By Paul Goetz, EMC

Companies are now faced with explosive data volumes, IT cost constraints and underutilization of storage and other technologies that are business critical. As a result, chief information officers are considering ways to maximize resources and better utilize technology while containing costs.

One way to do this is through chargeback, which enables an organization to “charge” internal clients for their technology usage. Chargeback is also being extended beyond traditional internal cost control uses to help increase revenues. In fact, one leading global technology services company is using chargeback with its external clients to enhance its revenue-generating, managed storage services.

Although IT chargeback helps raise awareness of the cost of overallocation and underutilization of technology, it may also pose several common challenges that can limit the potential for success, including user resistance, complexity and the lack of integration with other financial processes.

A leading financial services company recently implemented IT chargeback to bring excessive storage demands in line with actual business needs, which brought about significant cost reductions. This company’s business units had come to expect an excess of storage capacity out of fear of interruption if storage capacity were depleted. Unfortunately, this practice resulted in very low storage utilization and poor use of capital assets. The IT organization used chargeback to raise users’ awareness of the costs of overallocation and underutilization, and thus quickly overcame any user resistance to attain more reasonable storage allocations.

Whether the objective is cost recovery or revenue generation, in order to use chargeback successfully, IT must adopt the mind-set of a business that sells information services to its clients. For any successful business, it is important that clients perceive a value that is in line with the costs they must pay for services. In the case of storage, chargeback helps define storage value through an accurate understanding of the cost of storage operations, better insight into current and future storage demands, and the development of a storage services catalog.

Challenges that Threaten Chargeback Success
Companies that decide to utilize chargeback face several common challenges. First, the mere suggestion of chargeback can be a political minefield because business units often feel that any chargeback is unfair. When users are confronted with having to pay for something that was effectively free in the past, the relationship between business users and IT can change from collaborative to combative. So, CIO support is a critical success factor for most chargeback initiatives.

Resistance to change could also exist within IT departments, thus increasing the importance of the CIO’s involvement. Because chargeback enables business units to see their IT costs, they can compare costs with third-party IT offerings. This visibility turns the IT environment competitive; that is, forcing IT organizations to be market competitive. The business users need to know that their IT organization is in line with the market and costs are aligned with services.