Chargeback Voodoo

I have to admit I am not a fan of charging back business units for IT services. A CIO should worry about more important issues then figuring out how much time my helpdesk is spending supporting the business. Why should my staff spend time tracking hours instead of focusing on providing a high quality of service to their customers? Never the less, in some organizations it is the only way for the business to gauge how much they are spending in services.

There is no precise science to chargebacks. In fact, many organizations follow a flawed model with some negative results.

IT chargeback is a methodology to provoke a particular behavior on the part of the business with respect to the use of IT services. What is that particular behavior? Chances are to lessen the use of services.

A chargeback model should have the following characteristics:

  • Transparent to the business
  • Be market-competitive
  • Services need to be understood and have an accepted value
  • Businesses should be able to understand the cost model, how to manage it, and control it

There a many models one could use to chargeback. One example is IT services divided into a fixed portion, maintenance (WAN/LAN, PC maintenance, overhead, etc.); and projects, requiring individual justification and incremental to the fixed cost. The fixed portion can be charged back base on allocation (number of PC/laptops per group department/number of sites/whatever makes sense to your company), projects can be charged back to the group that will be consuming the project.

You will want a billing model structure that makes sense to the business and whose elements are drawn as directly as possible from IT project resource and service usage/consumption data that can be quantified. Make sure that the model uses billing buckets that the business understands.

Do not engage in “peanut buttering” (IT costs that are spread across the business using an imprecise proportion structure). When combined with IT jargon, these types of chargebacks have a tendency of getting push back from business.

The important part is to work with your CFO and accounting group to see what is acceptable, and sell the new allocation/charging methods to the business heads. You will need to get C-level support and approval before selling to the business.

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