Corporate IT Still Picks Up the Tab

October, 2012

Analysts have been forecasting that chargeback practices will become increasingly important as IT organizations move toward a service management model. Yet our study, Current Trends in Chargeback Practices, shows that the frequency of IT chargeback practices has remained largely unchanged over the past four years. At least in the short term, there has not been any movement toward broadening the scope of  IT chargeback practices.

Figure 1 shows that about half of IT organizations are currently charging back at least some IT expenses to business units or departments. The frequency of charging back IT expenses has wavered from a high 54% of IT organizations that engaged in the practice in 2009 to a low of 51% in 2010 and 2012, a difference that is largely insignificant. Despite the recessionary pressure to cut costs and justify expenditures, the practice has not gained any ground over the period. Nor has it lost ground. Enterprises have been grappling with more pressing priorities than re-engineering accounting practices.

Chargebacks Fig1 - Corporate IT Still Picks Up the Tab

This full study is designed to help IT executives weigh adoption of chargeback practices. It provides data on the frequency and level of IT chargebacks among IT organizations with more than $50 million in annual revenue. We look at the four-year trend in the percentage of organizations charging back IT expenses and the average percentage of IT budget being charged back. We also assess the influence of organization size and sector on chargeback practices and which IT expenses are most frequently charged back. Our discussion includes an assessment of chargeback methods, their benefits and purpose, and recommendations on implementation.

While our data shows very little change over the past four years in the frequency and level of chargeback activity, other evidence suggests IT organizations are moving toward adoption of service management models. This may portend greater levels of chargeback activity in the near future. Still, activity-based cost accounting does not appear to be moving to smaller organizations or into organizations that had not already been practicing some form of allocating IT expenses.

Over time, however, we continue to anticipate growth in IT chargeback practices. Growth in the use of shared services, virtualized infrastructure, outsourcing, and SaaS applications, as well as the need to strategically align IT and business investments, dictate that IT expenses will be charged back to business units with greater frequency and rigor.

This Research Byte is a brief overview of our report on this subject, Current Trends in IT Chargeback Practices. The full report is available at no charge for Computer Economics clients, or it may be purchased by non-clients directly from our website (click for pricing).