The State of Nebraska utilizes a chargeback accounting model for its shared enterprise IT services. IT chargeback is a financial system for IT departments that works to afford the technology services that are needed by the enterprise business organizations. Technology services include hardware, software, and support. In an enterprise organization, the IT department is a service center and the business organizations are its customers.
A chargeback system does not generate profit, internal financial systems cannot do such a thing. A chargeback system is about running the business in the most efficient manner possible and incentivizing customers to use technology services responsibly, efficiently. The IT department acts as a partner then, communicating opportunities for customers to increase optimization.
Charging on a consumption basis is similar to what utility providers do. By supplying a true and total cost of purchases, the model encourages consumers to become more cost-effective decision-makers. With a transparent view of how costs are determined, customers can gauge their effective use of resources. Ultimately the customer is responsible to utilize IT services efficiently, or else modify behavior to reduce the cost.
Technology customers are challenged to prioritize their needs, especially in government organizations. Prioritizing technology requires a mutual understanding of the business needs and a clear strategy regarding the associated technical requirements. A business manager needs to understand the business processes and their reliance on technology to make decisions and purchase only what is necessary. This requires strong communication between the customer (including the manager) and the IT department. Each party is accountable to the other, as the total cost of purchases will reflect challenges and gains in efficiency.
A chargeback model encourages IT providers, like the OCIO, to integrate industry best practices that are designed to increase the organization’s efficiency. As an example, before our IT Consolidation, the State’s decentralized IT resources lacked a standard to adhere to technology refresh cycles. Customers had the incentive to ignore best practices, and they extended the cycles on servers and personal workstations to avoid cost. The practice successfully achieved short-term savings, but over time aging equipment led to an overall spending increase. Organizations lost productivity from running slow machines and spending resources on support to keep aging hardware running. Since consolidation our centralized IT organization implements best practices from standard upgrades to replacing end-of-life technology; the cost is passed along to the business unit, as are the savings from the efficiency gains.
Having a chargeback system does not in itself create efficiencies or lower costs, but it does help to identify focus areas for improvement. The chargeback model provides cost and uses data which the business can analyze to identify savings opportunities.
Recent focus areas where our customers are gaining efficiency include:
Despite a chargeback structure’s advantages for an organization, there tend to be obstacles when introducing change. Nevertheless, this is our model and our goal at the Office of the CIO is to continue to provide effective, efficient IT services. We aim to be successful in this endeavor, and we are responsible to assist our customers in gaining an understanding of the “true cost of IT”.
As always, thank you for your efforts each day to support our Mission “Respect for the Taxpayers of Nebraska”.
Ed Toner