When IT leaders are considering a bill of IT or IT financial management initiative, they can start with the question: “Are we looking to do showback or chargeback?” Their overall objectives will determine the appropriate answer.
If the aim is to enable cost recovery from business units (BUs) in the form of general ledger (GL) transfers, then chargeback will be the goal. However, other motivations for pricing services aren’t inherently tethered to cost-recovery. In those situations, showback can either be an intermediary step to get to chargeback or a valid standalone solution.
Showback as a stepping stone to defensible chargeback
First of all, let’s tackle the implied maturity of chargeback over showback. From a pure language perspective, there is no implication—it’s quite blunt. Showback leaves a bill on the table for analysis; chargeback leaves the same bill but requires a payment. Most customers I have worked with acknowledge an aspiration for a full cost recovery approach with chargeback. But aspiration is one thing—cold, hard reality another.
Here’s an example: an organization has a homegrown chargeback solution built off multiple spreadsheets that are labor intensive to maintain and error prone. They wish to replace it with an automated, standardized application like Apptio Bill of IT. While the BUs may question the monthly charges from the homegrown solution, it’s a predictable presence in their budget. In the absence of consumption levers they can pull to control those costs (a key aspect of a services hierarchy in Apptio Bill of IT), it’s a cost they begrudgingly accept.
In this scenario, however, the decision to rollout a like-for-like chargeback system with Apptio Bill of IT is not black and white. The current chargeback is well established, even if it is laborious to implement and difficult to defend. A common approach is to continue cost recovery with the homegrown solution while building consensus from business stakeholders with a showback in Apptio Bill of IT.
Adoption of any solution is based on the twin motivators of ease of use and superiority over existing methods. With showback in Apptio Bill of IT, BUs familiarize themselves with the new billing experience and can question the assumptions and review their service choices. When running showback in parallel with an existing chargeback solution, an organization affords itself headroom to grow into the use of fully defendable chargebacks with Apptio Bill of IT. Showback can be an intermediary step to get there.
Showback frames the conversation for IT value
Showback can also be a standalone process that communicates the value of IT, without any implied billing immaturity. An organization can drive towards accountability for IT spend by using many different on-ramps. But ultimately, the focus is on the outputs of IT (services available to BU-s) rather than the inputs (infrastructure costs). If these outputs are communicated to BUs in terms they understand (price x quantity or PxQ) and can control (consumptive rather than assumptive feeds), showback can frame up a conversation of IT value without the white noise distraction of cost recovery and true-ups of chargeback. The point is to focus on driving an IT value conversation rather than being wedded to a particular tactic to get there.
Build on a firm foundation
At its heart, a bill of IT system serves to hold BUs financially accountable for the IT they choose to use. Cost recovery with chargeback is the ultimate tool to recoup IT spend, but if the construction of those charges are indefensible (through assumptive allocations or poor service cost compositions), then the BUs aren’t being shown the true impact of their decisions. The choice between showback and chargeback is the wrong focus: it’s the underlying data that builds up the costs of the services and the consumption feeds that needs attention. With Apptio Cost Transparency, organizations use the industry’s first standard cost model for measuring and managing cost of IT Services (the Apptio TBM Unified model or ATUM) to build a fully-defensible cost composition for services. Organizations can then operationalize a chargeback or showback process off that defendable costing of services with automatic monthly billing, variable pricing strategies, and role-based controls with Apptio Bill of IT.
What are the questions you should be asking to optimize your showback process? Download Showback and chargeback: How to use IT cost recovery to optimize costs by shaping consumption and demand to find out.