Implementing a chargeback and showback solution, in combination with a detailed cost allocation model, can be the key to understanding the value of IT services.
The following six steps are essential when implementing a chargeback and showback solution:
1. Identify detailed IT expenses. Cost transparency is vital to an effective chargeback and showback capability as the agency must obtain enough detail to assign IT line items to the departments and services they support. A comprehensive operating and spend plan with detailed hardware, software, contract and systems support costs is recommended.
2. Determine cost relationships. Establishing a logical connection between IT expenses and their consumption among departments is an essential part of the process. The objective is not to chargeback 100% of IT costs, but to focus on the services and systems that are easy to allocate and have an impact.
3. Apply performance metrics. Chargebacks and showbacks depend on a variety of metrics to accurately allocate costs. Traditional systems use a straight allocation of IT costs based on readily available information such as headcount or number of PCs. Other IT chargeback methodologies include measured use, flat rate and direct cost. Detailed or department-specific metrics are preferred to increase accuracy, but it is important to strike a balance between the precision of the system and the difficulty in collecting and updating the data.
4. Incorporate into accounting stream (chargeback only). Once the chargeback methodology is established and agreed upon, the accounting system must be updated to allow IT to charge other departments for their services.
5. Report and evaluate. The purpose of the chargeback is to inform departments of the resources they are using and to demonstrate that IT investments support agency goals and objectives. It is important to present and discuss the results of the system with department leadership in order to evaluate the use of their IT expenditures, as well as the value provided by the IT services they consume.
6. Keep it simple. The key is to develop a reasonable solution that adds value without being overly complicated. When possible, a simple and straightforward process is highly encouraged.
Using the right chargeback and showback approach in combination with a comprehensive cost allocation model can be the key to understanding the true value of federal IT services. Managing these capabilities effectively will drive mission and vision, promote change, increase performance, and ultimately create a more efficient business.
About the Author
Kevin Sawyer is a partner at Vergys LLC, which provides strategic management consulting services to federal, public and private sector organizations. He has more than 13 years of experience providing IT and financial management solutions, including activity-based costing and management, business intelligence, and chargeback and showback implementation and management.