Chargeback systems can boost IT, proponents say

Others aren't so sure, however

To people who are in favour of them, chargeback systems — which allocate costs for IT services to individual departments — help reduce costs. To people who are against them, they introduce an unnecessary level of complexity to an organisation.

Writing in Computerworld (US), Matthew Hamblen says chargeback gets to the guts of corporate politics.

“And [it] even raises questions about the proper role for IT in an organisation. While chargeback has its proponents, many IT leaders see it as a third rail — not to be touched if you can avoid it.”

Hamblen quotes a retired CIO, Paul Ingevaldson, who thinks chargeback systems actually lessen the value of the IT shop. He says they show the company thinks of IT as a utility and not a strategic part of the business.

Another danger is that company divisions with the most money get the most IT resources.

One IT executive, Jeremy Lehman, is quoted as saying that chargeback plans “introduce complexity and rely on subjective judgments about allocations. They turn the whole dynamic around IT into cutting costs instead of viewing IT as a revenue maker."

One manager who ditched the chargeback system of the organisation he joined was Michael Armstrong, the CIO of the city of Des Moines, Iowa. Six years on from scrapping the system, he says one benefit has been the emergence of a partnership model through which all department-specific initiatives become joint ventures, “with IT joining departments in funding battles and implementations”.

It also resulted in IT being reviewed as a company-wide matter, not just a departmental one.

“We have maintained a focus on building enterprise IT, with all departments coming to understand they are important parts of a whole.”

He says there have been negatives — for example, the organisation no longer has a demand throttle. “IT resource allocation decisions have become more problematic.”

Planning has also become more complex and cost allocation is imperfect, but Armstrong still believes it was the right decision.

“Other organisations have charge-back systems that work very well. For the strategic role that IT plays in Des Moines, however, our new model has served us very well indeed.”

Proponents of chargeback systems include Chuck Darville, a technology planning director. Speaking to Computerworld’s Hamblen, he says the chargeback system helps him run IT as a business and provides an incentive for cost management.

Hamblen says that is one of the best things about chargeback: “helping IT users understand that speeds, feeds and applications actually tally up.”

Darville told Hamblen that the best chargeback systems monitor "demand products” such as PCs and printers and “allocated products and services” such as cybersecurity and the data network. He describes the latter as a kind of corporate tax based on headcount.

Writing on Network World, Amy Schurr says "too many users look at IT services as a free, all-you-can-eat buffet” and that chargeback systems can change that.

Schurr says that as well as helping control expenses, chargeback systems can spark discussions between IT executives and business managers.

She says there are several questions to think about when implementing such a system.

“Should you assess a flat charge based on a department's headcount, number of PCs or percentage of overall corporate revenue it contributes to the company's bottom line? Or how about the average number of network IDs or LAN/WAN ports a business unit uses? Do you measure disk space or the amount of email messages users send and receive? The possibilities are endless.”

She says that regardless of the model chosen, it’ll encounter resistance form managers used to getting IT for free.

"Chargeback is 20% reporting and 80% politics,’ says Kurt Potter, a senior analyst of business management of IT with Gartner.”

Schurr says Gartner advises companies bringing in a chargeback system to start small and increase complexity over time.

“IT departments that have gotten really good at chargeback may eventually become IT service business units.”

Computerworld’s Hamblen sums up: “those who favour chargeback and those who oppose it agree on one thing: The plans can be lightning rods for those who implement them.”

Join the newsletter!


Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

Tags ITmanagementchargeback systems

Show Comments