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IT chargeback adoption obstacles and benefits

CIOs debate the merits of IT chargeback as a holy grail of business efficiency.

The economic downturn and the introduction of external cloud services to the business environment is forcing the issue of IT chargeback, the merits of which have long been debated within IT ranks.

"Even in the '80s and '90s, people wanted to do [IT chargeback] but could never make that leap for accountability and political reasons," said Lisa Erickson-Harris, research director at Enterprise Management Associates Inc., a market analyst firm based in Boulder, Colo. Cloud computing, which takes advantage of a usage-billed model, has revived the chargeback concept, and the sour economy has added urgency to the matter, she said.

"I think the economy was a bigger driver than the cloud," Erickson-Harris said. "Frankly, IT has been pretty loosey-goosey from an accountability standpoint. Remember what it was like before the first [Internet] collapse [of the dot.coms]? We were so loose with money." That all changed and leveled out, she said, and with this latest downturn in the economy, the focus on managing IT expenses has been front and center. It isn't just about cutting a budget by 20%, but thinking analytically about spending money, she said, adding that she is pondering IT cost management. It's a larger kettle of fish that also includes cost control and trending to help CIOs "get a handle on" IT investments, she said.

At Saint Luke's Health System, for example, which operates 11 hospitals and several clinics in the Kansas City, Mo., metropolitan area, CIO Debe Gash uses IT chargebacks to make the IT cost of doing business visible to her CFO and business unit heads. "We do the calculation once a year," she said, evaluating the costs of hardware and software, as well as reporting how the technology is being used to drive revenue in clinical and biomedical services. Once the desktop allocation cost has been established, for example, the chargeback is straightforward: If a hospital has 1,000 desktops, it's charged 1,000 times the desktop cost.

"It's a nice, quick, visual tool, and CFOs like it," Gash said. "With our model, we have taken it from the infrastructure layer to the business application layer. We can show our organization what we're investing in network and data hosting costs."

As for the business units, "the visibility into what something actually costs is very helpful to them," Gash said. "If we're going to open a new floor with 100 computers, they can see a fully loaded cost with staff, supply, ongoing support and storage year to year."

IT chargeback adoption obstacles

Chargeback is complex, however, especially in a shared infrastructure with workloads running on virtual machines, which is why most IT departments haven't done it, experts say. Then there are mobile computing devices to account for.

I would be afraid that line-of-business managers wouldn't want to take advantage of technology because of the cost associated with it; it's about quality and patient care, not just dollars and cents.

Douglas Menefee, CIO, Schumacher Group

"My biggest area of concern on chargebacks has to do with mobile computing and the fees associated with mobile telecom," said Douglas Menefee, CIO of Schumacher Group, a Lafayette, La., provider of medical informatics to 2,500 emergency room physicians and administrators nationwide.

"Everybody who needs a smartphone or service plan -- that's an uncontrollable cost in our environment," Menefee said. "If you say you need it, I'm not going to question that. I do ask, 'If you were paying for this yourself, would you consider it a valid expense and make the same investment?' Ninety-nine percent of the time, they say yes."

But the real showstopper is that Menefee doesn't want Schumacher to be penny-wise, pound-foolish. "We need to invest in technology that is going to bring the best value," he said. "If you charge for that, departments will see the costs and start to look around." He doesn't worry that IT services would be replaced by pay-as-you-go providers, but that line-of-business managers would become too frugal if they are charged for what they want.

"I would be afraid that they wouldn't want to take advantage of technology because of the cost associated with it," Menefee said. "It's about quality and patient care, not just dollars and cents. In that way, the IT department is fully integrated with business goals." Moreover, "by having it consolidated and managed within my department, I can have better vendor relations across the board and be in a better negotiation position," he said.

Like many organizations, Schumacher is starting to automate functions that will help it do chargeback down the road. "I would venture to say that by 2012's budget I will be much more aggressive on this," Menefee said. Through 2011, he expects to focus on a 'showback' scenario that shows managers "how much they're spending, but not saying, 'This is impacting your budget.'"

The politics around chargeback still exist, according to Erickson-Harris. "It sends up a red flag. On the one hand, people are saying, 'We need to do this,' and on the other hand, we need to ease into it," she said. "That's where showback comes in," she added.

Let us know what you think about the story; email Laura Smith, Features Writer.

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