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IT Chargeback

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What is IT Chargeback?

IT chargeback is a method of charging internal consumers (e.g., departments, functional units) for the IT services they used. Instead of bundling all IT costs under the IT department, a chargeback program allocates the various costs of delivering IT (e.g., services, hardware, software, maintenance) to the business units that consume them. [1]

In an IT chargeback situation, instead of simply charging all IT costs to one central department, the company charges individual costs to the user groups or centers that most directly consume the goods or services that were purchased. This principle can make things clearer for administrators who have to manage costs and can also help to provide a clearer contrast for various options, such as outsourcing. With so many types of cloud and SaaS services proliferating across the business world, IT chargeback can be a useful way of ordering information and assessing value for cost. IT chargeback is sometimes contrasted with other options for keeping track of costs, such as showback. In showback accounting, costs are presented in a decentralized way, without being actually cross-charged to the different accounts.[2]


Chargeback vs. Unattributed Accounting[3]

All costs are centralized in traditional IT accounting. One central department pays for all IT equipment and activities, typically out of the CTO or CIO’s budget, and these costs are treated as corporate overhead shared evenly by multiple departments. In an IT chargeback accounting model, individual cost centers are charged for their IT service based on use and activity. As a result, all IT costs are “zeroed out” because they have all been assigned to user groups. IT is no longer considered overhead, instead it can be viewed as part of each department’s business and operating expenses (OpEx). With the adoption of IT chargeback, an organization can expect to see significant shifts in awareness, culture, and accountability, including:

  • Increased transparency due to accurate allocation of IT costs and usage. Chargeback allows consumers to see their costs and understand how those costs are determined.
  • Improved IT financial management, as groups become more aware of the cost of their IT usage and business choices. With chargeback, consumers become more interested and invested in the costs of delivering IT as a service.
  • Increased awareness of how IT contributes to the business of the organization. IT is not just overhead but is seen as providing real business value.
  • Responsibility for controlling IT costs shifts to business units, which become accountable for their own use.
  • Alignment of IT operations and expenditures with the business. IT is no longer just an island of overhead costs but becomes integrated into business planning, strategy, and operations.


See Also

References

  1. Defining IT Chargeback Uptime Institute
  2. Explaining IT Chargeback Techopedia
  3. Chargeback vs. Unattributed Accounting UI Journal


Further Reading