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Balancing chargeback

Ross O. Storey | June 10, 2008
Although Asia is showing itself to be resilient to the economic uncertainties in the US and Europe, there is even greater concern about costs. Ross O. Storey reports that shared services and IT chargeback are likely to get more attention but how do you balance the needs of the business with the price of IT services?

Even before the US sub-prime mortgage imbroglio raised its ugly head last August, senior IT executives were complaining that their budgets were shrinking while the demands on them were inevitably rising. 'Do more with less' was the IT budget mantra. Now, with the world widely anticipating some form of belt-tightening, IT costs are now even more highly visible and containing them is even higher on executive agendas.

Steve Bittinger, research director Gartner Asia/Pacific, based in (Canberra) Australia, believes that sound financial management will be a must for enterprises to survive any economic slowdown and curb any lingering excesses.

"Enterprises will need to understand their cost base, especially for IT services," says Bittinger.

"One way is to use chargeback. Chargeback is a governance mechanism that can be used to create desirable behaviour in the use of IT services. It reveals to users the cost of the IT services they consume."

According to the independent research think tank, the IT Governance Institute (ITGI), chargeback is the specific redistribution of costs to the units within an enterprise. The argument is that, if these costs are not clearly quantified, there may be misleading views about the real profitability of a product or service.

A recent ITGI study (The IT Governance Global Status Report 2008, see box: Importance of IT) found that insufficient IT staff availability, service delivery issues, and difficulty proving the value of IT continue to plague executives at organisations around the world.

In Asia, 44 per cent of organisations are in the process of implementing, or have already implemented, IT governance practices, compared to 50 per cent in Europe and North America.

"The bottom line is that many organisations around the world are needlessly sacrificing money, productivity and competitive advantage by not implementing effective IT governance," says Lynn Lawton, international president of ITGI. "Well-governed enterprises have been shown to provide a better return to stakeholders, and the same goes for governance over information technology. Executives need to direct their IT for optimal advantage, manage IT-related risks and measure the value provided by IT."

Bittinger, who has been with Gartner for more than seven years, and has more than 30 years' experience in the IT industry, says a properly funded chargeback strategy enhances IT decision- making, but it can be something of a 'high wire act'.

"When IT managers communicate to business managers what their IT decisions will cost, business managers can better understand the value of these decisions when compared against other options."

Mature approach

He says chargeback is a reasonably mature approach, used in some organisations for many years, particularly in the context of "mainframe" processing, where more mature measurement tools and reporting processes have had time to evolve.

 

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