IT Showback and IT Chargeback are two processes used by information technology (IT) organizations to allocate and/or bill the costs associated with the demand and usage of IT provided services and capabilities (commonly called “Services”).
The purpose IT Showback and Chargeback is for the IT organization to deliver greater transparency and accountability of how IT spending supports business objectives. IT organizations that successfully develop the methods necessary to translate traditional “chart of account or cost center” accounting information into meaningful business intelligence (BI) information in common business terminology, and also provide the underpinning measurements that enable better decision making have larger budgets and longevity than their peers.
IT Chargeback Benefits
The underpinning theory of IT Chargeback is that it provides a deeper understanding of the utilization of IT Services and their cost drivers, in order to more effectively fund and scale IT spending to match the velocity of business change.
IT Chargeback is a strategy deployed where departments get an internal bill (or “cross-charge”) for the costs that are directly associated to the IT Service usage.
The three common benefits of IT Chargeback is that it:
- makes business departments responsible in their usage, e.g., refrain from asking for resources they are not going to use or provide little value to achieving their business objectives,
- provides greater visibility to the head of IT and to business unit management on the reasons behind the costs of IT Services, and
- allows the IT department to respond to unexpected customer demand by saying “yes, we can do it, but an additional charge will be applied” instead of saying “no, we cannot do this, because it’s not in the budget.”
Some IT Chargeback strategies include the cost of electricity, janitorial services, facilities, etc., which are apportioned to departments using a consistent allocation method. Similarly, some IT Chargeback strategies apply a fixed allocation to the cost of each IT Service.
The IT Chargeback strategy and development of a consistent and holistic allocation method is non-trivial. The resulting benefit of having business users of IT Services pay for their allocated and/or actual usage can quickly drive IT costs down and identify non-valued resource consumption of IT Services.
On the other hand, this level of IT cost transparency and accountability can fuel challenging discussions between IT and its internal customers and between department managers and users that caused unplanned or excessive resource consumption.
IT Showback Benefits
An IT Showback strategy provides the benefits of IT Chargeback without some of the drawbacks. The IT Showback strategy provides for the understanding of the demand for IT Services and their cost-driver criteria to IT management, departments, and corporate management without actually cross-charging those costs. The pressure on the departments to account for or limit their usage is less direct, but awareness of the costs usually causes department heads and senior management to question why a department is “spending” more than others. Such awareness also leads them to directly associate IT spending with the value it achieves towards business objectives.