Is Your Technology Allocation Process Giving Under Consumers the Short End of the Stick

When it comes to technology chargeback, over-consumption gets all the attention, but under-consumption leaves users and business units with the short end of the stick. A simple percentage allocation method that spreads costs evenly across business units – rather than based on actual usage metrics – creates discord, limits innovation and thwarts accurate measurements.  This is true even if these allocation methods are based on employee headcount.

From an organizational perspective, the archaic percentage allocation accounting method doesn’t provide a true view of consumption or the ability to forecast future demand. Just because a unit doesn’t use a particular product or service today, or uses it in limited quantity, it may not stay that way over time. Without total cost insight and accurate usage data combined to produce a technology bill of materials or consumption invoice, organizations cannot effectively budget, influence technology demand behavior, communicate technology value or accurately plan for future investments.

Today’s corporate IT under-consumer may be tomorrow’s power user or the key catalyst to significant business growth. An accurate chargeback process is essential for optimizing IT costs and ensuring strategic corporate initiatives can be supported. A technology financial management solution offers a data-driven approach that ensures enterprises have an eye on current needs as well as future demand. Rather than charging under-consumers for IT products and services they’re not using, providing greater transparency into costs enables business units to make more accurate, better informed decisions that support business priorities and growth goals.

Activity-based costing (ABC) has been discussed in recent years, but is only now becoming universally pervasive in IT accounting practices. The reason is actually quite simple:  ABC provides a best practice approach that makes it easier to account for indirect as well as direct costs. Couple ABC with traditional percentage allocation, and a highly accurate ‘hybrid’ cost modeling structure can be incorporated in your IT financial management strategy. This helps IT organizations get an accurate accounting on total actual expenses and ensures business consumers are charged fairly. It’s important to use accurate cost information to derive technology unit rates, thereby avoiding the pitfalls of false transparency. Then, technology consumers can make informed, cost-conscious decisions that add the most value to the business.

Implementing an accurate, hybrid cost modeling with a consumption invoicing showback/chargeback process also enables equitable comparison between internal and external IT sources and supports open communication around the value of technology to meet true business objectives. Then, the CIO and his or her team can optimize both the cost and delivery mechanisms of technology in their corporate environment. Cloud computing may be an attractive option, but organizations need to fully understand, and be able to articulate, the total costs of all IT products and services that are provided internally to compare the value of each externally provided technology solution. Gaining this total cost (TCO) insight results in an equal playing field where organizations can understand true costs based on demand and consumption.

Avoid giving under-consumers the short end of the stick e.g., charging them for technology they aren’t using. Instead, increase cost and consumption transparency that drive data-driven decisions through a mature chargeback process. By accurately defining rates and demand, all technology consumers can make responsible IT decisions that drive profitability and performance.