Accounting and Technology: IT Chargeback and its True Costs

The IT chargeback system has been making big inroads into accounting practice over the last few years and for good reason. It offers many benefits, but as with anything in accounting there are tradeoffs; the benefits come with costs.

IT chargeback is an accounting strategy that applies the costs of IT, whether services, hardware, or software, to the unit of business which is responsible for its use. This is different from the traditional model which counted the centralized IT department as simple corporate overhead and as essentially a sunk cost.

Also known as “Responsibility Accounting”, IT chargeback espouses a central notion to moderate IT overuse, or at least increase the value of IT use, by increasing accountability and responsibility for the use of the IT department and to use it as one would use any utility, with prudence.

If used properly, the IT chargeback system can have great efficiency and accountability benefits but there is always the difficult issue of which IT metrics to measure and exactly how to measure them. This can be an expensive proposition in and of itself as well.  A balance must be struck between having important information and accounting data, and creating too much bureaucratic inertia through red tape and additional accounting practices and documentation.

The end goal of the IT chargeback structure is to moderate use of the IT department. But is this really what is wanted? Why is it necessarily a good thing that IT be used less and less?

It is understandable that this could help the IT department if they are already flooded or if it keeps frivolous tasks to a minimum but often this is not all that is lost. Frequently there are cases where IT should be at initial meetings about a new project or initiative but they are not included because the inviting business unit would be charged for IT’s time. This often leads business to spend more in attempts to formulate ideas for a project that could be done in an easier and more efficient way by IT, if only IT was brought into the loop at the beginning.

Furthermore, there is even the distinct possibility that IT already possesses the capability to do just what the business is wanting, had they only known that the business was looking from the beginning.

At a theoretical level IT chargeback seems to conform nicely to the notions of agile development where short-term results and accountability are crucial.  It is much easier to judge the progress and efficiency of a team or project when more of the labor and material costs are calculated, rather than assumed as a part of doing business. The other side of that price, however, is the possible alienation of the IT Department who runs the risk of being excluded from initial meetings and must then put out fires they may have been able to prevent from starting in the first place.

A possible solution is that IT is given the choice to attend certain meetings without charging for their time but whose priority to the business is known prior to the start of the meeting. In this way, if properly instituted, IT can seek out solutions to small, but high priority problems before they become larger issues and perhaps also give valuable initial guidance and direction to nascent large initiatives.

In total, IT chargeback, like anything, has costs that must be accounted for if its true positive potential can be reached. When implementing such a system, one must ask if the costs to fully and properly implement IT chargeback are worth the possible benefits. The highest risk is to enter into such a profound shift without all the possible benefits and drawbacks enumerated.