Tuesday, September 16, 2008

Internal Chargebacks

My current place of work is 'small' enough that IT does not 'charge' the business units for services provided.

From a business perspective, I favor charge-backs for a few reasons. First, I think it is important that business units have some concept of how much IT resources cost, and probably one of the most direct ways to make this happen is seeing it hit a department's budget. Secondly by 'seeing' how much IT costs, requests for changes / new services are less blindly requested with little concern for costs. Thirdly charge-backs force IT to be aware of costs down to a relatively fine grained level. This last fact should be taken advantage of irregardless of whether or not charge-backs are used or not.

Before I continue on with that last statement, I do acknowledge that charge-backs have draw-backs. Charge-backs introduce a good bit of accounting overhead. IT must very accurately measure and report on services provided. This can be a very complicated task depending on the services provided, the supporting infrastructure, and business organization. Then of course there is all the actual accounting work, internal invoice and bill processing. Execution of this concept definitely adds cost, hopefully with some return/savings when done properly

Again regardless of whether or not IT does charge-backs or not I think knowing, at least within some small margin of error, what services cost is incredibly valuable. Like any other metric, availability for instance, knowledge is power. When looking for new solutions, having an industry standard or competitive per user cost for a service can be a decision make or break factor. When evaluating a replacement / service upgrade, knowing what the 'old' service cost and then being able to compare that to the new service can help make the proper select to keep that per user cost in a target zone.

I started off mentioning that charge-backs are not done in my current workplace. I have however, over the past several months been working through constructing a spreadsheet that exposes the true costs of IT services. It has been a challenge to properly assign metrics to services - ie what is the true capacity of an MS Exchange server, and what are all the associated bits behind an email account(much more than just a CAL). I've finally come to a place with it that I'm fairly happy with. Its made apparent many facts, some good - some which need improvement, that will be very valuable in my future decision making processes.

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Jason said...

We are strugling to do this at my current job. We support the different business units within our company. Calculating the true cost and then defining a fair way to split it up is VERY difficult. I'm dealing with how to charge for storage on the SAN. So many different options (Raid type, used with NAS,SAN, or through a vm)not even bringing in the idea of different SLA's for backup and retension. ARGGG

JeffHengesbach said...


Exactly. Shared storage systems are tough and they contribute quite significantly to cost, so getting it right is a important. I'm planning out the next stage of virtualization here and breaking things down into chargeable units for comparison to today's numbers is challenging.

Lane said...

Ouch.. a little credibility lost when using the double negative word "irregardless". Many people view the user, as a person who either doesn't know the difference, or doesn't care about being correct.
I'm just passing the tip along.

Lane said...

Thank you for the article. This helps.