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An Overview of Chargeback Best Practices. Chargeback – Why do we do it?. Organizational profitability Product profitability Cost allocations Just because – we have always done it! ??. Why do we do it?. Control cost Zero-base Equitable Competitive Manage demand Benchmark

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An Overview of Chargeback Best Practices

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An overview of chargeback best practices l.jpg

An Overview of Chargeback Best Practices


Chargeback why do we do it l.jpg

Chargeback – Why do we do it?

  • Organizational profitability

  • Product profitability

  • Cost allocations

  • Just because – we have always done it!

  • ??


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Why do we do it?

  • Control cost

  • Zero-base

  • Equitable

  • Competitive

  • Manage demand

  • Benchmark

  • Product costing – pricing

  • Customer satisfaction


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How do we define successful chargeback?

  • No one complains

  • Everyone complains

  • There is measurable cost savings

  • There is measurable cost avoidance


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How do we define successful chargeback?

  • Defensible

  • Passes audit

  • Recoup costs

  • Accounts for growth

  • Understandable

  • Flexible

  • Competitive

  • Simple


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Chargeback – What has not worked?

  • Allocations were too simple

  • Allocations were too complex

  • Allocations were too high in the organization

  • It was allocations, and not controllable by those charged

  • Financial entries with no information about charges

  • Invoices or reports were too technical


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Chargeback – What has worked?

  • Charges based upon resources used

  • Charges based on technical resources

  • Charges based on business oriented metrics

  • Charges to those who could make changes


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Chargeback Best Practices – Myth or Possibility?

  • Is chargeback a quest for the impossible?

  • Can chargeback change organizational behavior to really make a difference?


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Let’s Build a Best Practices Chargeback System

  • What do we need first?

  • What’s second, third, etc?


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High level management support

  • Technical – CIO

  • Financial – CFO


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Chargeback Philosophy – Why?

  • What is the vision of chargeback?

  • What is the mission of chargeback?

  • What are the measurable objectives?


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Chargeback Best Practices Characteristics

  • Equitable.

  • Repeatable and Accurate.

  • Understandable.

  • Controllable or Predictable.

  • Economical


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Equitable

  • Fair to all customers.

  • One customer is not subsidizing the cost of another customer.

  • The customer pays for the services they consume or the capacity they request.

  • Use activity-based costing methodology.


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Repeatable and Accurate

  • It should not matter when (time of day or day of the month) the job or activity is performed.

  • The same volume of work should cost the same each month.

  • Assuming the same input, it should consume the same resources each time.


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Understandable

  • The customer must understand the chargeback process and methodology.

  • IT must understand the chargeback process and methodology.

  • They both must know what is being charged.

  • What is included in the charges.


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Controllable or Predictable

  • The customer must have the ability to control or predict the cost of performing a particular activity.

  • If the customer processes more transactions, the cost should increase.

  • If the customer reduces activities, the cost should decrease.


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Economical

  • The system itself must be relatively inexpensive to run, including:

    • Collecting data.

    • Processing.

    • Reporting on the information.

    • Resources required

      • Hardware

      • Software

      • Staff


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What are the benefits?

  • Short-term

  • Long-term

  • financial goals – break-even or profit?


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Overall cost of IT

  • Understanding what IT really costs

  • Managing the cost of IT


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Chargeback – What? Who? When? How?

  • What resources do we charge?

  • What costs do we charge?

  • Who do we charge?

  • When do we charge?

  • How do we charge?


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What resources do we chargeback?

  • Resources with significant or material costs

  • Resources that can be measured effectively

    • Easy to collect volumes

    • Cost effective to collect volumes


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What costs do we charge?

  • Infrastructure only

  • Mainframe

  • Distributed – dedicated / shared

  • Data communications

  • Voice communications

  • Programming development

  • Total IT


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What type of costs?

  • Fixed costs – when?

  • Variable costs (rates) – when?

