What is IT Chargeback, IT Financial Management (ITFM) and Technology Business Management (TBM)?
Each approach has its merits and are often combined. Which area you focus on depends on if your primary goal is to achieve accuracy, deliver transparency, predict future outcomes or performing cost optimizations.
IT Chargeback is a specific practice for allocating the costs of IT to business units or users
ITFM is a broader financial framework for managing IT costs
TBM takes a business-centric approach to IT financial management, focusing on optimizing the value of IT investments for the business.
IT Chargeback
Agencies and Enterprises leverage IT Chargeback to precisely allocating the costs of IT services and resources to the departments or users who use them. This helps to ensure that the cost of IT is transparent and equitable. IT Chargeback is typically used by IT departments to understand how much each business unit is spending on IT and to identify potential areas for cost optimization.
Key Concepts:
- IT Chargeback requires maintaining a true ledger of charges between Centralized Services and
- Enables precise allocation of metered services such as cloud consumption, shared infrastructure and telecommunications charges among others
- Is able to separately maintain cost from pricing, a key concept in enabling Services Based pricing for Centralized Services organizations
- Chargeback starts at the Service Catalog and cascades forward before ultimately ending in an ERP subledger/GL.
When to use it?
- If your organization or agency requires GAAP compliance such as the directives outlined in OMB Circular 87, your agency should gravitate towards a modernized IT Chargeback process
- If your centralized services organization wishes to implement Services Based pricing or needs to allocation metered data, Chargeback is almost universally a requirement
IT Financial Management (ITFM)
ITFM is a broader framework that encompasses multiple financial practices for managing the costs of IT. It includes budgeting, forecasting, financial reporting, and cost optimization. ITFM is focused on understanding the total cost of IT and ensuring that IT spending aligns with the overall business strategy. This relies on data being pre-processed and the accuracy of the reporting is generally limited by the allocation method(s) being utilized.
Key Concepts:
- Cost reporting leverages processed GL data (post-GL), so the granulurity of the reporting is limited to the data in the Ledger.
- ITFM is focused on performance and alignment, not necessarily precision
- ITFM is extraordinarily helpful in the modeling and forecasting of future costs
When to use it?
- When your primary goal is to optimize spend or forecast future scenarios
- When you are needing to evaluate the overall business value relative to cost
- When you have a need for transparency, but not maintaining a subledger
For modern IT, there are several advantages of combining IT Chargeback with ITFM
Combining IT Chargeback and ITFM can provide a more comprehensive and effective approach to managing IT costs for an Enterprise shared services organization or Government Agency. By leveraging the strengths of both approaches, agencies can achieve greater cost transparency, accountability, efficiency, collaboration, and decision-making.
Improved cost transparency: By combining IT Chargeback and ITFM, a government agency can gain a more granular and accurate view of its IT costs, enabling it to make better-informed decisions about IT investments, budget allocation, and cost optimization.
Greater accountability: By combining IT Chargeback and ITFM, a government agency can hold business units or users accountable for their IT usage while also aligning IT spending with overall business objectives. This can help to ensure that resources are used effectively and efficiently, while also creating a stronger connection between IT spending and business value.
Streamlined financial management: By combining IT Chargeback and ITFM, a government agency can streamline its financial management processes, reducing administrative overhead and freeing up resources to focus on other priorities. This can support a more agile and responsive IT function that can respond quickly to changing business requirements.
Improved collaboration: By combining IT Chargeback and ITFM, a government agency can foster greater collaboration and communication between the IT department and the business units or users. By providing a shared framework and language for IT spending, stakeholders can work together more effectively to identify and address issues related to IT costs.
Better decision-making: By combining IT Chargeback and ITFM, a government agency can make better-informed decisions about IT investments, budget allocation, and cost optimization. By having a more complete and accurate picture of IT costs and their alignment with business objectives, stakeholders can identify areas where IT spending can be optimized or reallocated to higher-value activities.
Related Research
CIO: CIO.com is a leading source of information for IT professionals and executives, and it has several articles on IT Chargeback that provide a good overview of the topic. Some examples include “IT Chargeback: A Matter of Accountability” and “IT Chargeback: Who Pays for IT?”
InformationWeek: InformationWeek.com is another popular source of information for IT professionals and executives, and it has a section on IT Financial Management that includes articles on IT Chargeback. Some examples include “IT Chargeback: Pros and Cons” and “The Fine Art of IT Chargeback.”
TechTarget: TechTarget.com is a leading technology media company that has several resources on IT Chargeback. Some examples include a guide to IT chargeback and show how to use it for cost management and an article on the differences between chargeback and showback.
- Gartner: Gartner.com is a well-known research and advisory company that provides insights and analysis on IT and business trends. It has several resources on IT Chargeback, including a research report on IT Chargeback and Financial Management and an article on “Why You Need IT Chargeback.”
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