Is IT Chargeback Evil?

With the advent of technologies such as development outsourcing, Software-as-a-Service (SaaS), virtualization, and cloud computing, we’re seeing a consistent pattern: squeeze as much out of the IT organization as possible at a lower cost. In many organizations, the Information Technology department carries the highest expenses in the enterprise, but before attempts to reduce costs and truly do more with less, accurate insight into expenditures and usage patterns need to prevail.

The rigor of IT chargeback, when done right, can provide a level of transparency previously unobtainable for many organizations. When chargeback is communicated properly, it can bring transformative business change. Users better understand what they are expending and the associated costs, becoming more thoughtful consumers and ensuring IT investments support strategic goals.

The topic of IT chargeback has been controversial at many organizations, but is it evil? Well, that depends on who you ask:

IT Organization:  The allocation method fails to provide a true measure of consumption and if organizations are creating these allocations based on incomplete or inaccurate data, it can produce false transparency, giving chargeback a bad rap.

To move from an allocation process to a true measure of consumption, organizations should take a phased approach to IT chargeback and provide users with a showback or “mock” invoice that illustrates consumption and product rates. IT should start with a summary level based on higher level assumptive data and metrics and refine it as they gather appropriate data sources as the process evolves. One caveat: some business units will be overcharged in the beginning while others are undercharged. IT needs to communicate that accuracy will evolve as the process matures.

Business Users:  When there’s perception that IT is free or that IT chargeback is incomplete or done incorrectly, business users understand they are not being fairly charged for IT consumption. As a result, they don’t see the value in the IT chargeback process.

When the system is built on accurate information, and business users can verify what they know to be true, it can evolve the partnership with the IT organization and create greater value from the chargeback process.

CIO/CFO:  Leaders need to answer the question, “Why is IT so expensive?” By implementing an IT transparency and chargeback solution they can provide metrics to answer the questions they’re being asked. For example, they can demonstrate that unit costs are being reduced but the number of users is increasing. By supporting and sponsoring a mature IT transparency and chargeback solution, leaders can ensure managers are in control of their budgets and that chargeback strategies are accurate and fair.

Increased transparency supported by accurate data is crucial for all stakeholders. IT chargeback isn’t evil; but businesses won’t derive the benefits of true transparency if it isn’t done right. By providing accurate insight into cost drivers and actual consumption, organizations can influence behavioral changes, adding value to the business.

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