V 4 Implement an IT Chargeback System Explain

V 4 Implement an IT Chargeback System Explain IT costs in ways that matter to the business. Info-Tech Research Group, Inc. is a global leader in providing IT research and advice. Info-Tech’s products and services combine actionable insight and relevant advice with ready-to-use tools and templates that cover the full spectrum of IT concerns. © 1997 -2016 Info-Tech Research Group Inc. Info-Tech Research Group 1

Analyst Perspective IT services aren’t free, but it’s easy to forget how much they cost when you aren’t paying for them. Charging for IT services helps to remind users that IT services cost money, and how much IT services they consume is directly related to their cost. Historically, IT has charged for its services in IT terms: CPU cycles, hard drive spaces, bandwidth, and so on. But these terms are virtually meaningless to business users who can’t connect the dots between the use of IT services and how they are charged for them. The chargeback mechanism becomes a frustration that obfuscates how a business leader can control their IT costs. It’s time to start running IT like a business. Rather than charge for IT on the basis of IT cost drivers, demonstrate the value of IT by charging for IT in terms that the business considers valuable; ones that are meaningful, measurable, and manageable. Info-Tech’s IT chargeback methodology will help you develop a chargeback model that transparently disentangles IT costs into fair and reasonable IT charges that directly align with the business value they deliver, and which business users enjoy. You will forever change the conversation from one of cutting costs to one of delivering real business value. Jason Petrovic Senior Consulting Analyst Strategy & Leadership Info-Tech Research Group 2

Our understanding of the problem This Research Is is Designed For: This Research Will Help You: üCIO üHead of IT Finance üCreate a chargeback/showback model. üBring transparency to IT spending. üHold business units accountable for IT service costs and usage. üRecover IT costs fairly from those that benefit from them. This Research Will Also Assist: This Research Will Help Them: You: üCFO üHead of Accounting üBusiness Unit Leaders üUnderstand how money spent on IT brings value to business operations. üUnderstand the benefits and challenges of implementing an IT chargeback system. üEstablish a process for recovering IT service costs from business units. üTrack IT service consumption and gain visibility into organizational IT spending. Info-Tech Research Group 3

Executive summary Situation Info-Tech Insight • One of the challenges facing IT organizations is managing downward IT services must be priced in a way that business consumers find meaningful, measurable, and manageable. • budgetary pressures while costs rise. IT struggles to keep service costs down as business consumption of IT services increases. IT needs to recover its costs from those that consume them in a fair and transparent manner. • The business must understand what Complication • IT departments price IT services based on the hardware, software, and • services they buy from suppliers. Business managers don’t care about the technical side of technology or what it costs. IT jargon doesn’t communicate business value and further confuses IT costs. If business managers can’t understand IT costs and value, then they feel they can’t control the costs, either. • they are being charged for; if they can’t understand the value, you’ve chosen the wrong basis for charge. Business units must be able to control and track their consumption levels, or they will feel powerless to control costs and you’ll never attain real buy-in. Resolution • Explain IT costs in ways that matter to the business. Instead of focusing on what IT pays for, discuss the value that IT • • brings to the business by defining IT services and how they serve business users. Develop a chargeback model that brings transparency to the flow of IT costs through to business value. Demonstrate how a good chargeback model can bring about fair “pay-for-value” and “pay-for-what-you-use” pricing. Use consumption-based pricing for IT service delivery units that the business finds meaningful, measurable, and manageable. Communicate IT chargeback openly and manage change effectively. Business owners will want to know how their profit and loss statements (P&Ls) will be affected by the new pricing model. Share the financial results with business owners and be open to incorporating their feedback to keep improving the model over time. Info-Tech Research Group 4

IT chargeback can be disruptive and distressing You are about to affect the bottom line of other business units. Expect resistance and rebuff when you first implement chargeback and every time you change the model after it has been set. Changing the model is a zero-sum game: if one business area wins, another will surely lose. Triggers for implementing IT chargeback Other drivers to consider üBusiness units are under the false impression üC-level executives have decided to implement that these services are free due to a lack of appreciation of actual IT costs, and they excessively consume IT services. IT chargeback, orders coming from above. üBusiness units perceive IT service costs as uncompetitive, resulting in shadow IT and a negative perception of IT. üLack of IT cost transparency applies downward budgetary pressure, and chargeback provides a way to demonstrate that IT costs are warranted. üCompetition with proliferating service alternatives (e. g. cloud services). üIncrease in the accountability for IT spending. üTo provide customers with the ability to plan, manage, and forecast IT service usage, allowing business units to control their own IT spending. Know the difference between chargeback and showback. • Chargeback is the process of allocating and/or charging a given rate to recoup a target amount of IT costs that result from delivering services to a given department. • Showback refers to simply communicating the costs that went into delivering IT services for a given department, with no movement of dollars. This blueprint will allow you to accomplish both. Info-Tech Research Group 5

This blueprint will take you through four phases and provide the following deliverables Phase 1: Phase 2: Phase 3: Phase 4: Launch Define Implement Revise Make the case for IT chargeback Set up the chargeback program Communicate IT chargeback Revise the chargeback model Assess maturity and need Determine chargeable service units Recover costs for IT services Communicate changes and implications Establish chargeback governance Compute chargeback amounts Deliverables: IT Chargeback Kick-Off Presentation IT Chargeback Maturity Assessment IT Chargeback Governance Model IT Chargeback Communication Plan Revised Chargeback Model IT Chargeback Rollout Presentation IT Chargeback Change Communication Plan IT Chargeback Financial Presentation Info-Tech Research Group 6

