How to create a system for charging back IT services

There are several key questions at the forefront of a CIO's mind when it comes to the provision of IT services in a recession. How can IT services be sensibly charged for? Can IT services be charged for accurately? And what value will the business realise if a granular charging model is adopted? Dean Branton, CIO of KCOM Group, has these suggestions.

Speculation about whether IT services can be charged for accurately has increased as budgets are stripped back and enterprises demand more accountability. Activity Based Costing - which is just one method of charging, focuses on identifying "actual" costs that can be attributed to lines of business with the aim of discovering "true" profitability.

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However, for most organisations the cost of operating a system like this to identify costs and then apply recharges is a burden which would never provide good value. In order to attempt to run a granular system, resources would need to be employed and the time of key members of staff diverted into an administrative "merry go-round", which would be nonsensical.

IT has adopted a flat fee structure for the delivery of KCOM Group project work in order to avoid unnecessary overheads and operate efficiently. Irrespective of the project's length, or whoever is involved, a set daily rate is charged, regardless of specialism or seniority. This rate targets the IT department to break even. Day-to-day services are also recharged simply - the known costs (licenses, maintenance etc) are collected and the rest (Help Desk, Desktop Services etc) allocated on what Finance believe is the best split; this is generally based on head count.

Kcom finds this model particularly helpful with bid work, where Kcom is charged IT's standard daily rate and then resells this service at the market value. By helping to generate additional revenue from customers, the perception of the IT department within Kcom has been transformed from that of a cost centre to a vital business function. This change in perception has also been driven by IT's continued focus on bringing down costs whilst improving performance.