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Departments should pay for internal IT, says Gartner

Daniel Thomas

Companies should consider charging departments for internal IT services support, according to a new report from Gartner’s Executive Programs (EXP) division.

"Business units must be cost-effective in their use of IT," said Marcus Blosch, vice president and research director for Gartner EXP. "IT organisations must be seen to deliver value for money. Bringing these together is a challenge. That's where chargeback comes in."

Chargeback for IT services is used to modify behaviour in the use of IT services by recovering costs. It is designed to reveal to users the cost of the IT services they consume.

"Chargeback is an IT governance mechanism," said Blosch. "It's just one of the tools an enterprise can use to get the behaviours it desires in the use of IT services. To be effective, chargeback has to be seen in the context of IT governance."

Implementation of a chargeback system needs to be broken out into three steps, Blosch said. The first step is identifying IT service costs, followed by cost allocation and then cost recovery, he said.

When identifying IT service costs, Blosch said a company must create a standardised chart of accounts showing what IT services exist, who uses them and what the cost drivers are. Cost identification is mandatory and fundamental to IT being able to make informed decisions.

"A standardised chart of accounts can aggregate the cost elements of a service, allowing cost comparisons across business units and external benchmarking," he said. "Keep the level of detail in the chart of accounts simple enough to reduce classification errors, yet granular enough to identify which costs occur and where."

The second step, cost allocation, provides a greater level of detail of individual business unit IT service costs. Allocating costs for IT services that are directly attributable to a business unit is relatively straightforward, but it is not so easy for shared services.

For many companies, cost allocation is enough, Blosch said. It is an estimated calculation on how individual business units are using IT services, and can be used as a basis for decision making. However, in some cases this notional figure does not strongly influence behaviour, so cost recovery is needed.

Cost recovery, the third step of chargeback, actually moves money between budgets., which is bound to get the attention of business unit managers who are focused on their bottom line, Blosch said.

"To move to cost recovery you're going to have to set up a chargeback committee, with business unit representation and chaired by the CFO," he said. "This committee sets up and runs the chargeback. The CIO sits on the committee, but in an advisory role."

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