ITFM Pathway to Success: Step 6 – Chargeback
ITFM Pathway to Success: Step 6 – Chargeback
The ITFM Pathway to Success framework is specifically designed to assist CIOs, CFOs, IT Finance leaders, and their respective teams. To achieve the true benefits of implementing ITFM processes and best practices, a series of planned and measured steps must be executed methodically over time.
Step 1 focused on assessing and planning, reviewing the IT strategic plan, and aligning it with the business strategy. In Step 2, services were defined to ensure transparent IT service charges. Step 3 ensured high-quality service consumption and cost data to achieve cost transparency and implement showback/chargeback to the business. Step 4 emphasized the importance of automating these processes. Step 5 focused on service costing and benchmarking. Now, in Step 6, we focus on chargeback.
Understanding Chargeback
What is Chargeback?
Chargeback is the process of charging consumers of IT services for their actual consumption of those services. This process ensures that costs are transparently allocated and understood by the business units that incur them.
Benefits of Implementing Chargeback
Implementing a chargeback process offers several benefits:
- Cost Transparency: Provides a clear understanding of IT service costs.
- Educating IT Customers: Helps customers appreciate the value of IT services.
- Improving Efficiencies: Drives operating efficiencies and cost reductions.
- Empowering Customers: Enables customers to manage their own service consumption and costs.
Steps to Implement Chargeback
Key Dependencies for Chargeback
To implement an effective chargeback process, it is crucial to have:
- Unit Service Costs – Accurate service costs are essential.
- Previous ITFM Steps – Ensure completion of prior ITFM steps for a smooth chargeback implementation.
Overcoming Resistance to Chargeback
Implementing chargeback may face resistance. To mitigate this:
- Educate Key Business Leaders – Inform stakeholders about the benefits of chargeback well in advance.
- Organisational Change Management – Develop strategies to manage organisational change and gain support.
Expert Insights From Pete Hidalgo
Pete Hidalgo is a recognised IT Financial Management (ITFM) expert with over 25 years of experience. He developed the ITFM Pathway To Success framework and implemented significant cost-saving processes at a Fortune 100 company. Pete also led ITFM initiatives at Ernst & Young and taught ITFM courses at EY University. He now focuses on enhancing MagicOrange’s presence in the US and educating organisations on ITFM benefits.
Choosing the Right Chargeback Model
Chargeback Model Types
There are various chargeback models to choose from, each with increasing complexity:
- Basic Allocation
- Usage-Based
- Tiered Pricing
- Subscription-Based
- Market-Based Pricing
- Cost Plus Pricing
- Value-Based Pricing
Chargeback Model Maturity Curve
The chargeback model maturity curve helps organizations evolve their chargeback processes:
- Start Simple: Begin with basic models and progress to more complex ones.
- Evolve Gradually: Allow time for customers to understand and adapt to the chargeback process.
Key Considerations for Chargeback Implementation
Principles of Chargeback
When implementing a chargeback process, it should adhere to the following principles.
When implementing a chargeback process, it should adhere to the following principles. Fairness is essential to ensure the equitable allocation of costs. The process should drive the right consumption behaviors to influence usage positively. Maintaining transparency in cost allocation is crucial for trust and clarity. It is important to minimize the effort required to manage the process, ensuring efficiency. Lastly, apply consistent methodologies to maintain reliability and fairness throughout.
Frequency and Automation of Chargeback
- Monthly Chargeback: Ideally, chargeback should be performed monthly.
- Automation: Automate chargeback processes to improve efficiency and accuracy.
Benefits of Using MagicOrange for Chargeback
Expertise and Support
MagicOrange provides expert guidance throughout the chargeback process, ensuring successful implementation and ongoing support.
Accelerating Chargeback Maturity
MagicOrange helps organizations achieve optimal chargeback states quickly, reducing manual effort and increasing efficiency.
Next Steps
Organizations are encouraged to contact MagicOrange for expert support in implementing ITFM processes. Chargeback is crucial for achieving cost transparency and driving cost optimisation.
By following the MagicOrange ITFM Pathway to Success framework, businesses can systematically and holistically approach savings initiatives, ensuring that both IT supply and business demand are optimised for long-term success.