  • Mixed – both?


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How do we charge?

  • Simple allocation

  • Journal entries

  • Invoices – memo only

  • Invoices – entries to financial reports


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Who do we charge?

  • At what level in the organization?

    • Cost center / department / division

    • Product

    • Business unit


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When do we charge?

  • Monthly, quarterly, annual

  • Rate changes

  • Adjustments – quarterly, year end, or ever


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Information Provided

  • Strictly financial

  • Customer

  • IT management

  • Corporate management


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Type of Process

  • Quick and dirty

  • Slow and accurate

  • Quick and accurate


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What is the cost of chargeback?

  • Implementation

  • Operational


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Chargeback Implementation Project

  • Charter

  • Plan

  • Budget

  • Stakeholders

  • Team


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Chargeback Software Characteristics

  • Software

  • System configuration

  • Reporting

  • Database

  • Application


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Software

  • Cost of software

  • Ease of implementation

  • Cost of implementation

    • Consulting resources

    • Internal staff resources


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System configuration

  • Data collection

    • Mainframe

    • Distributed

    • Centralization of data (application server)

  • Application

  • Database


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Reporting

  • Web-based

  • Drill down to details – job, project, user, etc.

  • Reporting security by business unit or user

  • Reporting user guide / training


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Database

  • Comprehensive relational database

  • Optional database versions


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Application

  • Easy to use

    • Intuitive, easy process flow

  • Easy maintenance

    • Customers

    • Rates

    • Users

      • Administrators

      • Reporting


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Chargeback Operations

  • Data collection

  • Application processing

  • Reporting

  • Staff requirements


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Data Collection

  • Daily

    • Automated data loading

    • Monitoring – errors / corrections

  • Monthly

    • Automated data loading

    • Manual data loading

    • Monitoring – errors / corrections


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Application Processing

  • Maintenance for updating

    • Customers

    • Rates

    • Report Users


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Reporting

  • Standard reports

  • Custom reports

  • User read-only access to database


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Staff Requirements

  • Technical

  • Financial

  • Administrative


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Technical Skills

  • Mainframe

  • Distributed

  • Application

  • Web

  • Reports


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Financial

  • Financial analysis

  • Support for data input

  • Results monitoring


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Administrator

  • Finance system administrator

    • Monthly processing monitor

    • Customer questions


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Total Cost of Chargeback

  • Software maintenance

  • Hardware resources

  • Staff resources


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Summary Slide

  • Chargeback – Why do we do it?

  • How do we define successful chargeback?

  • Chargeback – What has not worked?

  • Chargeback – What has worked?

  • Chargeback Best Practices – Myth or Possibility?


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Summary Slide (cont.)

  • Let’s Build a Best Practices Chargeback System

    • High level management support

    • Chargeback Philosophy – Why?

  • Best Practices Chargeback System

    • High level management support

    • Chargeback Philosophy – Why?


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Summary Slide (cont.)

  • Chargeback Best Practices Characteristics

    • Equitable

    • Repeatable and Accurate

    • Understandable

    • Controllable or Predictable

    • Economical


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Summary Slide (cont.)

  • Chargeback benefits?

  • Overall cost of IT

  • Chargeback – What? Who? When? How?

    • What resources do we chargeback?

    • What costs do we charge?

    • What type of costs?

    • How do we charge?

    • Who do we charge?

    • When do we charge?


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Summary Slide (cont.)

  • Information Provided

  • Type of Process

  • What is the cost of chargeback?

  • Chargeback Implementation Project


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Summary Slide (cont.)

  • Chargeback Software Characteristics

    • Software

    • System configuration

    • Reporting

    • Database

    • Application

  • Chargeback Operations

  • Data Collection


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Summary Slide (cont.)

  • Staff Requirements

    • Technical Skills

    • Financial

    • Administrator

  • Total Cost of Chargeback

  • What Have We Missed?


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Questions / Comments


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