Five Tips To Make IT Chargebacks Work for Your Organization

The promise of an IT chargeback policy is that business units will become accountable for IT cost containment and executives will more efficiently allocate company resources. Yet there’s also an inherent risk that such a system could become a political and administrative boondoggle. That’s especially true when you are switching from an existing "all you can eat" IT policy.

It's been said that implementing an effective IT chargeback program is "80 percent politics and 20 percent finance". Bearing that in mind, here are a few key points to help do it right.

1. Address the politics.
Nobody likes policies that seem to be imposed by fiat. For an IT chargeback program to work effectively, you need cooperation from the people who will bear most of the brunt of it: the individual department and project leaders at the other end of the process. These folks need to be included in the planning stage, so that they have a say in the chargeback program and understand its benefits. Otherwise, you risk facing resistance, resentment, and non-compliance, all of which will add friction and reduce the effectiveness of your chargeback policy.

2. Don't go it alone.
A chargeback policy needs to be part of a broader organizational philosophy — that departments are responsible for their expenses, whether these involve IT, marketing, sales, or anything else. Therefore, IT cannot be the only resource that applies chargeback. The tail should not wag the dog; if departments are already accountable for other expenses, then implementing IT chargeback will help create a consistent internal business model. But if IT is the only department applying chargebacks, you risk creating an uneven playing field within your organization.

3. Choose the right model.
The most important yet most complex decision to make with IT chargeback is how to account for usage. Will you itemize consumption for every piece of IT that a department touches, from printer ink to support calls to network bandwidth to custom applications? This kind of consumption-based model can be the most fair, but it’s also very costly to administer. Or will you charge departments a subscription fee based on average costs scaled to their size? That can be less expensive to manage, but also less sensitive to spikes in resource usage. And there are other models to consider such as peak-level pricing and ticket-based pricing — all the more reason why choosing the right chargeback model for your organization's IT needs is crucial to a successful program.

4. Deliver fair pricing.
When you create a chargeback program, IT essentially becomes a “business within the business.” For this to fly, the IT department will need to charge fair rates compared to what department heads could get by going outside the organization. You don't want to charge $1,000 for a PC that can be bought for $500 direct from the vendor, or else departments have a powerful incentive to make an end run around IT.

5. Provide outstanding service.
Along the same lines as fair pricing, if IT is going to become a business charging for its services, then other departments become real paying customers — and that is exactly how you must treat them. Your IT organization will need a system for prioritizing business now that it is taking in revenue, rather than informally queuing up requests. Providing outstanding service to external clients should be the foundation of any successful business, and it’s just as important to apply the same principles within the company.