Worried About Introducing IT Chargeback? Then Try “Showback”
If your IT department is like the majority of others, your business-as-usual (BAU) costs will likely be three times the value of your project-based – or change/innovation-focused – IT spend. And this will no doubt be a significant sum. There are proven IT financial management tools and techniques available to help optimize this BAU spend, including the ITIL-espoused disciplines of costing, budgeting, and accounting.
However, there’s still more that can be done to further optimize your BAU spend. For instance, the adoption of a chargeback mechanism – where business functions are invoiced, and pay, for the IT services and support they consume. But if chargeback isn’t right for your organization, or at least not yet, then there’s another option – “showback.”
This blog explains more about what showback is and how best to use it via ten adoption tips.
Showback is easiest defined by starting with an explanation of chargeback.
In terms of charging, ITIL 4 states that:
“This activity is required to formally invoice service consumers (usually external) for the services provided to them. It is important to note that while charging is an optional practice, all services require a funding model, because all costs need to be adequately funded by an agreed method.
Source: AXELOS, “ITIL Foundation: ITIL 4 Edition,” (2019)
Showback is the application of the same principles and methods (as with charging or chargeback) except that business units aren’t actually charged. Instead, they’re merely shown what their IT would have cost – via statements or dummy invoices – if they were to pay for it. Hence, it’s “showback” rather than chargeback.
Sometimes showback is used as a stepping stone to the later introduction of chargeback, but this doesn’t need to be the case – with showback sufficiently beneficial in optimizing IT use, costs, and value.
The Benefits of Showback
Showback, as with chargeback, is very much about driving the right behaviors – with the communication of the costs involved in IT service delivery and support aimed at eliciting the benefits of better demand management. For instance, reducing or regulating demand, or facilitating discussions around the trade-off between quality levels and cost. A good example of this is where a small reduction in the service level agreement (SLA) availability target for an IT service results in a significant drop in the cost of provision.
Depending on organizational approach and policies, additional benefits include that:
- There’s greater transparency into what IT costs and why
- Business unit leaders can make more informed decisions around their IT use
- Business units can take greater control over their IT spend – deciding on IT services and volumes
- Conversations can be elevated from cost to value, i.e. business unit leaders can question if a service they use is actually worth what it costs, with various alternatives then considered
- Proposed changes to existing IT services can be considered from both a cost and value perspective.
Showback Versus Chargeback
In terms of whether showback or chargeback is right for your organization, this depends on a number of factors. For example, the introduction of chargeback might be considered too difficult and costly. This could be related to the complexity and costs involved in accurately billing different functions or an aversion to handling the queries and potentially arguments that might arise around billed IT costs.
Showback removes these issues – thanks to the use of “statements” over invoices. However, such statements, where no real financial “pain” is felt, might be insufficient to drive the required changes in behavior.
So, as with the introduction of any new approach or capability, informed decisions will need to be made about what’s in the best interest of the organization. And, as already mentioned, showback can be an intermediary step on the path to chargeback.
Don’t Underestimate the Power of Showback
Showback can be as far as your organization wants, and needs, to go, i.e. it doesn’t necessarily need chargeback or to progress from showback to chargeback.
As outlined in the above list of benefits, showback is enough to first take your IT department from simply operating as a cost center – where each year it works hard to stay within budgetary limitations – to being more engaged with customers about what IT costs and why. Especially when the greater transparency raises questions around the disparity between corporate IT costs and consumer-world equivalents. It’s a great opportunity to “right-size” the provided services and support capabilities.
The same is true of the value-based conversions that it will create – potentially identifying imbalances between low-value, high-cost IT services and, conversely, high-value, low-cost IT services. And the formulation of plans to minimize the former and to accentuate the latter.
10 Tips for Getting the Most from Showback
- Build your showback capabilities on a robust cost model solution () – don’t let costing errors divert attention away from your purpose here.
- Keep the language involve at a business level wherever possible, i.e. avoid the use of potentially confusing and off-putting financial and IT terminology.
- Agree on ownership of IT services, and the associated costs, with the relevant business unit representatives – again, don’t let errors divert attention away from your purpose.
- Employ organizational change management (OCM) tools and techniques for showback’s introduction – after all, this is a change to the traditional way of working.
- Communicate the showback costs with a regular cadence – include commentary and make help available to explain what the numbers mean.
- Regularly offer up potential opportunities for improvement – for instance, how to reduce costs through an agreed change.
- Compare business unit trends over time and compare across business units – for example, understand why one business unit incurs considerably more costs relative to a particular service than others.
- Don’t only seek to reduce costs – showback should be about optimization and sometimes it will be appropriate to state that a business unit would perform better through the greater use of a particular IT service.
- Don’t lose sight of business goals and objectives – showback isn’t simply about better IT or better financial stewardship, it’s about better business operations and outcomes.
- Improve your showback capability over time – garner feedback from all involved and tweak things accordingly.
Has your IT department already adopted showback? If so, what other tips would you add to this list? Please let me know in the comments.