Since RG Solutions® contains cost information related to post implementation IT expenditures; it is only natural to provide information for the Chargeback / Showback of IT processing to the users. While there are many definitions for a Chargeback / Showback system, there is one thing in common and that is the ability to identify and allocate IT costs to business units.
In the past, Chargeback / Showback systems were often detailed, complex, and time consuming to setup and administer. The reasons for this were due to two things: the lack of business skills in the IT group and the lack of business information related to the IT processing. As for the first issue, RG Solutions® has the built in understanding of business costs and how to apply those costs to the system processing (through Activity Based Costing methods).
As for the second issue of merging business information with system processing, RG Solutions® provides interfaces for the integration of custom business data with the technical data of the system. The result is Chargeback / Showback information that is based on the unique business requirements rather than on “forced” technical measures.
RG Solutions® allows for a consistent application of service costs to specific business units and/or processes without the issues related to traditional Chargeback / Showback systems.
Key Business Values
- Consistent application of services costs based on a Total Cost of Ownership model.
- Customization that aligns IT services with business units and/or processes.
- Ability to “benchmark” activity and/or unit processing.
- Ability to identify the “unit cost” of services for forecasting and product pricing.
- Integrated into the Capacity Management processing for consistent cost allocation.
Charging vs. Costing
Many think that Chargeback / Showback systems are the same as costing systems, and they are wrong. Using the traditional model of a Chargeback / Showback system, the purpose was to recover the annual IT budget from those that use the IT resources. There are several problems with this. First of all, the IT budget includes costs for application development. Second, the budget does not normally include the investment cost of the capital assets and expenditures. (In some cases, the accounting write-offs are included in the annual budget but are these based on tax principles rather than cost accounting principles). Third, the use of a Chargeback / Showback system does not sit very well with most users.
In order for a Chargeback / Showback system to be effective, it must be embraced by the user. To understand why the traditional Chargeback / Showback systems are not accepted by most users is to just explain the process. Since the Chargeback / Showback system is based on the recovery of IT budgets, an annual rate cannot be determined until after the IT and user budgets are finalized (usually February or March of the current year). Once the budget is known, then the allocation rules must be established for the system and users. This will usually take another one to two months. The net result is a Chargeback / Showback system that is ready to go in April or May of the current year.
Another problem with traditional Chargeback / Showback systems concerns the rules used for the allocation of usage to the users. Since all the costs for a resource must be recovered in the month they were accrued, then whoever uses the resource for the month accumulates the costs. This leads to disproportional allocations from month to month for the same processing. This situation becomes worse when the allocation rules are based on simple measures such as “time slots”, “processor seconds”, or other simple means. These rules are often “tweaked” to further complicate the issue. Bottom line is that traditional Chargeback / Showback systems are inherently inaccurate and unfair.
In contrast, costing systems are primarily intended to understand the usage costs of systems based on the Total Cost of Ownership for the system. This means that not only IT budgets are included in the calculation, but the capital asset and expenditures costs are included in the calculation, as well as other external costs such as electricity and data centers. This actual cost information then needs to be aggregated so that costs will be consistent for the life of the system. This approach provides for a consistent and predictable “cost of processing” to user. It also provides a “ready-to-go” Chargeback / Showback system that is aligned with the inherent cost analysis process of RG Solutions®.
Resource Catalog
To assist in the identification and aggregation of IT related expenditures, RG Solutions® uses a Resource Catalog to manage the individual expenditures. This catalog allows for the identification and grouping of systems and costs into different “cost pools”. These pools can be hierarchal in nature, independent, or shared (i.e. a networked storage solution).
In addition to the expenditure information, the Resource Catalog also contains usage information related to each system. This information is based on proprietary usage profiles created for each system and then used in the cost calculations for each system. Each system within the catalog can be traditional, physical, or virtual in nature. For virtual systems, the Resource Catalog allows for the nesting of Virtual Appliances that will replicate the logical accumulation of usage and costs as related to the actual Physical Appliance.
Service Cost
One the biggest issue for any Chargeback / Showback system is the inclusion of business specific structures into IT cost allocation. It takes a large amount of time, customization, and maintenance. As the IT reporting moves closer to the business, more customization is usually required. It is not possible for any product to fully adapt to a business structure right out of the box, nor is it reasonable to expect the business to adopt the structures of the product. This issue was foremost in the minds of the RG Solutions® designers when the product was evolving.
RG Solutions® provides a compromise that recognizes the need to customize the IT reporting while at the same time streamlining the customization process. The result is not only the ability to easily customize the business related processing, but the ability to easily include external business data that can be integrated with technical information. The net result is processing that associates the cost of IT processing with the business unit/activity that was responsible for the processing.
The hard part of cost allocation is done by RG Solutions®. Once done the net result is a Chargeback / Showback system that is more acceptable to the user. (No Chargeback / Showback system will ever be totally acceptable to the user).
User Benefits
The key to any Chargeback / Showback system is user acceptance. Here are just some of the benefits that that the user will realize when using RG Solutions® for a Chargeback / Showback system:
- Consistent and explainable cost allocation for IT processing.
- The ability to understand IT costs – in their business terms.
- Consistent and predictable processing costs from year to
- A system that is transparent and that can be integrated into the corporate budget process.
Management Benefits
The users are not the only ones that will benefit from RG Solutions®. Since the processing can be divided into different business activities and units, it is possible for business management to use the Chargeback / Showback information in many ways which can include:
- Measurement of IT costs within a single business unit.
- Measurement of IT costs across business units.
- Understanding the IT cost break down of Business Processes.
- Comparing (benchmarking) costs between business units and/or competitors.
- Using the cost information for pricing models or budget forecasts.
