Does your company do an “IT chargeback”?

An IT chargeback is an internal accounting procedure where your company charges departments for the cost of IT support.  They do this to help organizations understand that IT is not free.

You see, it’s easy for a department manager to think IT support is free when the IT employees are part of the same company. So, if they want programming customizations, they merely submit an endless wish list of new enhancements, changes, etc.

The problem, , , IT is not free, , , IT support costs your company millions of dollars each year.

If a department had to obtain programming support from an outside company, they would pay anywhere from $50 to $150 per hour for the work they request. Our company has to pay for this whether it uses internal programming resources or an outside company, , , so it’s always a real cost to provide these services.

In order to reflect IT support usage, companies sometimes charge the non-IT departments a percentage of the total IT cost based upon how big they are. It’s called an “IT chargeback”. I’ve seen this calculated by department revenue, by number of employees in the department, or just flat percentage rates the company imposes.

What accounting will do is spread the total IT expense out to all the departments of the company, , , until the “net expense for IT shows $0.00. It’s only an internal accounting procedure to spread support costs out to the organizations using the support.

Usually when a company decides to do this, they add budget dollars to non-IT departments who will receive these allocations. If the IT department spends exactly what they budget for, there will be a zero budget impact to the non-IT departments.

If your company plans to implement a chargeback policy, be prepared for some push back by the non-IT departments. They don’t like it.

They view their department being charged for things they don’t do and it possibly affecting their financial performance. In reality, it won’t affect financial performance at all because the non-IT department gets additional budget dollars added to their budget to cover it, , , but I can tell you firsthand there will be resistance from the department heads.

When implemented well, all organizations gain a better understanding of the costs associated with IT support and have more incentive to manage their IT support need.

One response to “Does your company do an “IT chargeback”?

  1. I have mixed feelings about this charge back issue. Being the IT Manager for a large construction firm in South Africa, our project site is based in a rural area far away from the head office. We *have to* make use of so called “group services” to provide things like email support, AD support, etc. So in our case we are forced to pay *their* rates. It is not 100% fair in my opinion… but that is how it works I guess…

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