How to successfully implement chargeback and run IT like a business
Implementing a chargeback model can lay the foundation for running IT like a business. The key to its success is that it connects an actual price to the value of IT services. Now, executives and stakeholders can understand the value of IT services and projects in terms that resonate with how businesspeople think.
The concept of recovering costs for the use of IT is fairly well understood. An IT organization provides IT services (at various maturity levels) to BUs (business units) who are charged for them via a monthly internal transfer. We can broaden this description to include cost allocation methods that are more or less equitable (think charging by actual consumption versus by headcount), but the premise of cost-recovery is accepted—even if the manifestation is as simple as a single-lined ‘Shared IT Cost’ entry in the BUs budget.
The challenge is deciding which cost-recovery model to use and how to implement it successfully to ensure company-wide adoption. In this post, I tackle three strategies for successfully implementing a chargeback model. (Check out my post on showback vs. chargeback to better understand the differences in models.)
Strategy #1: Avoid institutional turbulence
Chargeback is a tactic for cost recovery, but its use doesn’t inherently imply fairness in the eyes of a business stakeholder. Successful adoption requires transparency during deployment. The customer needs to understand the changes from the existing cost recovery model.
The concept of a chargeback is familiar. There can be an assumption that any updated version rolled out into an organization must be ‘better’ than what came before. If that wasn’t the case, why would you put in the effort to switch up the cost-recovery process in the first place?
This implication of change can induce institutional turbulence. With a cost-recovery system grand-fathered in, issues of fairness are tolerated through familiarity.
If the marketing budget has the same $1M shared IT services bill every year, the sticker shock of the first year will be met with acceptance by the third. But if, in year four, a more equitable chargeback system is rolled out with different—though more defendable—allocations to BUs, all hell breaks loose.
Transparent deployment builds confidence in a new system
I once worked with a particular client who knew how to meet a cultural aversion to change head-on: they deployed Apptio Bill of IT in parallel with their existing chargeback system. This gave the organization headroom to grow into a chargeback system by giving a like-for-like comparison to their legacy solution. With Apptio Bill of IT, they received monthly bills via email which accurately broke down IT costs and allocations in language they understood. The BUs were used to seeing their ‘storage’ costs as one monolithic monthly charge. With Apptio Bill of IT, they were given service options with different storage tiers.
The true-up process with their legacy system consistently created friction. With a cost-based bill, there aren’t any true-up as BUs are charged for the actuals of the services they are consuming: with a budget-based bill there is always some reconciliation between plan and actuals. This customer had a hybrid billing model with both cost-based and budget-based billing. The BUs had no visibility into the build-up of their true-up until, surprise, the yearly adjustment hit them. With Apptio Bill of IT, Service Owners and Business Relationship Managers (BRMs) are now able to track cost recovery throughout the year. This gives the BUs visibility into ongoing cost recovery trends and helps them manage the size of their own true-up.
By overlapping the two systems, which gave the BUs time to compare old and new bills, the customer was able to build confidence in Apptio Bill of IT. Thus, for this customer, there were two go-live events: the day the Bill of IT deployment was finished and the day the company, now comfortable with the changes, switched off its legacy solution for good.
Strategy #2: Generate stakeholder buy-in
Successful chargeback implementation requires buy-in from business unit stakeholders. Corporate IT is not the only game in town: XaaS (Anything as a Service) compel in-house service offerings to be compared fairly with external ones. If stakeholders perceive those comparisons to be unfair, they will simply ratchet up their own shadow IT spend to minimize interactions with the new chargeback system.
The perception of unfairness is amplified if new charges are dramatically different from the old. Higher service unit rates could imply a newly coined profit center; lower ones would call into question all the ‘excess’ charges from years gone by. To address this, finance teams need to fully understand the composition of generated bills, so they can be the voice of authority in the face of questions from stakeholders.
Strategy #3: Socialize bills early and often
With Apptio Bill of IT deployments, we encourage the socialization of automatically-created monthly bills early and often. Socializing those bills helps build trust in the new system and provides visibility into levers BUs can pull to control spend (e.g. through different tiers of desktop support) and the composition of service unit rates. This is the future state the stakeholder has signed up for.
A successful implementation of a new chargeback system is dependent on giving business stakeholders room to understand and validate changes to their monthly work. Early access to what that looks like allows relevant business stakeholders to advocate for the solution through implementation.
Business consumers and their analysts can explore statement details and gather facts on their own; BRMs can explore bill details to understand charges and evaluate alternative services. Individuals need time and space to become comfortable with change—a successful chargeback implementation should have that built into its plan.
An IT organization needs to provide support and context for end users to understand a new bill of IT system. Providing time to understand those changes is key. But time isn’t enough. You make any changes to an existing process to drive improvements. To drive adoption, it’s important that BUs understand those improvements. IT must be able to proactively answer FAQs and walk end users through the experience of using a new bill of IT.
To explore best practices for communicating IT cost and consumption, download our 6 Best Practices for Communicating The Business Value of IT executive brief.