Chargeback: Old Dog with New Tricks for IT?


The idea of chargebacks, making users and departments pay for their use of IT resources, is an old idea gaining new interest as CIOs look for ways to control costs. Using a chargeback model adds transparency to the budgeting process, always important but especially so during these days of extreme cost consciousness. It also provides a way for IT to illustrate its value to the rest of the business by positioning itself as a provider of valuable services rather than as a cost center.


Frank Scavo, president of Computer Economics, called it correctly in an interview in December 2007, predicting a revival for chargeback. He said:


We think that if the economy weakens, and IT executives are under more pressure to control costs, we think there's going to be a resurgence of interest in the chargeback model, where you move costs out of the IT budget directly back to the users of those services. Especially things the users have control over, like desktop, printers, telecommunications costs, could be attributed back to the business unit.


A chargeback system makes business users aware of how much it costs to provide IT services. That awareness is valuable, says an enterprise architect interviewed in a Network World article, who calls chargeback "a kind of behavior-modification tool." He says:


We wanted people to know what the price of services were, because if they knew how much it could cost their department, they would be more cautious about requesting less critical services.


Gartner analysts quoted in the article recommend periodically providing reports to business units illustrating their consumption of services. It's also a good idea to include members of the finance team, who can help explain to users how their requests for services directly affect the company's bottom line. Better controlling demand for services in this way can be a valuable step on the way to a full-blown chargeback model, they say.


IT departments "cannot continue to operate in an environment where people can basically get as much IT as they want, when they want, and expect to succeed," says Barbara Gomolski, managing vice president at Gartner.


Using a chargeback model allows IT to replace complicated service-level agreements with a standard service catalog, said Accenture partner Mark Denne when I interviewed him in January 2007. Gaining support from both the CIO and CFO should help boost acceptance of the model among users, said Denne, who also suggested ensuring close alignment between business functions and the service catalog, offering fair and easy-to-understand pricing, and providing a straightforward service catalog that emphasizes standard rather than customized services.