CIOs - it’s time to bill the business for using IT

In the present climate, the pressure is on IT to demonstrate it is delivering value to the business. That sounds simple but it’s usually extremely complex. With few exceptions, most organisations do not have established models indicating exactly how the use of IT systems correlates with business value.

In truth not many organisations possess even a high-level view of how IT resources are consumed by different business services. The increasing use of virtualisation tools, if left unchecked, is going to make this matter even more difficult.

In many scenarios this task would be simplified if some form of internal chargeback modelling based on IT resource consumption were to be used to help set and monitor IT budgets.

While the basic concepts of chargeback reporting have been around for a long time, there is strong evidence that it is not viewed as important internally. This perception clearly poses a challenge as IT may have to push the chargeback concept strongly to convince other managers of its value and importance.

Chargeback tools as a reporting mechanism

Perhaps one example of how views could be changed is using chargeback tools as a reporting mechanism for current efforts to align IT resource usage with front-line business requirements. Such a move away from simply utilising chargeback as a throttle on IT consumption could garner a positive reaction from front-line business managers.

Difficult trading conditions obviously pose challenges to IT departments as they seek to deliver a good service while maintaining a strong grip on costs. One thing that has become clear over the course of the past five years is that IT departments are now expected to show exactly where money is being spent and to provide unprecedented degrees of transparency on such expenditure.

Alongside this requirement, increased levels of sophistication are expected. IT needs to be ready to support new business operations that may emerge or evolve dramatically overnight.

There now often seems to be an expectation, however unreasonable, that IT must be quickly ready to support any business change, frequently without having much latitude to assess or manage the potential impact these changes might have on the underlying infrastructure.

Helping IT show where money is being spent

Just how can IT demonstrate to the business where the money is going and how effectively the IT infrastructure is being utilised to support key business services? Consideration of this subject naturally leads to the obvious requirement to be able, at the very least, to report on which IT resources are consumed by which applications during certain periods of time.

Even in relatively traditional IT systems where virtualisation plays little or no part, getting hold of this information usually requires considerable manual time and effort.

The ever-expanding use of virtual systems makes such reporting even more necessary, particularly if organisations eventually want to be able to share core infrastructure resources such as server, storage and networking platforms to dynamically provision, run and support different applications based on changing business needs.

This scenario is simply crying out for the use of chargeback modelling, despite the likely resistance, from business users. After all, most business people are familiar with the concepts of money and budgets within their own departments or areas of responsibility.

On the other hand, they may be uncertain about how IT actually supports their daily operations. A simple way out of this dilemma is to employ some form of chargeback modelling that allocates costs to the users of IT services based on the percentage of the infrastructure resources that those services consume.

Expanding on simplistic models

Today some organisations already use a primitive chargeback model based on the numbers of users of a service and the assumed costs of delivering it.

These models are simplistic and do not attempt to allocate costs based on actual usage, which will become much more important as systems become virtualised and the allocation of physical resources varies over time.

Such resources could also expand to include electricity costs as well as building-related costs, such as floor space, land costs and building depreciation, and whatever else makes sense for the business to measure. Alas while this approach sounds easy in principle, it can become complicated in practice.

We have now entered an era when the use of chargeback models will become prevalent in most IT organisations, certainly those where the IT systems number more than a few tens of servers and where flexible virtualisation is employed to pool physical resources rather than running individual servers and back end systems to support a single application or service.

Chargeback shows transparent information

Chargeback models provide transparency in a format that’s acceptable to most business users since it operates using concepts of money spent for each service delivered. For line-of-business managers this approach should be easy to get grips with.

However, from the IT perspective this approach places a burden on the infrastructure in terms of monitoring resource consumption and then reporting on what resources each business unit is actually using. This reporting must be in financial and business operational terms rather than IT-centric metrics.

The challenge is to find a model that the infrastructure can sustain, which is politically acceptable to the business users and economically acceptable to operational IT. Get it right and everybody will be happy or at least they will recognise where there may be conflicts that need to be resolved.

In addition the cloud is being marketed by many as being inherently lower cost than in-house IT, and these comparisons are causing some IT departments problems. Yet few cloud services replicate specific conditions in the security of services or service-level commitments.

Tight requirements

So business managers may fail to realise that potentially they may be comparing a very bland apple with a specific variety of the fruit grown in-house to meet tight taste requirements of the overall business.

Cloud vendors are actively marketing directly to business users, which is likely to cause IT to have to defend the costs of running services. This task becomes more straightforward if IT has a good idea of how much each service costs rather than a purely theoretical model.

So the question becomes what forms of chargeback modelling will be acceptable along with how are such models to be built, monitored and reported on. Then there is the challenge of how to sell the idea of chargeback modelling to both the business and a sceptical IT team.

The answer is for both sides to recognise the opportunity chargeback reports provide for monitoring service levels, decide on service change requests and to report on business alignment -but IT is likely to have to drive things.