Chargeback With Less Drama

This version of this column originally appeared in Computerworld's print edition.

Chargeback is a highly emotional topic for business units and IT organizations. Chargeback systems attempt to allocate IT costs to the business units that actually use IT's services. Many business units believe that IT services are overpriced. But even reasonable customers want to know how much those services cost, in terms they can understand. They also want to know that they are not subsidizing another business unit's costs.

Poorly implemented chargeback systems cause IT extra work (and headaches) by forcing IT to repeatedly answer questions and justify charges. These exchanges often cause business units to become irritable and resist the charges, requiring more answers and justifications.

To minimize frustration on both sides, make sure your chargeback system is designed to do the following:

Avoid providing free services. Charging for some services while labeling other services "free" causes problems because business units will want more for free. One IT organization didn't charge for a financial query tool. A business unit used this tool and Excel to create a subsystem, then demanded that IT support the subsystem for free as well.

Operate at an appropriate level of detail. Some chargeback systems are based on highly detailed metrics that are difficult to understand. Others bundle costs into a few "simple" charges that are too generalized to check for accuracy. One company bundled multiple PC services into a single desktop charge. The marketing unit protested that it was being overcharged, since it used specialized PCs with custom applications and never accessed the office suite, e-mail or desk-side support.

Frustrate sneaky work-arounds. People are creative in exploiting chargeback weaknesses. One system charged for individual office tools and adjusted monthly charges based on the number of PCs using each tool. When a business unit discovered that it was not going to meet its profit goal, it reduced IT charges by disabling PowerPoint and Excel for three months for all but a few people. Meanwhile, IT continued to incur Microsoft charges for the disabled software. The business unit achieved its profit targets, but Infrastructure came in over budget.

Support the service catalog. With ITIL Version 3 becoming more widely accepted, many companies are implementing service catalogs to standardize IT services and costs. This extremely effective approach to chargeback standardizes definitions, provides consistent charges and streamlines the associated processes.

Base charges on accurate data. Estimates inevitably lead to conflict. One company initially failed to enforce time-reporting requirements, and halfway through the year, IT realized that some development staffers had not reported their hours for several months. When IT was forced to retroactively estimate the time each staff member had spent on each project, several business units complained bitterly that they had been charged for more hours of support than they had actually received.

Charge for services, not technology. Systems that charge for specific hardware devices constrain IT's ability to manage infrastructure efficiently. One company's approach made server virtualization almost impossible. The individual business units purchased servers, then transferred the hardware to Infrastructure. The business units were charged a monthly "operation" fee. But when Infrastructure planned to virtualize servers, the business units protested, "But that's my server!"

A well-designed chargeback system provides fair and consistent charges, streamlines financial proc­esses and enables business units to analyze and potentially reduce their IT costs. Create a chargeback system that is well defined and easily understood. It will help you recover IT costs and promote corporate efficiency.

Bart Perkins is managing partner at Louisville, Ky.-based Leverage Partners Inc., which helps organizations invest well in IT. Contact him at BartPerkins@LeveragePartners.com.

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