Page 29 - EngineerIT February 2022 UPDATED

RUNNING IT AS A BUSINESS

Chargeback, allocation and showback
Chargeback occurs when the requesting department receives an internal bill or ‘cross-
charge’ – for the costs that are directly associated with the various services that they
consume.
IT showback consists of providing IT management, departments, and corporate
management with an analysis of the IT costs due to each department, without actually
cross-charging those costs. Both rely on an effective resource allocation methodology and
tools to accurately assign costs to users of IT services.
When considering this pillar, it is crucial that the enterprise clarifies its charter and
mandate, aligns its objectives with its business goals, and then selects the right approach for
the business. In turn, the IT organisation must understand all the chargeback options that
might apply and help the business units to understand these options.
Stephen Coull
Benchmarking IT costs
Benchmarking should be built into a chargeback or showback cost model to continually, Conclusion
and passively, evaluate key metrics and their trends over time, to generate critical insights. It should ultimately be clear from the
Benchmarking thus plays a key role in ensuring IT is spending the correct amount in the above that when leveraging the Six Pillars
right areas. of IT Financial Transparency properly, CIOs
Benchmarking is not about setting goals and trying to achieve them, but rather serves as are able to extend their reach far beyond
an indication of what questions to ask and what insights one should understand about one’s the traditional focus of IT budgeting.
own environment. When done correctly, benchmarking serves as a powerful tool to drive Solutions like MagicOrange have been
continued improvement within the business. designed to enable senior IT management
to run IT as a business by providing the
IT Cost optimisation financial transparency needed to truly
This is something that CIOs have often tried to achieve, though they have seldom been optimise cost and increase value of the
able to articulate how effectively they have done this, nor how effective they have been in entire enterprise.
helping to optimise business costs. Increased demand for IT projects and
Ingraining cost optimisation within the IT organisation’s DNA requires leadership and services, coupled with the challenges
planning by CIOs. IT cost optimisation needs to be constantly practiced, and that arise as organisations move to digital
CIOs should formulate a programme for cost optimisation by establishing a business models, have heightened the
baseline of IT spending, identifying opportunities relative to peer-group CIOs should need for CIOs to do more than simply
benchmarks, developing a strategy to optimise and executing that formulate a manage their IT budgets.
strategy, before finally tracking the benefits realised. programme for CIOs serious about making
cost optimisation by long-term changes to the financial
Demonstrating the business value of IT side of their IT organisations need
CIO’s must find a means of effectively communicating the establishing a baseline a framework to plan for these
understanding of the make-up of their IT costs and drivers, which of IT spending. changes. IT Financial Management
has been learned through cost transparency. It is imperative that CIOs framework can be used as an agent
establish a common forum where Finance, IT and Business can come of cultural change for both IT staff and
together to discuss IT spend, how it adds value to the business and how it aids in business stakeholders.
attaining the company’s objectives and strategies. Benchmarking should be used
This can only be achieved if all stakeholders are speaking the same language. Armed when making any major changes to the
with a cost transparency model and a common language, IT, Business and Finance find that enterprise, while effective measurement
they are more easily able to have productive, meaningful discussions. can be used to sustain these changes.
Cost transparency is a vital cog to
Delivering cost transparency in a large retail environment ensure that CIOs achieve their plans,
It is important in the retail space to have a robust and repeatable platform that enables while providing clear and obvious value
the business to calculate the TCO of its IT, Logistics and Property costs. Keyrus, the leading to the business, by aligning with its
technology consultancy in South Africa, worked with The Foschini Group - a large retailer strategies and goals.
operating across 26 countries that needed a robust granular model to charge back costs to By properly leveraging Gartner’s Six
more than 20 different brands. Pillars of IT Financial Transparency, CIOs
To address TFG’s multiple challenges, Keyrus deployed a solution designed in the are able to extend their reach far beyond
MagicOrange Platform – a Gartner recognised IT Financial Management solution. Powered the traditional focus of IT budgeting. This
by MagicOrange and enabled by the expertise of Keyrus practitioners, TFG now benefits should enable them to run IT as a business
from full cost transparency including understanding of their total cost of ownership (TCO) by providing the financial transparency
and accurate return on capital employed (ROCE). needed to truly optimise cost and value. n

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