Charge for IT services using meaningful, manageable, and measurable service units the business understands CASE STUDY Energy Company North America Challenge Solution Results • A large enterprise energy company in North America had grown to a point where the IT budget was quite material. • It was not transparent to business units how IT costs were being allocated. • When IT began to look at their model, they realized it was a poor formula – simply allocating IT expenses to business units based on their % of revenue contributed. • The business was placing emphasis on profitability of each business unit and the need to understand costs. • IT made a decision to work on a better mechanism for allocating IT costs back to business units on a more equitable basis. • The IT team, led by the CIO and working with F&A, decided to allocate IT costs in a more meaningful way. • The team first defined each of their user-facing services in business terms. • All IT costs were then allocated to each user-facing service. • The pricing of IT services had previously been very IT focused. When pricing services, the IT team decided instead to use chargeable service units that business owners found meaningful, manageable, and measureable. • The IT team then worked to ensure each chargeable service unit had a mechanism in place to track consumption. • The IT chargeback model was launched and the change was effectively managed using presentations and consistent communication. Feedback was welcomed at the end of each charge cycle and the model would be revised. • There was full transparency into IT costs and business unit accountability increased. • Finance and Accounting (F&A) worked with IT to ensure the recovery of IT costs. • Business owners worked with the CIO every charge cycle to discuss IT costs and understand how they could shift consumption patterns to better their profit margins. Info-Tech Research Group 7

Track metrics throughout your IT chargeback journey Here are some IT chargeback metrics to consider: Metric Description Percentage of IT service costs recovered from business units Number of complaints received by business owners on the chargeback model Metric Goal Checkpoint 1 Checkpoint 2 Checkpoint 3 Checkpoint 4 80% <5 Percentage of IT resources being consumed 90% Total IT capacity available to support additional business initiatives 20% Total IT cost as a % of revenue 5% Other metric Info-Tech Research Group 8

Use these icons to help direct you as you navigate this research Use these icons to help guide you through each step of the blueprint and direct you to content related to the recommended activities. This icon denotes a slide where a supporting Info-Tech tool or template will help you perform the activity or step associated with the slide. Refer to the supporting tool or template to get the best results and proceed to the next step of the project. This icon denotes a slide with an associated activity. The activity can be performed either as part of your project or with the support of Info-Tech team members, who will come onsite to facilitate a workshop for your organization. Info-Tech Research Group 9

Info-Tech offers various levels of support to best suit your needs DIY Toolkit “Our team has already made this critical project a priority, and we have the time and capability, but some guidance along the way would be helpful. ” Guided Implementation Workshop Consulting “Our team knows that we need to fix a process, but we need assistance to determine where to focus. Some check-ins along the way would help keep us on track. ” “We need to hit the ground running and get this project kicked off immediately. Our team has the ability to take this over once we get a framework and strategy in place. ” “Our team does not have the time or the knowledge to take this project on. We need assistance through the entirety of this project. ” Diagnostics and consistent frameworks used throughout all four options Info-Tech Research Group 10

Implement an IT Chargeback System – project overview Launch Define Implement Revise 1. 1 Make the case for IT chargeback 2. 1 Set up the chargeback program 3. 1 Communicate IT chargeback 4. 1 Revise the chargeback model 1. 2 Assess maturity and need 2. 2 Determine chargeable service units, cost estimates, and service prices 3. 2 Recover costs for IT services 4. 2 Communicate chargeback model changes and implications 1. 3 Establish chargeback governance Best-Practice Toolkit 2. 3 Compute chargeback amounts Call 1: Make the case for IT chargeback Call 1: Set up the chargeback program Call 1: Communicate IT chargeback Call 1: Revise the chargeback model Call 2: Assess maturity and need Call 2: Determine chargeable service units, cost estimates, and pricing Call 2: Recover costs for IT services Call 2: Communicate chargeback model changes and implications Call 3: Establish IT chargeback governance Call 3: Compute chargeback amounts Guided Implementations Module 1: Kick-Off IT Chargeback Module 2: Develop the Chargeback Model Module 3: Communicate IT Chargeback Module 4: Revise the Chargeback Model Phase 1 Results: • IT Chargeback Kick-Off Presentation • Maturity Assessment • Governance Model Phase 2 Results: • Chargeback Model Developed Phase 3 Results: • Communication Plan • Rollout Presentation • Financial Presentation Phase 4 Results: • Updated Chargeback Model • Chargeback Change Communication Onsite Workshop Info-Tech Research Group 11

Workshop overview Deliverables Activities Contact your account representative or email Workshops@Info. Tech. com for more information. Workshop Day 1 Workshop Day 2 Workshop Day 3 Workshop Day 4 Workshop Day 5 Kick-off IT chargeback Identify customers and services Determine service units and pricing Create an IT chargeback communication plan Review the chargeback model 2. 1 Identify customers 2. 2 Identify user-facing services and generate descriptions 2. 3 Allocate costs to userfacing services 3. 1 Determine chargeable service units and pricing 3. 2 Track consumption 3. 3 Determine service charges 4. 1 Create a chargeback communication plan 4. 2 Create a chargeback rollout presentation 4. 3 Recover costs from business units 5. 1 Address stakeholder pain points and highly disputed costs 5. 2 Update the chargeback model 5. 3 Communicate chargeback model changes and implications to business units 1. Chargeback model (partial) 2. High-level service catalog 1. Chargeback model (completed) 1. Chargeback communication plan 2. Chargeback rollout presentation 3. Process for recovering IT costs from business units 4. Chargeback financial presentation 1. Revised chargeback model 2. Change communication document 1. 1 Investigate the benefits and challenges of implementing IT chargeback 1. 2 Introduce the Info. Tech chargeback methodology 1. 3 Identify current and target state chargeback maturity 1. 4 Establish chargeback governance 1. Defined IT chargeback mandate 2. IT chargeback kick-off presentation 3. Maturity assessment 4. Chargeback governance model established Info-Tech Research Group 12