Exploring the paper trail - information systems chargebacks - Technology Transfer - Column

Edna the Entrepreneur, manager of the technology research group at Acme Services Co., was a good choice to research the pros and cons of Betty the Businesswoman's proposal to institute chargebacks. In addition to having a staff of specialists, Edna and Betty had been friends for years. Betty's son and Edna's daughter were even on the same high school debate team.

At a recent high school event, both Edna and Betty arrived early and sat next to each other. After visiting for a while, Betty said, "Edna, I hear that you are investigating chargeback." Edna nodded.

"Well, between you and I," said Betty, "I think the IS budget is out of control. I know they try hard to serve their users, but they keep adding staff and equipment. Users ask for something and IS funds it. Somehow we have to get the budget under control. I hope chargebacks will help us do that."

"Betty, this is not an easy task," said Edna. "I've just started and I'm already getting a lot of static. Some people just see chargeback as a lot of work; some are skeptical about the benefits; and others fear what it may do to us. It hasn't been easy getting information."

Betty was not surprised. "I sensed some resentment among some of the IS staff. But please do me a favor -- just keep an open mind and look at both sides."

The event was about to begin. As the crowd quieted, Edna asked, "Betty, just what do you hope to achieve with chargeback?"

"I hope to see users become more cost-conscious, and I would like to discourage the frivolous use of resources. I think this may be the only way to get a handle on our costs," she answered.

Edna did not get another chance to visit with Betty that evening. The next day Edna met with Russ the Reactionary, the head of computer operations, to discuss chargeback. Edna began by asking Russ his general opinion about chargeback.

"I really don't like it, and there are a lot of people who would agree with me," he stated.

"Oh, really?"

"Yes, I know how chargeback systems are supposed to work, but I just don't think that they are worth the effort. I attended a seminar on this subject a while ago." He asked Edna to wait a minute as he located his notes.

"First of all," he began, "we will have to figure out who we will charge for what."

Edna nodded. "What would that involve?"

"Well, we would have to decide whether we wanted to charge all of our costs back to the users. That would include hardware, salaries and all of our other costs. Getting data for the mainframe would be fairly straight-forward, but what about getting data for workstations, LANs and the network?"

"I take it then that we don't have the same kind of statistics on other platforms?" questioned Edna.

"It would take a lot of guess work," countered Russ, "and that's a tough position to be in when you are billing people. We would also have to figure out how to divide costs equitably based on usage or activity."

Edna responded, "It sounds like if our goal was simply to recover costs, everyone would just pay their share of costs based on what portion of resources they used."

"That's right. Another option would be to determine a fair value for hardware costs and charge users by how much they use. CPU costs may be the easiest item to charge because there are so many ways to measure it. But there are many items such as Dasd, memory and network that are harder to tie to a particular application or user," Russ said. "I'm not sure how we would handle them. Even CPU usage can be tricky for on-line systems and databases. I guess we would have to find some way of charging for everything."

Edna interjected, "We might not recover all of our costs this way."

"Maybe, maybe not," Russ said. "If we set our charges high enough, we could actually show a profit. With a lower rate, we might not recover all our costs." Russ ran his hands through his hair. "Remember Edna, it would only be paper money anyway. And now I'm supposed to spend real money on people and software to create the bills to track fake money. Why would I want to do that?"

"I see. Would it cost different amounts for applications run at different times of the day?" Edna probed.

"Well, that is another option," Russ admitted. "Actually, that is where a lot of politics comes in. We plan processor capacity to satisfy peak needs. Users should pay more for use during peak periods. By charging different amounts for different times, we can encourage users to take advantage of excess capacity during off-peak hours. If the difference in charges is large enough, we can really get users to change the way they do things."

"Is that desirable?" Edna asked.

"I'm not sure, but I have heard that this generates a lot of dialogue between users and the data center. And not all of it is positive. We may want to try to influence users, but they may not want to be influenced."

Edna sighed. "Let's go back to PCs and LANs."

"Well, that's a real can of worms. I can't really measure how much of the LAN resources are being used by individual users. The best I could do is charge a flat fee for each user. And the PCs themselves never hit my budget. They are already expensed to the users, and I have no control over them."

Finally, Edna asked, "Is there anything else you might want to tell me about chargeback?"

"I hope we don't get involved with an elaborate chargeback system. It will take a lot of work and money to maintain, and they can be a real nuisance," Russ concluded.

MORE EXPENSIVE IN THE LONG RUN?

Edna's meeting with Lou the Lifer, the head of application development, went more smoothly. After sharing how Betty felt about chargeback, she asked Lou how he thought it might affect him.

"Salaries and individual pieces of equipment are the main items in my budget. As I see it, these costs can either be charged based on resource usage or project costs. Some systems have one clear user. Here, it should be fairly easy to assign costs. Other projects are not quite so clear."

Edna then asked, "Lou, how do you think you would set your rate?"

"That's a little tricky to figure out. We would have to include overhead to account for things like training and holidays. We would also need to include some overhead for support groups. However, to do this we would need a good record of hours. We keep track of hours for project planning purposes, but that is different. We would have to adapt that system to a chargeback environment," he explained.

Edna talked with Lou at length and explored the methods they might use to track time and allocate costs. As they wrapped up, Lou confided, "Edna, I have to tell you that my main concern with chargeback is outsourcing."

"You mean contract programming firms?" she asked.

"Exactly," Lou said. "Right now my customers see IS services as essentially free. With chargeback, they will be receiving a bill. If my prices are not competitive, they may go elsewhere. It's kind of scary."

"But if we're not competitive, shouldn't they go elsewhere?" Edna queried.

"Look, any firm can make an attractive bid to get the business," Lou said. "Or they may shave costs by not doing things to our standards. The rate may look good at first, but if we have to change things later, it may be more expensive in the long run. Users may not consider this going in."

Edna rose to leave. "I see your point. Thanks for the feedback. I'm starting to get a picture of the complexity of this issue. Now I'm interested in hearing what some of our users have to say."

COPYRIGHT 1993 Wiesner Publications, Inc.
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