C Vision Building the Perfect Chargeback Model

By:Rick Spair – Level C Practice Manager

A longstanding challenge within IT is to help senior leadership understand the value

that technology deployment adds to the organization's bottom line.

Implementing an IT chargeback system is one well-known tool for accomplishing this.

But the process can be fraught with peril if you aren't careful. Learn the ins and outs of
chargeback before you consider it for your own IT department.

The Ins and Outs of Chargeback

In its simplest form, chargeback is a means of capturing and reporting on a company's

use of IT resources. By better understanding how IT is used by various business
units, IT services can be more precisely deployed to meet changing business needs.
The chargeback rate is often expressed as an hourly dollar figure, which is then used
to calculate the value of IT resources used by a given business unit.

Implementing a system to track IT resource usage can return significant benefits to IT

and the company in general. These benefits include:

 Better prioritization. Tracking where your IT resources are being used allows for a
more precise picture of where the most critical needs are within your organization.
 Closer budgetary control. More regular reporting allows for earlier recognition of
problem areas. For example, if a given system is consuming greater-than-expected
support costs, a near-term initiative can be launched to fix this drain on resources.
 Stronger business cases. Specific expenditure figures form the basis for business
cases to address key organizational needs. Without them, it's difficult to make a
solid case for anything, let alone a complex IT initiative.
 More effective IT-business partnership. If your business units understand where
the money is going, and why, they are more likely to work closely with IT on
projects and day-to-day operations.
 Reduced IT vulnerability. Similarly, when businesses appreciate the value IT
delivers to their bottom line, they are less likely to revoke IT funding during times of
restraint. IT will be seen as a strategic component of the business instead of a
simple cost center.

Of course, the chargeback process can backfire if it isn't implemented with care. Here
are some of the potential pitfalls:

 Imprecision due to overly complex implementation. For chargeback to work, it

must be relatively simple for end users to use. If a chargeback system is difficult to
use, users will resent it, thus resulting in imprecise or incomplete information. Hard-
to-use systems can also waste a huge amount of time, driving costs up even
further. User resentment can kill a chargeback implementation before it gets off the
ground.
 Irrelevance of chargeback data. Many chargeback systems are designed from
the top down, with little regard for day-to-day cost-related issues. As a result, the
numbers they track may have little to do with actual IT budget performance.

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 Action Plan

Chargeback isn't for everyone. Even if you decide to move forward with your own
implementation, the degree to which you do so can vary tremendously depending on
your organization's needs. Take the following steps to determine if chargeback is for
you:

1. Study recent budgetary performance. IT departments that have difficulty

obtaining budgetary approval for new projects and for operations could be
candidates for chargeback implementation. Similarly, rampant or imbalanced
use (or misuse) of Tier 1 and 2 helpdesk support would also benefit from
chargeback.
2. Build or update your service catalog. Build a list of services that IT currently
provides to the rest of the organization. Include specific systems (i.e. a CRM
application for your sales force) as well as shared resources like e-mail.
3. Decide what your customers value. Use the catalog as the basis for
determining how the business areas value these services. This is as much a
communications exercise as it is a research effort.
4. Build data capture protocols. Using input from the business, decide how you
are going to capture resource usage data on an ongoing basis. It can be as
simple as a spreadsheet or as complex as an interactive intranet-based portal
for data entry. Be sure to divide your efforts into three distinct categories:
o Managed seat costs. Determine monthly costs for standardized bundles of
workstations, printers, and other common services that are used throughout
your organization. Unique bundles can be defined for areas with special
systems requirements, like engineering or graphic design.
o Operational costs. Track the number of hours of work that IT personnel
spend on ongoing support work. This can include Tier 1 and 2 helpdesk
support personnel.
o Project costs. Track time allocated to development efforts. These costs
would typically be incurred by developers and project managers. In all
cases, ensure all efforts are linked to underlying business requirements. If
not, recovery will be difficult, if not impossible.
5. Implement a reporting process. Determine how the results should be
aggregated, who should be receiving the reports, how often, and what actions
IT and your business units expect from them. Chargeback can form an
increasingly important foundation of your ongoing budgetary planning process,
so make sure reporting supports this process.

In Summary

Chargeback can help IT better understand where its efforts are being expended and
in doing so, give IT managers the tools they need to build effective relationships with
the business units they serve. But chargeback is not for everyone. Plan a well-
balanced implementation to ensure you extract the right amount of information without
overloading your staff.

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