• Steve Jones - SSC Editor

    SSC Guru

    Points: 719898

    Comments posted to this topic are about the item Chargeback

  • Paul.

    SSC Eights!

    Points: 927

    I can't see why companies insist on defining fixed budgets and making every department stick to them. How can they predict what equipment any department needs in any 12 months? (Let alone IT).

    E.g. for a previous company's IT dept I worked at, a lot of the servers failed one after another in the same year. With a predicted budget like that mentioned, I can't see how that money could be stretched for all those replacements. That's just a single example, and there's so many others which no-one could predict.


  • Ferks

    Default port

    Points: 1410

    Paul, I see your point, but if a company has several servers fail in 1 financial year and the IT budget goes out of the window, I'd be asking why on earth hadn't they budgeted in for HW Maintenance and support costs?:(

    The company I work for has a budget for pretty much everything and I'm sure there's some contingency funds budgeted for any emergencies. Any IT purchases are cross charged to relevant dept, although Servers and IT infrastructure are owned by IT, so the charge is on the IT budget, only PC's, printers, mobile devices etc.. are cross charged.

    Cross charging for IT Staff resources can get very messy, if a particular dept is demanding a lot of IT staff resources, then the project demanding the extra resource should take the cost, and ultimately you would hope that it has been already quoted as part of the project plan and where possible passed to the customer!

    If it's an internal project, then the Business has to look at the ROI and make the decision.

    If it's neither of the above, then I guess it falls under the general IT Support function and has been budgeted for anyway!

  • Andy Warren

    SSC Guru

    Points: 119684

    Chargebacks often feel like a substitute for leadership (and sometimes is), but it's often necessary to clearly see what parts of the business are contributing and which ones aren't. As an example that is probably familiar to many of you, I used to work for a company where IT wasn't just servers and data, but was actively involved in extranet development, continuing ETL of customer data that required a lot of work, and custom development internally to satisfy key customers. You start with IT being a cost center, then in my case more than doubled that expense due to resources that were needed to support clients. We were charging clients for some of the work, but not all, and all too often IT time was a deal sweetener - give us the work and we won't charge you for x. Chargebacks fix that, whether you bill back the time spent to the internal project/department, or you just assign people directly to that department for payroll purposes.

    I'm not in favor of chargebacks in general, but I can see a lot of specific cases where it might make a lot of sense. A department decides to go paperless causing SAN space to be used at an alarming rate. Or a dev team starts to use more than their share of the DBA's time, causing him/her to be overworked and requiring another person. I just like doing it at a high level, not getting an itemized statement that looks worse than my cell phone bill.

    Paul, on your comment about budgets, what process would be better? At home I have a budget that is meant as a guideline, not an unbreakable contract. Clearly if we have a major storm in Florida and my home needs repairs, that will have to done - and requires me to give up something else. As much as possible I budget for routine home repairs, oil changes, even my yearly auto tag renewal, all because that gives me the best sense of how much is left to save, spend, or invest. But on any given year there's a few percent variance, some due to circumstance, some due to insufficient discipline!

    But to more directly address the topic, budgets give intermediate level leaders the ability to spend without debating every $25 purchase. Stay within the guidelines, spend the money to do business, and if you need more/hit a problem, we'll figure something out - but that doesn't mean the money comes from nowhere, it comes out of someone elses budget and/or the emergency fund.

  • IceDread


    Points: 5020

    First, mp3s/ flac etc might have a very good impact on some workers. Not all work allows for the use of music however but if it's loud around you it can be very good to use to get easier focus on the work.

    The cost of IT has so many areas and I'd say it's very complicated to be fair here. First off is of course computer management, without it there can be no use of computers and thus no IT system. This one should be easy thou. Then we have the more complicated part, an existing IT system that might be well or bad done. If one department needs something done in it, a search or a fix, and that part happens to be very bad and complicated code, that might take more resources, is it fair to then add extra cost to that group because someone wrote the code bad which they happen to use/need/depend the most on? I think that is the wrong angle to look at the IT costs.

  • Ross McMicken

    SSCarpal Tunnel

    Points: 4374

    It's probably a good idea to prohibit downloading mp3's and similar files to protect teh corporation from excessive banwidth usage, and the potential for lawsuits related to illegal downloading activities. Employees who want to listen to music can bring their own devices, laoded with thier choice of music. The one company I worked at that allowed internet audio streaming shut it down after determining that it was consuming a T-1 equivalent during work hours. They later chose a couple of stations to stream, and did it from within the company network.

