Understanding the Effectiveness of Chargeout Systems

Reinforced by the economic downturn and the accompanying need for increased transparency, the chargeout of IT costs has become an important factor in the management of IT. Organizations can have different objectives to employ or not to employ chargeout methodologies. The pros vary from cost recovery to management and control and increasing the business-IT alignment. On the other hand, chargeout costs money, awareness does not come automatically, and not having chargeout may be beneficial to innovations. In this paper, the choices to be made in order to develop a suitable chargeout system are identified. Based on a literature review, several factors determining effective chargeout were obtained, as well as four strategic choices in the design of an effective chargeout system. Based on these aspects, exploratory research is conducted by means of case study research. For these case studies, three large organizations were analyzed. In these organizations, their respective IT chargeout methodologies were assessed, interviews have been performed with senior IT managers, and as a result several new chargeout effectiveness factors are discovered. The findings congregate in a model to support organizations in their development of chargeout methodologies. This model consists of thirteen factors - being understandability, costs linked to benefits, controllability, billing, accountability, predictability, fairness, simplicity, trust, fit with organizational systems, qualitative management information, insight in cost drivers, and actionability - and four strategic choices - component-based versus service-based chargeout, organizational structure, costing versus pricing, and the granularity of the chargeout system - that organizations need to consider in their development of an effective chargeout system. In a best practice development, organizations should choose an organizational structure based on their IT strategy, decide whether to charge costs or prices, and adopt a service-based chargeout system which is neither too complex nor too simple, while satisfying the effectiveness factors. Following these guidelines will increase the likelihood that chargeout will live up to its potential.