In the ideal business world, the Information Technology department functions as a smooth arm of the corporate body. The CIO is a stakeholder in the company's business plan, and the key decision makers work to agree on business plans and the IT resources required to meet them. However, many times the relationship gets lopsided. One side, usually IT, falls out of favor and internal corporate support structures are fractured usually to the point of generating hostility in some divisions. How does a company repair those lines of communication while maintaining accountability? The existing clients (internal end users) represented by their stakeholders (CFO, director of marketing, etc.) are suspicious of any more "cost center" spending by IT. But how does a battered Information Technology department move forward to hire a much needed PC Specialist? What is the business case needed to create a new programmer or webmaster position? Technology moves forward, despite the political conditions inside a company. Charge back cost accounting is one way to temporarily or permanently renew credibility to both sides of the IT fence.

With charge back, the pressure is on both the internal end users and the IT department to remain competitive. End users must be concise in their requirements. If the end users are continually changing program specifications on an ongoing development, then the programming manager does not get frustrated. He simply transfers the cost, and if/when the budget dollars make fiscal sense, he hires another programmer. On the other hand, if the desktop support manager isn't solving problems effectively within the first one or two service calls, then the end user can simply call her local Best Buy's Geek Squad Circuit City's Fire Dog, or CompUSA to send out a technician. If call levels decrease because of poor service, then that affects the support manager's bottom line and will eventually affect staffing.

Charge back cost accounting has been accused of being unfair and complex to implement, which really isn't the case. A charge back system is a method for spreading the cost for centralized computer support across the supported departments. Back in the mainframe days, the two common charge back methods were utilization and allocation billing. In this article, we will focus on IT shops that are not budgeted as a profit/loss center, so we will discuss a net-to-zero policy. However, the principles could apply to for-profit IT organizations as well.

Utilization billing charges for actual computing resources consumed, including: disk space, CPU time, network connections, network use, printing/reports, and staff time. Third-party accounting packages capture daily system use, then calculate an intricate set of computations for billing. There are problems with these packages. They consume a high amount of disk space, and require human and CPU cycles to implement, maintain, and support them. On the user side, department heads can have difficulty understanding the complex algorithms for calculating a charge like: Disk charge = disk space x 1.125 + disk I/O's x 3.315

Perhaps because they couldn't understand utilization billing, department heads felt they were charged too much. To alleviate this nightmare, IT and finance people devised the allocation method. Allocation is simple and is usually handled by financial analysts. At each month-end close, accountants divide the total IT expense by the number of using departments and charge each accordingly. In a more calculated approach, accountants break down the percentage of utilization into using departments and allocate that percentage of IT costs back. For example, if the finance department used 30 percent of IT's resources, the calculation would be: Total IT expense x .30 = finance's charge. The biggest problem in this scenario is determining that the finance department really used 30 ypercent. This has always been a controversy because departments felt they were still overcharged. Like establishing fair income taxes, there seems no equitable way to allocate costs.

In a PC Desktop/network environment, charging back is arguably a fair solution to all. The first and probably most important charge back issue is dealing with the capital budget on the front side. By first giving a capital budget for IT infrastructure to the business units, it can be easier to deal with them and meet their requirements. Let the key users, such as the department heads for example, justify the capital requirements for new business technology (hardware, software, training, and support). This way, they determine the real cost/benefit of a new system and if it meets their business needs. IT does not shove technology down business unit throats; business units determine their own technology needs. If the finance department wants Lotus Notes, they agree to pay for it and the resources necessary to bring it to fruition.

Business units should also justify and have a budget for infrastructure components that meet corporate standards such as: desktop computers, upgrades, application servers, printers, and other peripherals. Once installed, the asset is transferred to IT, which owns the expense budget. A key issue here is ensuring that business unit capital budgets are kept in line with IT expense budgets. This requires ongoing, effective communication, especially during the budget cycle. If the CIO's budget is reduced, then it is up to the CEO to get corresponding business unit capital budget reductions.

Charge back can become a simple methodology, not a cumbersome headache. Under this scenario, there is no real contention between business units and IT, because the business units own the capital and justification for IT spending. Of course, maintaining this harmony requires continuous communication between the parties involved. The CIO must keep an open, direct dialogue with business unit management and business unit IT functions.

Business units get some of the capital requirements for IT infrastructure, but not all. The CIO should maintain capital requirements for infrastructures such as corporate Internet/Intranet (but not divisional web sites), email, networking, security, telephones, and other utility functions that are provided to the organization. He must also have expense budget authority for people, including desktop and network support. For infrastructure, there should also be some directives from the CEO level, such as: "Our company will have an effective enterprise-wide, global network and electronic mail that will help us achieve a competitive advantage." The CEO has then given the CIO authority to spend on the network. If these directives don't occur, then there will still be cost issues between IT and the business units.

Now that we've established the budget methodologies, how do we charge back? We've identified new ways to deal with capital and expense budgets, now let's look at a simple method of charge back. For networking, determine all the network related expenses such as: labor, leased lines, equipment, and software. Then, divide the total network charge by the number of employees. This becomes the "network charge." Do the same for email, help desk, and telephone. Add these figures together for the "total" desktop charge. Bill the using department this charge times the total number of employees in the department.

On an ongoing basis we can now compare the cost of our internal IT service to those provided by outside vendors and provide that information to our customers. One example would be networking. Since we know our network cost we could compare that to third-party providers. Department heads can weigh the cost of IT providing the service versus getting that service from someone else. IT should not dictate that the business units use IT services. This way, IT is able to show that they provide cost-effective service.

This allows business units who were never satisfied with the cost or the level of service, to have a sense of ownership and dotted line management. IT accordingly, becomes re-engineered to become more responsive to business units and be perceived as a help, not a hindrance. Couple the re-engineering with a re-alignment of the budgets, and by doing this you attack the problem, not put up more roadblocks.