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Charge It

Posted 11-15-2003 Print

Charge It

My third principle states that you can't achieve alignment without a good relationship between IT and the business. A key is establishing confidence among executives that IT is distributing costs rationally and consistently.

Rationally doesn't mean perfectly, but it does mean that IT can explain why they're doing things, and that it was done deliberately as a result of a policy decision, and not arbitrarily. This issue's survey on IT alignment shows that less than half of larger companies (those with more than 1,000 employees) treat IT costs as a corporate overhead expense. The rest use some form of cost recovery, mostly a chargeback system based on the actual resources the business units use. The data shows no correlation between using chargeback and company performance.

At companies without a chargeback system, however, business unit leaders may view IT as "free," and demand far more of the IT organization than it can possibly deliver.

More requests mean more tough decisions and increase the likelihood that IT resources are wasted if the decisions are not well-informed. More significantly, treating IT costs as corporate overhead creates an accounting issue. In the typical company with multiple business units, the IT component of each business unit's true operating cost is not accurately reflected in its results. Only those companies where IT costs are fully allocated to the individual business units can managers and investors understand the true financial performance of each unit.

Yet many using chargebacks call it a "damned if you do, damned if you don't" proposition. Sadly, it's not quite so simple in the real world. One of my clients is typical. There is a lot of stress in the relationship between IT and the company's business units, primarily because of intense pressure on business unit leaders to deliver bottom-line results. The way the tension is manifested is by challenging the chargeback system. Of course, the leaders want more from IT for less money, so they challenge the rates. But allocation is also an issue. The company has three essentially independent business units that compete for resources from the IT organization. The leaders of each of those business units think IT is shifting costs to their bottom line that, in fact, should be borne by the other business units. But they can't all be right. And when business unit profits falls short, they blame IT.


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