Pros and Cons of Chargebacks

Ann All

Earlier this week I wrote about an InfoWorld article in which IT Catalysts President Bob Lewiswarned IT departments that position themselves as internal service providers risk being seen as non-strategic assets -- or worse, not assets at all.


The article included a mini-discussion on chargebacks, which are often employed as an expense-control mechanism by centralized IT departments using a service provider model. Perhaps not surprisingly, Lewis and the folks he spoke to for his article aren't big fans of the practice, despite what he says is "strong" pressure to use chargebacks. Writes Lewis:

When the only incentive managers have to promote efficiency is the impact of chargebacks on their departmental budgets, chargebacks are just a Band-Aid. They won't fix the real problem: that nobody cares about the success of the business, only their own fiefdom.

Anita Cassidy, president of IT Directions and coauthor of "A Practical Guide to Reducing IT Costs," says chargebacks can lead to bad decisions because managers become more concerned about reducing their individual costs than doing what is best for the enterprise. In another possible unintended consequence, departments surreptitiously procure their own IT services rather than using those provided by internal IT, thus driving up costs and inefficiency.


Yet other experts say chargebacks can help companies get a better handle on their costs. A chargeback model facilitates replacing multiple service-level agreements with a standard service catalog, an effective approach when the services are aligned with business functions and priced fairly. Last spring when I interviewed The Hackett Group's Honorio Padron and Erik Dorr, they told me chargebacks and other methods of demand manageemnt help organizations prioritize their IT projects so "the important stuff gets done first."


Unlike Lewis, Padron believes the service culture created by chargebacks is desirable. He said:

Now you pay me when I perform, as opposed to the entitlement culture that exists when I have the money on my side.

When I asked him whether this kind of a culture might encourage folks to think of IT as a utility that could just as easily be outsourced as offered in-house, Padron said savvy IT departments would expand beyond purely transactional services to offer project management and other more sophisticated functions. Dorr added that creating service catalogs could improve the success of outsourcing initiatives by helping companies better understand their pricing for internal costs.


Dorr and Padron suggested making demand management more collaborative by putting a pricing-based feedback loop into the system. Said Padron:

It creates a good relationship, which may not be intuitive, between IT and the business. I remember the days when I had to fight with the business when they wanted three of something. Now you say, "This is the standard. How many would you like? There's a price per unit." It's a totally different dialogue, as opposed to, "I can't give you three because the book says you can only have one.

For more on problems and potential opportunities with chargebacks, Info-Tech Research Group offers a document in IT Business Edge's Knowledge Network.

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Add Comment      Leave a comment on this blog post
May 6, 2010 7:13 PM Dolar Dolar  says:

Secured process transactions solution will overcome the multi-currency barrier and prevent chargeback risks by making customers feel as if they are shopping in their own country and in their own currency.

Jul 13, 2015 3:34 PM Chargeback Experts Chargeback Experts  says:
WOW! thank you. Reply
Jul 23, 2015 8:42 PM PG1123 PG1123  says:
Hello! my name is George. I work for a Merchant outsourcing company I have to manage multiple merchant accounts for clients from all over the world . I also look after Merchant Chargeback Assurance. I am facing multiple Friendly Fraud cases for my merchants accounts. Recently I got a call from ChargebackExpertz saying all my merchant accounts will be closed if I receive any more chargebacks. I called the banks and they also confirmed this.How can These accounts get so many chargeback in so little time I am confused because all the chargebacks that I have received seem to be false as the product was delivered on time.I suspect a rival company's hand in this act .Because our site seems to be selling more. I am confused Please help . I don't know what to do.Any suggestion will be helpful. thank you Reply

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