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The pressure to expand IT infrastructure coupled with the need to minimise costs has heightened the demand for chargeback systems. If done well, a chargeback mechanism allows IT costs to scale up or down based on demand and usage, say analysts. But how can an organisation devise an effective chargeback plan given the range of variables associated with it? Also, doesn't the theory of chargeback challenge the raison d'être of the firm - they exist to limit the transaction costs that one would otherwise incur while dealing with a range of outside service providers (Ronald Harry Coase, The Nature of the Firm, 1937)?
Kalyan Kumar B
VP & Chief Technology Architect, HCL Technologies ISD
Traditionally, information technology has been a cost centre that exists to support the business to achieve its goal. However, to remain relevant to business and to enable business to use IT as a differentiator, it needs to evolve and bring in solutions that fit business needs. Chargeback is the concept through which IT generates the bill for the costs associated to build and run IT services that they deliver to the business departments. The chargeback system offers the various business departments a view into their usage of the various IT services and ensures that users pay for the services they consume. Chargeback also provides an effective mechanism for IT to influence the consumption behaviour of the various business departments.
One efficient way to manage chargeback is to provision for a service catalogue, which provides information on the services provided. The creation of a service catalogue involves identifying the services that are offered and used by business, the service definition, the unit cost of services and the timelines for offering the unitised services. The creation of the unitised prices requires detailed knowledge of the various cost components, utilisation and performance.
Indeed, it is imperative for the IT department to provide a mechanism to monitor the consumption; this will help ensure that departments are charged only for what they use, and in turn ensure greater responsibility. IT should also be able to measure and report on the service-level agreement and other necessary metrics to the business to ensure that business is able to see and objectively assess and audit the performance of the IT department. These confidence building measures will improve the currency of IT for business and improve the relationship with business.
Catalogues can also be created to encourage the desired behaviour from the business. It will instill a sense of discipline in the business units that were not used to IT services. Non-standardsed services can be priced higher to ensure that only users who genuinely need it will request for these services. This can bring down the cost of operations.
Cloud computing has been a change agent in the whole idea of metering and chargeback as now it has become possible to analyse the actual usage by the departments. According to Gartner, by 2014, IT organisations in 30 per cent of Global 1000 companies (the BusinessWeek list of the world's thousand top companies by market capitalisation) will use two or more cloud services for internal and external users. How companies use cloud to their benefit will determine whether IT can become a strategic advantage for corporations.
HCL has an enterprise service management architecture that enables customers to create and maintain a service portfolio and service catalogue. The company has IT service management solution based on the reference architecture. HCL also provides a cloud management platform that allows customers to manage the entire cloud lifecycle from demand to provisioning to chargeback.
Founder & group CEO, Greyhound Knowledge Group
An organisation has six options to meet the IT requirements: having a physical environment, virtualisation, IT service management, outsourcing, public cloud and private cloud (onsite or using third party database). All these have different value and cost parameters. Depending on the requirements, an organisation should take a call on the right mix.
For instance, for a company that's high on consumption of SAP applications, it makes sense to opt for public cloud. As opposed to this, companies in the banking and financial services industry with the right IT talent can build a private cloud to meet its requirements.
As organisations consolidate their server infrastructure and move ahead in their journey toward cloud, they will face hurdles in virtualisation. While many have tried various tools to charge back and track virtual machine costs in a sophisticated way, most companies have failed to account for the consumption.
Here are a few things organisations must consider before implementing IT chargeback:
User accountability is not a matter of choice anymore. Companies must determine who is using what. This is simpler when you own the physical environment. On the other hand, things are complicated once you switch to virtualisation. When a single piece of hardware hosts multiple applications, managing the resource tracking system becomes challenging. Earlier physical servers had one application and it was easier to track usage. With this technique becoming obsolete, the new technology world is about virtualising storage. And so accountability calls for best practices.
Justifying costs is critical in making the right choices. Consider this: Setting up a server will cost a few thousand dollars. This can be purchased from Amazon at a lower price. In this scenario, how can one continue to justify internal IT infrastructure when similar resources are accessible from a public cloud provider at much less price?
There's no silver bullet. As business conditions evolve, so do price models. The cost per virtual machine today will not be the same as the cost a few years down the line. Organisations must take this into account when devising or implementing a business strategy on IT chargeback.
IT chargeback can help big companies with various business units in forecasting pricing and outcome. Chargeback is also a powerful tool for chief information officers and it will be effective only when IT teams start behaving like external service providers and follow the best practices in the business. While doing so, their key result areas must include the service satisfaction levels of other business units.
Last but not the least, it is crucial to create visibility for the IT service catalogue and encourage its usage in the different business units. A higher consumption will lead to increased reports for different business units which in turn will help in assessing the cost impact for the entire value chain. This will benchmark IT consumption.
