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Cloud computing: Why you can't ignore chargeback

Bernard Golden | Nov. 8, 2010
One reason chargeback is controversial is that it's really hard for IT groups to accurately assess the actual cost of a resource on a granular basis.

And that's why chargeback is going to become even more important. It will move from accurate cost assignment (essentially a budget assignment exercise) to a product design cost element, in which knowing exactly what the total cost structure of the product is crucial.

When designing a product, input cost (i.e., resource price) is an extremely important signaling mechanism. Only when the true cost of IT resources used by a product are known can a product designer forecast whether one cloud service or another is a better decision. Absent accurate prices, the designer faces the danger of mispricing the end product.

In other words, chargeback is moving from an overhead cost assignment exercise (interesting, but perhaps not really crucial) to a cost of goods sold effort and, believe me, understanding the cost of goods of a product is vital to determine what to offer and how to set its price.

Therefore, chargeback is going to become a more important issue in the near future and pressure will build on internal IT groups to truly reflect -- with great granularity -- the fully loaded cost of delivering specific resources. The chargeback controversy will soon shift from whether it's important or not to how soon it can be implemented -- and I wouldn't want to be the CIO who responded with a "we're thinking about it."

Bernard Golden is CEO of consulting firm HyperStratus, which specializes in virtualization, cloud computing and related issues. He is also the author of "Virtualization for Dummies," the best-selling book on virtualization to date.


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