Chargeback Models for IT Services Require Deep Platform Utilization Data
Chargeback models for IT services isn’t a natural trigger for excitement, but with the right operational intelligence, things get interesting when you go beyond recouping costs. That happens when infrastructure utilization data (both real-time and historic) is applied to shared services chargeback models. The result is constructive conversations that improve operating margins and free up resources for higher value activities.
What is IT Chargeback?
Simply put, IT chargeback is the effort made to recoup the technology and human capital costs that are expended to build, acquire, support, and manage technology products and services shared across the organization. You need to know who (or what) used which technology, when, and in what capacity from which to calculate a cost. This responsibility is borne by the shared services team in large organizations.
The volume and type of infrastructure utilization data required depends on two things: (a) the platform analytics capabilities that you have, and (b) the chargeback model being used.
What is a Chargeback Model?
The chargeback process starts by measuring resource utilization over time and then applying a cost factor. The chargeback model is what determines how those measurements are formulated and the action to be taken on the results.
Gartner¹ identified a set of best practices for shared services chargeback based on five standard shared services chargeback models, which I have summarized below:
- The cost center model: This is the easiest model because there is no pricing strategy to maintain, and with no pricing strategy, there is no need to account for utilization in detail.
- Fixed allocation model: Another simple model in which each business unit is charged a flat rate or percentage. Because each group is charged the same amount month over month, there is little incentive to make the best use of resources.
- Variable model based on actual volume: This model starts to bring equity to the process by making each business unit accountable for the services that they consume. This requires accurate data collection not only to determine cost but to address disputed charges.
- Market-based model: In this model, the price of a particular IT product or service is influenced by external market rates of similar services. This is a good way to reduce shadow IT efforts that try to get better prices through 3rd parties (and increase 3rd party risk). Accurate consumption data is required to support good market comparisons.
- Cost-plus model: A profit margin intended for infrastructure reinvestment is added to the base cost. The chargeback to the business is not as transparent as in the earlier models with regard to the base cost of services.
The models described above run from simple to complex. Depth of data, timeliness, accuracy, and accessibility become increasingly important with models 3 through 5, not only for reporting purposes but to enable those models in the first place.
For example, if your organization is mature enough for a cost-plus model that encourages fiscal responsibilit