Time To Get Serious About IT Cost Recovery

As more organisations move their IT systems into the Cloud, the opportunity exists for IT departments (which have traditionally been considered cost centres and not profit centres) to recover some of their costs, and at the same time introduce into other parts of the business an understanding of the cost of IT and the value it provides.

The aim of IT cost recovery, or chargeback, should be to provide the business units that use the various IT systems the ability to control, or at least forecast, the total cost of performing a specific business function.  This chargeback should be understandable, transparent and should allow the requestor to be selective with the services they require.

Transforming your organisation from where IT is a black hole of unknown and invisible costs, to one in which the various business areas understand and recognise that each product, service or benefit they offer comes at a measurable cost, is difficult but not impossible.  Some key things to keep in mind when looking to introduce chargeback into your organisation are:

Start High-Level

Be prepared for the inevitable request to show the low-level costs to the bean counters, however to start with, I recommend that you keep the details of your IT costs only as granular as you need.

This is important when first introducing the concept of chargeback to your business owners as this is more about transforming an organisational behaviour that it is about cost.  If you get to the point of formal chargeback processes being introduced, you may definitely need more accurate costs.

Showback Before Chargeback

When introducing a new behaviour such as IT Chargeback it is sometimes necessary to first introduce your business units to the concept of cost recovery via ‘Showback’. Showback (i.e. showing users their costs without charging them), is a great way to build cost awareness, test the processes you will need for chargeback and manage any inevitable complaints.  Showback often provides enough incentive for an organisation to start to drive their costs down.

Introduce A Service Catalogue

If possible you should look to develop a Service Catalogue that not only captures the various services you are offering your business units, but also allows you to build ‘products’ for these services, to report on usage and to, in effect, market your IT Services to your business units.

Allow For Hybrid Cloud Services

Hybrid Cloud is commonly recognised as a combination of both public cloud and on-premise infrastructure, and most organisations will operate in some level of Hybrid Cloud until existing IT assets reach end of life.

It is important to make sure your organisation’s IT consumers understand that public cloud providers are not always cheaper than an on-premise alternative.  Make sure you provide enough transparency around the cost of the internal service for your business owner to be able to compare your cost to public cloud alternatives.

Transfer Your Financial Risk

Maintaining accurate cost recovery information allows IT managers to better understand which of their IT assets are over or under-utilised, and therefore what price certain services can be offered for.

Knowledge regarding what each service actually costs supports those occasions where you need to say to the business requestor, “Yes, it can be done, but it is going to cost you $xxx” instead of saying “Sorry, we cannot do this for you as we don’t have the budget”.

Making The Business Accountable

By successfully implementing an IT Cost Recovery model with service-based pricing, you have been able to move accountability for IT spend and overspend to your business users.  Questions raised regarding overspend by IT become the responsibility of whomever requested the service.  Without a successful chargeback model, any overspend would continue to be seen as being IT’s fault.

Designing and integrating a successful chargeback solution for IaaS deployments is a demanding task. It requires not only design of the chargeback processes and IT services pricing policy, it also requires in-depth knowledge of the instrumentation present in the underlying infrastructure.  Further it requires experience of integrating IT systems management and billing tools, and because it is a significant project in its own right, it also needs a structured approach to program management.

Riteway Solutions Group has significant experience in each of these areas, backed up by many years of experience in usage-based billing system design in the telecommunications industry. Riteway offers a range of Cloud consulting services, including strategy, planning, design and implementation. Riteway are ideally placed to help you design and deliver an IT Cost Recovery mechanism for your changing ICT environment.


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