Browse Definitions :
Definition

IT chargeback system

IT chargeback is an accounting strategy that applies the costs of IT services, hardware or software to the business unit in which they are used. This system contrasts with traditional IT accounting models in which a centralized department bears all of the IT costs in an organization and those costs are treated simply as corporate overhead. 

IT chargeback systems are sometimes called "responsibility accounting" because this sort of accounting demonstrates which departments or individuals are responsible for significant expenses. Such systems are intended to shift responsibility to users and encourage them to treat IT services as they would any other utility, which in turn encourages moderate use. 

Reporting systems that leverage IT chargeback can help administrators to clearly see what factors are driving costs and to budget accordingly. Such a system provides end users with more transparency into which business decisions are creating expenses and helps management identify how to achieve greater profitability. The cost of legacy systems, redundancies or expensive proprietary technologies also become clear, providing IT staff with an effective rationale for upgrades that are intended to improve utilization or reduce energy use and administration time. 

Since chargeback depends on a variety of IT metrics to provide equitable distribution of costs, a balance must always be struck between the precision of the system and the difficulty of collecting the necessary data. Complex IT chargeback systems can depend upon detailed line item accounting for each IT-related expense, including which business unit incurred it and whether it was for software, hardware or services. Since single line item expenditures can sometimes be substantial and can be shared by multiple business units (a mainframe purchase, for example), usage data from the IT department is also needed to help split out these costs in an equitable manner. 

Simple IT chargeback systems are little more than straight allocations of IT costs based on readily available information, such as user counts, application counts, or even subjective estimation. At a lesser degree of complexity, an organization trades some of the effectiveness of IT chargeback for a smaller burden, in terms of time and money required to perform the chargeback. 

This shift turns internal IT systems into service providers that may be managed independently of the organization at large. An IT chargeback system provides useful metrics that can be compared against the costs of outsourcing such services to a third party. IT administrators and CIOs, for instance, could compare the effectiveness of internal departments at provisioning networks, providing storage capacity, making network data transfers or maintaining Web application uptime. There are other uses for the system as well. A CIO could take the results of a past quarter's IT chargeback to a CEO and use those numbers to assess whether the revenue created by taking advantage of business opportunities justifies the expense.

Despite such advantages, however, some CIOs find the internal politics associated with implementing and maintaining IT chargeback systems to be daunting, especially when combined with administrative costs and substantial accounting challenges. Nevertheless, IT chargeback systems have attracted considerable interest as energy costs and usage have soared in recent years. Increased adoption of private cloud infrastructures, software-as-a-service (SaaS) and on-demand service-oriented architectures (SOA) at many enterprises could make measuring usage and allocating costs easier than ever before as IT services are treated as a utility.

This was last updated in February 2011

Continue Reading About IT chargeback system

Networking
  • What is wavelength?

    Wavelength is the distance between identical points, or adjacent crests, in the adjacent cycles of a waveform signal propagated ...

  • subnet (subnetwork)

    A subnet, or subnetwork, is a segmented piece of a larger network. More specifically, subnets are a logical partition of an IP ...

  • Transmission Control Protocol (TCP)

    Transmission Control Protocol (TCP) is a standard protocol on the internet that ensures the reliable transmission of data between...

Security
  • What is exposure management?

    Exposure management is a cybersecurity approach to protecting exploitable IT assets.

  • intrusion detection system (IDS)

    An intrusion detection system monitors (IDS) network traffic for suspicious activity and sends alerts when such activity is ...

  • cyber attack

    A cyber attack is any malicious attempt to gain unauthorized access to a computer, computing system or computer network with the ...

CIO
  • What is a startup company?

    A startup company is a newly formed business with particular momentum behind it based on perceived demand for its product or ...

  • What is a CEO (chief executive officer)?

    A chief executive officer (CEO) is the highest-ranking position in an organization and responsible for implementing plans and ...

  • What is labor arbitrage?

    Labor arbitrage is the practice of searching for and then using the lowest-cost workforce to produce products or goods.

HRSoftware
  • organizational network analysis (ONA)

    Organizational network analysis (ONA) is a quantitative method for modeling and analyzing how communications, information, ...

  • HireVue

    HireVue is an enterprise video interviewing technology provider of a platform that lets recruiters and hiring managers screen ...

  • Human Resource Certification Institute (HRCI)

    Human Resource Certification Institute (HRCI) is a U.S.-based credentialing organization offering certifications to HR ...

Customer Experience
  • What is the law of diminishing returns?

    The law of diminishing returns is an economic principle stating that as investment in a particular area increases, the rate of ...

  • What is an abandoned call?

    An abandoned call is a call or other type of contact initiated to a call center or contact center that is ended before any ...

  • What is an outbound call?

    An outbound call is one initiated by a contact center agent to prospective customers and focuses on sales, lead generation, ...

Close