delivering those services. That means preserving operational detail at the cost center and general ledger (GL) level, rather than using aggregated line-item data.
The reason is that without visibility into who spent the money, what they spent it on, and when, you lose your ability to optimize. Because you can’t trace costs back to specific teams or activities, there’s no clear path from data to decision.
Think of it this way: imagine you take five pint glasses of water, each representing a different cost center, and pour them all into one bucket. Now, if you need to remove $5 worth of water, how do you know which cost center to take it from? You don’t, because the detail is gone.
Your cost model should keep those pint glasses intact, so you know where the money came from, where it went, and how to adjust it with precision.
Defensible
A defensible cost model gives you confidence in the numbers and the ability to act on them quickly. When someone has questions, you don’t have to go back to finance for answers.
Let’s say you ask someone what they think an application costs, and they say $2 million. When the model shows it’s actually $8 million, their first reaction is disbelief.
That is, until you double-click into the numbers and walk them through the details—every resource, service, and shared cost their team consumed. Then it clicks. That’s what makes a cost model defensible, and what gets people to buy in.
That level of clarity is vital to building trust, especially with business and finance leaders who expect precision. Just as important, it creates the conditions for agile decision-making in an environment where speed matters.
Responsive
In a responsive cost model, pulling a lever delivers the expected results, and business leaders can see the direct impact of their decisions. If you retire an application, for example, your costs should go down.
This gets back to the problem of “peanut butter spreading.” It’s like dividing up your car insurance across every round of golf you play, then assuming that golfing less should reduce your insurance bill. It doesn’t.
In the same way, these kinds of allocations make it nearly impossible to tie decisions to real financial outcomes. Nothing moves the needle because the model isn’t built to respond.
In a well-built model, costs align with consumption, not arbitrary allocation rules. That means no more pulling levers and seeing nothing move. Instead, the model becomes a single source of truth for where to cut, where to invest, and how to make IT more strategic. Not every platform is built to deliver that level of responsiveness, but it’s essential if you want your ITFM program to drive real business value.
How to Build a Better Cost Model
A strong ITFM cost model doesn’t come together all at once, and those companies that are successful treat IT cost modeling as a process you refine over time as your data gets stronger.
Here are five practical principles to keep in mind as you build or refine your cost model:
- Start small and iterate: Focus first on high-impact areas where visibility can unlock meaningful wins. From there, you can refine your cost model as the program matures and business needs evolve.
- Bridge gaps with proxy methodologies: It’s okay if you don’t have perfect data at the beginning, as long as you use the right approach. The “proximity rule,” for instance, involves surveying team leads to estimate how time or resources are allocated across services. It’s not perfect, but it gets you moving and creates a solid foundation.
- Preserve granularity: Some tools strip out detail to improve performance, but that comes at a cost. Look for a solution built to process large volumes of financial and operational data from the GL so you don’t have to trade speed for insight.
- Choose a flexible solution: As your program matures, you don’t want to find yourself boxed into a rigid framework that forces you to use “peanut butter spreading.” You want software that is built on best practices, but also capable of flexing to your needs.
- Get support from real ITFM experts: Software alone isn’t enough. You need a partner with deep expertise in ITFM and TBM who doesn’t walk away after go-live. Look for a team like Nicus that can help guide your strategy, manage your data on an ongoing basis, and even fully run your ITFM program if needed.
The cost model is a common failure point in many ITFM and TBM programs, but it doesn’t have to be. With the right foundation, one that integrates both financial and operational data, you can build a model that’s accurate, defensible, and responsive. Getting it right takes the right tools, plus real ITFM expertise to implement and sustain a model purpose-built to achieve your specific goals.
Learn how a Decision-Based Cost Model drives program success on our OnDemand Modern TBM Webinar
