Browse Definitions:
Definition

IT chargeback system

Contributor(s): Contributor: Scott Feuless

IT chargeback is an accounting strategy that applies the costs of IT services, hardware or software to the business unit in which they are used. This system contrasts with traditional IT accounting models in which a centralized department bears all of the IT costs in an organization and those costs are treated simply as corporate overhead. 

IT chargeback systems are sometimes called "responsibility accounting" because this sort of accounting demonstrates which departments or individuals are responsible for significant expenses. Such systems are intended to shift responsibility to users and encourage them to treat IT services as they would any other utility, which in turn encourages moderate use. 

Reporting systems that leverage IT chargeback can help administrators to clearly see what factors are driving costs and to budget accordingly. Such a system provides end users with more transparency into which business decisions are creating expenses and helps management identify how to achieve greater profitability. The cost of legacy systems, redundancies or expensive proprietary technologies also become clear, providing IT staff with an effective rationale for upgrades that are intended to improve utilization or reduce energy use and administration time. 

Since chargeback depends on a variety of IT metrics to provide equitable distribution of costs, a balance must always be struck between the precision of the system and the difficulty of collecting the necessary data. Complex IT chargeback systems can depend upon detailed line item accounting for each IT-related expense, including which business unit incurred it and whether it was for software, hardware or services. Since single line item expenditures can sometimes be substantial and can be shared by multiple business units (a mainframe purchase, for example), usage data from the IT department is also needed to help split out these costs in an equitable manner. 

Simple IT chargeback systems are little more than straight allocations of IT costs based on readily available information, such as user counts, application counts, or even subjective estimation. At a lesser degree of complexity, an organization trades some of the effectiveness of IT chargeback for a smaller burden, in terms of time and money required to perform the chargeback. 

This shift turns internal IT systems into service providers that may be managed independently of the organization at large. An IT chargeback system provides useful metrics that can be compared against the costs of outsourcing such services to a third party. IT administrators and CIOs, for instance, could compare the effectiveness of internal departments at provisioning networks, providing storage capacity, making network data transfers or maintaining Web application uptime. There are other uses for the system as well. A CIO could take the results of a past quarter's IT chargeback to a CEO and use those numbers to assess whether the revenue created by taking advantage of business opportunities justifies the expense.

Despite such advantages, however, some CIOs find the internal politics associated with implementing and maintaining IT chargeback systems to be daunting, especially when combined with administrative costs and substantial accounting challenges. Nevertheless, IT chargeback systems have attracted considerable interest as energy costs and usage have soared in recent years. Increased adoption of private cloud infrastructures, software-as-a-service (SaaS) and on-demand service-oriented architectures (SOA) at many enterprises could make measuring usage and allocating costs easier than ever before as IT services are treated as a utility.

Learn more about IT:

Scott Feuless explains how to use an IT chargeback system to demonstrate virtualization benefits.

Mark Denne wrote about workable models for IT chargeback for CIO.com.

IT chargeback is a fundamental part of cloud computing.

This was last updated in February 2011

Start the conversation

Send me notifications when other members comment.

By submitting you agree to receive email from TechTarget and its partners. If you reside outside of the United States, you consent to having your personal data transferred to and processed in the United States. Privacy

Please create a username to comment.

-ADS BY GOOGLE

File Extensions and File Formats

SearchCompliance

  • cyborg anthropologist

    A cyborg anthropologist is an individual who studies the interaction between humans and technology, observing how technology can ...

  • RegTech

    RegTech, or regulatory technology, is a term used to describe technology that is used to help streamline the process of ...

  • conduct risk

    Conduct risk is the prospect of financial loss to an organization that is caused by the actions of an organization's ...

SearchSecurity

  • security

    Security, in information technology (IT), is the defense of digital information and IT assets against internal and external, ...

  • insider threat

    An insider threat is a malicious hacker (also called a cracker or a black hat) who is an employee or officer of a business, ...

  • virus (computer virus)

    A computer virus is malicious code that replicates by copying itself to another program, computer boot sector or document.

SearchHealthIT

  • HIPAA Privacy Rule

    The Standards for Privacy of Individually Identifiable Health Information, commonly known as the HIPAA Privacy Rule, establishes ...

  • HIPAA business associate agreement (BAA)

    Under the U.S. Health Insurance Portability and Accountability Act of 1996, a HIPAA business associate agreement (BAA) is a ...

  • telemedicine

    Telemedicine is the remote delivery of healthcare services, such as health assessments or consultations, over the ...

SearchDisasterRecovery

  • data recovery

    Data recovery restores data that has been lost, accidentally deleted, corrupted or made inaccessible. Learn how data recovery ...

  • disaster recovery plan (DRP)

    A company's disaster recovery policy is enhanced with a documented DR plan that formulates strategies, and outlines preparation ...

  • fault-tolerant

    Systems with integrated fault tolerance are designed to withstand multiple hardware failures to ensure continuous availability.

SearchStorage

  • Secure Digital card (SD card)

    SD cards use flash memory to provide nonvolatile storage. They are more rugged than traditional storage media and are used in ...

  • data storage

    In a computer, storage is the place where data is held in an electromagnetic or optical form for access by a computer processor.

  • flash storage

    Flash-based storage, based on flash memory, is used for data repositories, storage systems and consumer devices, such as USB ...

SearchSolidStateStorage

  • flash file system

    Flash file systems are designed specifically for memory devices. A well-designed flash device and flash file system ensure ...

  • IOPS (input/output operations per second)

    IOPS measures the maximum number of reads and writes to non-contiguous storage. It is not an actual benchmark since vendor ...

  • eMMC (embedded MultiMediaCard)

    An embedded MultiMediaCard (eMMC) is a small storage device made up of NAND flash memory and a simple storage controller.

SearchCloudStorage

  • RESTful API

    A RESTful application program interface breaks down a transaction to create a series of small modules, each of which addresses an...

  • cloud storage infrastructure

    Cloud storage infrastructure is the hardware and software framework that supports the computing requirements of a private or ...

  • Zadara VPSA and ZIOS

    Zadara Storage provides block, file or object storage with varying levels of compute and capacity through its ZIOS and VPSA ...

Close