Chargeback for IT services to cut expenses, says Gartner

A chargeback system for internal company support allows for better management of expenses, according to analysts Gartner Inc. Such a system reveals to users the cost of the IT services they consume, leading to a change in their use of the services.

"Business units must be cost-effective in their use of IT," said Marcus Blosch, vice president and research director for Gartner EXP. "IS organizations must be seen to deliver value for money. Bringing these together is a challenge. That's where chargeback comes in."

He went on, "It's just one of the tools an enterprise can use to get the behaviours it desires in the use of IT services. To be effective, chargeback has to be seen in the context of IT governance."

However, there are risks involved. A chargeback system can lead to arguments over how the costs are calculated, a heightening of internal political tensions and arguments over whether the IT services would be less expensive if purchased externally.

According to Gartner, there are three steps involved in implementing a chargeback system. The first step is identifying IT service costs, followed by cost allocation, and the third step is cost recovery.

To identify the costs involved Gartner analysts recommend that the company create a standardised chart of accounts showing what IT services exist, who uses them and what the cost drivers are. This is fundamental, for if costs are not identified correctly then informed decisions cannot be made.

The second step, cost allocation, looks more deeply at individual business unit IT service costs. Allocating costs for IT services that are directly attributable to a business unit is relatively straightforward, but it is not so easy for shared services.

According to Gartner, in many instances the estimated calculation that results from this cost allocation is a sufficient basis on which to make decisions. However, in some cases this notional figure doesn't strongly influence behaviour, so cost recovery is needed.

Cost recovery takes the persuasive step of moving money between budgets – something that is practically guaranteed to change IT practices in over-budget departments.

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