BlogHow to Simplify the Management of Shared Services Chargeback & Billing for IT and Communications Costs

How to Simplify the Management of Shared Services Chargeback & Billing for IT and Communications Costs

March 15, 2016, Financial Management

If you’re responsible for any sort of centralized IT shared services budget that requires chargeback, billing or any type of showback allocation methods, it’s likely that you’ve been questioned by your internal stakeholders. Whether the questions are focused on transparency, accuracy, fairness or timeliness, it doesn’t matter. The fact is, as a shared service in an organization, you have internal customers who more often than not, take the famous early 20th century retailer coined motto of “The customer is always right!” to heart. And that’s only one half of your challenge. The other half is making it clear to management (and in some cases external regulatory forces) how and where the funding is being spent and how the consumption of these services impacts business in some type of executive-level, aggregate fashion.

As a result, IT organizations have turned to what Gartner has coined as IT Financial Management (ITFM) solutions, to help. Gartner defines ITFM as: 

ITFM tools are IT-owned and managed financial solutions that provide IT leaders with total cost data in a logical cost structure (cost model), with analytics to support strategic IT decision making, financial planning, budget justification, chargeback/showback and performance analytics, with strong benchmarking and measurement capabilities.

When you’re dealing with specialized shared services communication costs like fixed line telecom, mobile service or other unified communications, we’ve found that in order to get to the level of detail you require to correlate consumption of services to business impact (either mandated internally or externally depending upon your industry), it’s not sufficient to simply pull the cost details from the GL. Many of our customers need deeper insight in order to understand the cause-effect of charges so they can take the necessary corrective action. Or said another way, if current reports are limited to focusing on only the results, your customers and management team won’t have enough information to make tangible decisions.

The fundamental issue is based on the difficulty in getting to the finer details, not readily found in the multitude of communications invoices, which organizations typically receive from an ever-growing number of vendors. Gone are the days of only having a few communications vendors with simple industry standard products. Now communications take up a huge portion of the IT budget, and are among the most difficult to manage. There are a variety of ways to purchase new hosted communication services ranging from committed to reserve to pay-as-you-go, with each producing different rates for the same product. The aggregate information you glean from your invoices needs to help your hared services operation make the most optimal procurement decisions about how to contract services based on aggregate consumption across your entire organization and pass these savings on to your various cost centers.

How can a shared services chargeback & billing solution help?

With the costs of IT services increasing, executives may not see the full benefit that communication services are bringing to the organization by simply presenting a more granular level of detail than what the general ledger is able to report. By only showing this level of visibility, you may have the unintended consequence of spawning executive pressure to reduce operational costs for IT shared services if you’re not able to illustrate full insight into the impact of the decision. 

IT departments that adopt a holistic digital communication services framework, which encompasses all leased and subscription services, can recover operational revenues through an efficient, automated chargeback and billing management solution. An automated solution means that IT services can conveniently access the entire lifecycle of information from provisioning through billing and payments with an integrated management framework. Additionally, an automated chargeback solution will significantly reduce labor costs and time associated with the creation and distribution of bills and reports.

Altogether, an integrated chargeback management solution can provide a comprehensive, end-to-end understanding of all IT costs from every source, forcing departments to be more accountable for what they spend and encouraging users to be more aware of their usage. Most importantly, chargeback helps improve customer satisfaction by providing a range of financial reports that can be customized to support specific business requirements.

5 ways a managed chargeback solution can improve IT services and cut operational costs:

  • Facilitate multiple types of electronic billing and automated payment models.
  • Provide secure access to financial reports and powerful analytics to track as   signed services and assets, for sites that don’t charge back, to understand the true technology costs to support their business.
  • Enable self-service anywhere/anytime inquiries about accumulated costs and current ownership of services and assets.
  • Institute limits to govern usage or automatically shut down access to services.
  • Accommodate flexible rate structures and billing periods for different customer groups and service types.

Getting Started with IT Chargeback

The Uptime Institute’s 2015 Symposium complied the following Do’s and Don’ts to help you get started, based on industry experts’ successful experiences:

DO:
  • Partner with the Finance department. Finance has to completely buy in to implementing chargeback.
  • Inventory assets and determine who is using them. A complete inventory of the number of data centers, number of servers, etc., is needed to develop a clear picture of what is being used.
  • Chargeback needs strong senior-level support; it will not succeed as a bottom-up initiative. Similarly don’t try to implement it from the field. Insist that C-suite representatives (COO/CFO) visit the data center so the C-suite understands the concept and requirements.
  • Focus on cash management as the goal, not finance issues (e.g., depreciation) or IT equipment (e.g., server models and UPS equipment specifications). Know the audience, and get everyone on the same page talking about straight dollars and cents.
  • Don’t give teams too much budget—ratchet it down. Make departments have to make trade-offs so they begin to make smarter decisions.
  • Build a dedicated team to develop the chargeback model. Then show people the steps and help them understand the decision process.
  • Data is critical: show all the data, including data from the configuration management data base (CMDB), in monthly discussions.
  • Be transparent to show and add credibility. For example, explain clearly, “Here’s where we are and here’s where we are trying to get to.”
  • Above all, communicate. People will need time to get used to the idea.
DON’TS:
  • Don’t try to drive chargeback from the bottom up.
  • Simpler is better: don’t overcomplicate the model. Simplify the rules and prioritize; don’t get hung up perfecting every detail because it doesn’t save much money. Approximations can be sufficient.
  • Don’t move too quickly: start with showback. Test it out first; then, move to chargeback.
  • To get a real return, get rid of the old hardware. Move quickly to remove old hardware when new items are purchased. The efficiency gains are worth it.
  • The most challenging roadblocks can turn out to be the business units themselves. Organizational changes might need to go the second level within the business unit if it has functions and layers under them that should be separate.