Cloud asset management - IT Service Chargeback

There is one concept in particular that is getting a lot of attention lately - Chargeback.  Chargeback isn’t new.  In fact, many of our customers do chargeback already and have been doing it for years, especially to recover the cost of delivering personal computing environments.

 

With cloud services comes the concept of “self-service”, where users go to a catalog, select an option and start consuming the service.  How do you ensure consumers only use what they need and when they need it?  How do you incent them to cancel subscriptions for services they don’t need?

 

In my opinion, the best way to do this is with chargeback.  When I get something for free, I subscribe to it, use it and when I am done I leave it either “just in case I will need it again sometime” or simply because it is easier to leave something behind than to do extra work to decommission it.  There is even a term for this – “hording” (check out this blog post).

 

If I pay for the service, I want to make sure I maximize the value for my money.  I subscribe to the services when I need to, use them to the maximum capacity and cancel the subscriptions when I am finished, knowing I will be able to get them again the next time I need them.

 

Chargeback is a wonderful enforcement mechanism for the desired behavior.  Since I get charged for what I use, my management will make sure I use the budget wisely – in essence users will police themselves.  But users are also technology savvy.  They will check to see whether the prices IT is charging are competitive with the market.  So, the other benefit is that IT can use the cost data to evaluate whether they are competitive and make better business decisions about whether to deliver the service in the future or simply broker access to a public alternative.  I am not suggesting cost is the only consideration – you have to make sure that you evaluate security and regulatory requirements and other factors relevant to your organization.  Cost is simply one of the elements that needs to be evaluated and it is relatively easily measured and is universally understood, so it must be part of any evaluation.

 

A recent InformationWeek survey suggests (among other findings) that many organizations are not planning to implement chargeback as part of their cloud services deployments.  Many analysts, including Forrester and Gartner believe that without chargeback, IT significantly increases the possibility of their cloud initiatives failing.  I agree – without chargeback you significantly increase the chances of failure because users will become hoarders and there will be lots of wasted capacity.  After some time, management will look at the cost of IT and see bloated costs with even more wasted capacity than before – and may wrongly choose to abandon cloud rather than implementing changes to better control the behavior.

 

In my experience, chargeback is catching a lot of attention – I have even seen situations where companies decide to implement chargeback for all services, not just cloud based ones – that’s because cloud services today represent a small portion of total IT budget.  In fact, it seems that cloud chargeback is almost put on the back burner and most of the effort focuses on chargeback for traditional services.  I don’t think where you start matters, as long as you start somewhere and do it now, or as General George S. Patton said “A good plan violently executed now is better than a perfect plan executed next week”.

 

Some organizations, however, simply aren’t ready for chargeback.  Chargeback would play havoc with budgets and its implementation would meet a lot of resistance from individual departments.  In that case, you can implement Showback.  The difference is that while chargeback results in transfer of budget, showback simply presents the cost of delivered services to introduce all departments to the idea that they are creating costs, not IT.  Showback can help you establish value of IT and will enable you to discuss new requirements on financial terms that everyone understands, rather than in terms of servers and licenses that may be meaningless to the consuming departments.  After a couple of years, the organization will be used to seeing the IT costs and likely be more ready to move to a true chargeback model and to realize the benefits associated with it.

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