    With respect to charge backs, there are several means to accurately charge end user departmetns for the computing resources they consume. One model is for the IT function to own all PC's, and charge a flat monthly rate per PC for support, acquisition, base software load licenses, etc. The rate is determined by dividing the costs of providing PC"s by the number of PC's.

    For application support, chage user departments based on total suppport costs for an app, including server, software, maintenenace, etc. Use user count or some other arbitrary but rational method to allocate the cost. Use teh hourly rate described below to allocate staff costs to teh app.

    For projects, consulting, etc, calculate an hourly rate for staff by dividing the total staff costs, including overheads, rent, etc, by the numbe rof staff hours. Bill uer departments based on actual usage of support and project hours.

    I've seen this done at several places.

  • Paul.

    SSC Eights!

    Points: 927

    I can understand that you need to track what's spent in what department, (for reviewing purposes), but my point was more that I don't see why these figures must be adhered to religiously and you cannot go over them.

    As for an alternative, my ideal world would see these being purely used for review, auditing and/or accounting reasons, whilst the actual process would be "if you can justify it, then you get the money", regardless of how much you've spent before or are likely to spend after.

    Lastly, I just wanted to point out that, from my point of view, there is a distinction between estimating what might be spent, and providing an absolute ceiling of what can be spent. The former is perfectly valid, while the latter seems excessive.


  • Ross McMicken

    SSCarpal Tunnel

    Points: 4374

    Budgets are seen as a hard commitment by IT to control costs. If a break in project requried by statutory changes is necessary, tehn something else has to drop off the plan. Preparing, and sticking to, a budget promotes discipline, and provides some level of certainty to senior management. I've been involved in situations where we've told our users that the only way a project was going to happen was if they found budget money, and convinced management to allocate it to us. It's amazing what users can do without if they have to pay the costs.

    A good budget will include some amount for unexpected projects, emergencies, insane new governmental requirements,etc. However, failure to prepare and live with a budget is a good way to end up bankrupt due to uncontrolled spending.

  • Steve S.-542474


    Points: 425

    Wow! You hit a major hot button with me!!

    I've worked in small, medium and exceptionally large organizations; seen allocation of IT resources done in several different way; and I am definitely a fan of chargeback.

    When resources are "free" for supporting departments or directorates, then there is no incentive for the department to effectively manage their use. There has to be some kind of cost to the consumer or everybody suffers the consequences. I find it outrageous that some companies send out emails that ask everyone to clean out their Exchange inbox because the server is running out of space. In my experience, the worst offenders ignore the email and the folks consciencously managing their space spend time figuring out how to save space.

    If resources are free - then they have no value. This is especially true with software development. Managers that are not charged, in some form or another, for the time spent by an internal development team then they become more demanding and more dismissive of the value created by the development team.

    The problem comes when the cost of charging back the costs to the consuming department. It is difficult to convince the number-crunchers that it is worth their time to do the accounting. Very frustrating.

    I currently work as a sub-contractor with the US Army and their IT department has, essentially, no budget. All of their operating expenses are generated from charging the different directorates for each of the resources that they consume. Prices are standardized, or estimated and agreed-to before the project begins. Management thinks long and hard before jumping into a new project or consuming more disk space, etc.

  • Paul DB

    SSC Eights!

    Points: 840

    Check out this link on chargebacks:,10801,99697,00.html

    At the moment, I agree with former Ace Hardware Corp. CIO Paul Ingevaldson: "He thinks the best alternative is a system where all the top management is involved in the IT oversight process and an IT steering committee makes strategic decisions."

    Of course, this is but a dream in some company cultures...

    Paul DB

  • J-440512


    Points: 6285

    Way back when the PC came out, there was this big engineering firm with an IT department (it was not called this way, I do not remember the exact name).

    That department had a VAX system.

    Sensing a direct threat from the engineers working with PC's, the IT department convinced management that the PC would be a disaster - files would not be archived properly, various software would proliferate and result in incompatible file formats. Mind you, when "management" saw an engineer working on a PC the reaction was "well, that's en expensive secretary". The rule was that the engineer write on paper, send the draft to the Word Processing department, wait until the printout came back, make his correction on the printed copy, send it back for entry, etc.

    In the meantime, suppliers and customers had at least one PC on every desk.

    IT then came with a new bright idea: all PC's would be purchased by IT which would rent those PC's to the engineers at a rate of 6% per month for 3 years. Then 3 % per month. Some department ignored the rule and procured the PC's directly. IT also chose the worst Word Processor on the market: MultiMate (press [CTRL] [F7] for conditional hyphens for instance) when WordPerfect 4.1 was available. Foisted on secretaries who were trained but were not even told how to restart MultiMate if the PC was turned off. So the PC's and their silk-screen video display terminals were NEVER turned off, resulting in the MultiMate opening screen permamently etched on the monitor.

