Showback and chargeback processes communicate trade-offs by tying the consumption of IT services (rather than the composite IT costs) to specific business units (BUs) — who see a direct link between their IT usage choices and the size of their bill of IT.
But moving up the maturity curve is hard.
Organizations aspire to adopt showback and chargeback but run into roadblocks. Sometimes it’s people. Sometimes it’s the tools at hand for implementation. Sometimes it’s just a misunderstanding about the process itself.
Chris Van Wesep, Sr. Director Product Marketing at Apptio, sat down with the Emerge team and gave answers to the six questions most often heard when organizations roll-out a chargeback or showback solution.
Hi Chris. We hear the same questions about showback and chargeback implementation. We’d like your take on answering them. I'll read you the question and you give us your best response.
Go for it.
Brilliant. Ok. #1: “We want to move towards showback, but our cost-to-service mapping is rough. Isn't showback dependent on getting defensible services mapping?”
What I think about this is that you don't want to boil the ocean, you know. Start by taking baby steps on this. You likely have an idea of the types of services that are being consumed, but you may not have an idea of the complete fidelity or of all the services that are out there. So, start with something simple. Start with a Top 10 or something like that where you can kind of get your arms around it a little more easily and optimally be able to do the costing portion of it a little bit more simplistically. Don't pick a service that's got 40 different dependencies that comprise the full cost of that service. So yeah, in a nutshell, I'd say start with something simple and then learn and grow and expand it from there.
#2: “Is showback or chargeback any different in the cloud versus on-premise solution?”
At a fundamental level, I'd say no. I mean, conceptually, it's the same thing. You're in a position of understanding costs that have been incurred and then charging them back or showing them back to the people that spent the money on them. At a tactical level, you're going to see some differences though, because really, when you're thinking about ingesting the billing from a large public cloud provider. We have customers, large customers that, you know, will have hundreds of thousands of line items on those bills from AWS or from Azure.
And so, there's one level that says you need to be in a position to actually make sense of those bills, which can be a little complicated in and of themselves. At Apptio, we have products that do that type of work for you, but ultimately, you want to find something that will help you do that. This is also where having a good tagging strategy for the cloud services that you consume comes into play, so you have an idea of where those costs get accrued when they occur.
#3: “How do you communicate the fairness of service charges? We must overcome a widely-held suspicion that SaaS is cheaper than anything IT can offer?”
The first thing you'll want to be clear on is what services you need to offer versus which ones can be outsourced by people because you really should be asking yourself, "Are we in the business of doing something that somebody else could do for less?" If it's not strategic to your organization, maybe you want to get out of the business of doing that.
Anytime you are providing a service that is also provided generically by a large organization, a SaaS vendor or one of the cloud providers, likely, they're going to be able to offer it for certainly a lower cost structure than you can. Whether they charge less for it or not is a different story. You'll want to be aware of what people can pay on the open market for the type of service that you're providing. So then once you've determined which thing is strategically important for you to offer and what the other costs are going to be if somebody were looking at this outside, then you could look at your costs and layer into the value proposition the things that are extra value that you provide, and these could be important things. Like it may be a better service policy, a support policy, whether it's faster or better in terms of being more in tune with how the company works. You don't end up being outsourced to somebody in another country to support your support needs.
Ultimately though, the way I think about this, and it's important, is that this is a good opportunity for you, in IT, to take a critical look at your own value propositions and make sure that you're competitive in the marketplace that your internal customers are evaluating.
#4: “Doesn’t cost-based billing add in a variable element from month to month? How do I pattern that for predictability?”
Business units value predictability. I mean, if you're trying to do planning for the course of a year, and the costs that you are going to be paying for things are going to be changing every single month, your ability to plan gets really hindered. So, this is why, as you're thinking about offering these services, you may want to add some sort of buffer to the rate that you said to accommodate for these kinds of fluctuations. And this may be something like a 5% buffer or something like that. You can just look at it and kind of have a decent guess as to how much you think they might fluctuate and then apply something that will cover most of that fluctuation.
And then the challenges are that the amount of money that you're bringing in for the services may well be more than the actual cost of the services. So, you know, by the time you get to the fourth quarter, you're going to want to start having a plan for how to reimburse the business units for overspend that they may have incurred during the first nine months of the year and reconcile those two things out. But all in all, being able to give them a number that's predictable is more valuable than even the lowest, lowest cost.
#5: “The change management for chargeback seems overwhelming. How do I stop from drowning?”
This is a significant change, both in terms of the technical practices that you're using within IT in the organization, but then also, and more importantly, the change management piece that you just flagged. I would say, you know, start at the beginning. Don't implement chargeback until you're comfortable with the showback portion. The showback portion of things is going to put you through the process of really understanding the cost structure underlying the services that you provide for however many you choose to provide. And again, that's another variable that you can use to throttle the amount of churn associated with implementing something like this.
But you can figure out both the rates and then the consumption and get a process in place for tracking that monthly. And then, as you work through the change management part as well and getting people comfortable with the actual process of being billed, understanding their invoices, all those things, get comfortable with that before you dive into the actual chargeback process. And that's kind of an iterative step to go through to make it a little bit more manageable.
#6: “Business partners say that they want to have autonomy to control their costs, but I'm skeptical. How do I test the waters on this without going in on all chargebacks without rate setting?”
As everybody probably knows, what the business units say they want to do isn't always exactly what they do want to do, and there is a certain amount of effort involved in making this whole thing work. So, you don't want to put in the time and energy if it's not something that will be adopted. From a personal, historical view of having worked in this business for almost 20 years, I think there's a ton of value in enabling your business units to make more informed decisions and that has been proven out time and time again as being a good thing to do.
A good way of testing the waters on this is to pick one of the business units and spend some time with them. Get to know their business. And even in doing that, you should be able to offer some suggestions on how they could lower their cost or increase their productivity based on different IT decisions that they could be making. Once they see that there's a correlation between making wise IT investment choices and the value that can come from it, you should get a feel as to whether they're going to be in a mode of adopting a practice like this more holistically. So, I'd say start with that and that should be a good barometer for how successful you'll be more broadly with them.
»Download these eBooks to analyze cost, utilization & consumption to make informed decisions that maximize business value:
- 6 best practices for communicating the business value of IT
- Showback & chargeback: How to optimize costs by shaping consumption and demand
- The ultimate cheat sheet for driving business accountability for IT costs
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