    IT then had another idea of genius: install a .bat file which would require the engineer to enter a project control number so the hours of usage would be billed to the project. This was DOS at the time. Two perfectly legal software were widely available that could allow the engineer to bypass the batch file: one was called IBM DOS and the other one was MS DOS. Just throw it on a floppy and boot the PC with the floppy in the drive. After all, IT was trying to control engineers.

    IT then came out with yet another brilliant idea. Force the departments to use IT's own PC software for project management. This software had to be rented at a cost of 10 K$ per 3 months. The project name was hard-coded and if you had a second project, you had to rent another copy of the program at the same price. Never mind that this software was full of bugs and largely inferior to what was available for purchase without royalties. Soon a "fixer" came up showing the engineers how to bypass the hard-coded project name and time-limit constraints. After all, this was an engineering firm.

    IT had the answer to that: OK, give up on the control and force all departments to hand over 15 % of their revenues to IT. A rebelion erupted.

    There was then this notice that the IT vice-president was leaving the company to accept other challenges. Along with the discredited micro-management schemes.

    This was an extreme example of charge backs being imposed as a cash cow benefiting the IT department first. Essentially, a self-licking ice cream cone.

  • mhaskins

    Ten Centuries

    Points: 1145

    This is a larger issue for any department that is considered overhead. HR, administrative assistants, janitorial services, as well as IT. These are global resources to the company - how can you split these resources at a department level? How can you put the dollar spent on a global resource and show how it affected the bottom line profit?

    In my opinion, this is just a losing battle. It mainly centers around management shortsightedness and self-importance. If the server needs to be upgraded, everyone should foot the bill; if a new person needs to be hired, everyone should foot the bill because everyone at some point is going to use these resources.


    I have come to the conclusion that the top man has one principle responsibility: to provide an atmosphere in which creative mavericks can do useful work.
    -- David M. Ogilvy

  • Steve Jones - SSC Editor

    SSC Guru

    Points: 719898

    There have been lots of poorly designed chargeback schemes in the past. There have been lots of abuses by departments as well.

    However moving forward, I think there's value at a high level of understanding where you IT resources are being spent. Not to create wars or turf battles, but to understand how the business is using it's money. It doesn't necessarily make sense for a department to purchase their own SAN and staff it because they need more space. A central, or semi-centralized IT group can be more efficient.

    However just like a budget can be good to bad, a chargeback can allow someone at a high level to determine if monies are being spent wisely. Or in accordance to what the business overall needs. Every department can't operate at a profit.

    Imagine you have an established product that produces profit for your company. You decide to launch a new product. The new product likely will suck out profits as it is being developed and launched, and those come from the existing product's department. At a department level if people were watching their "budgets", they might manage differently than someone in charge.

    Information is power, and chargeback at a high level, a rough, 10,000ft view for upper management can be a powerful tool for directing the business. But it has to be there to help the business, not provide accountability for every slice of disk space or bandwidth.

  • J-440512


    Points: 6285

    -> mhaskins

    I like you icon !

    More on that larger issue.


    You need a to hire a person in your department. But you are not allowed to place an ad in the career section of the local newspaper. You must first go through the bank of CV's already on hand at HR. Never mind that responses are not keyed to exact job position. Never mind that most of these are more than 6 months old and stale: the applicant has already found a job and is no longer available.

    Has anyone else experienced other shenanigans from HR imposing rules bogging down everyone - the classic backdoor way into "management" by overhead department ?


    Assembled documents are NOT archived. If later down the road you need a copy of a document, you must follow the following procedure:

    1. Get the original text from archives.

    2. Get a copy of any plans or drawings from the drafting department.

    3. Send the whole lot to Reproduction and wait for your turn.

    What should be a matter of hours becomes a matter of days.


    Your request for a standards document you need to follow is rejected because the document is deemed "too expensive".

    As if someone believes that his job security hangs upon the number of "request denied" issued.

    So it does not matter if the overhead department procedures are roadblocks. The engineers' time is of secondary importance.

  • Charles Kincaid


    Points: 13593

    I guess I'm lucky, if you can call it that. Most of my work has been for IT companies. Typically I'm the resource that get shared. Then it's time that we are counting. If I spend two hours at a "meet and greet" and watch our team give a product demo then that's two hours I'm not spending coding the solution.

    There needs to be SOME way of tracking resource usage. Money is probably the lazy way to do it. That's because it's fiscal managers doing the tracking.

    ATBCharles Kincaid

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