Is your software chargeback algorithm linked to the cost driver of consumption?

I have found that chargeback algorithms are typically deeply enmeshed in the fabric of the enterprise and usually very difficult to change.  In many cases they are also not based on the true cost driver of providing the software.  Usage valuation is a technique by which user management can be made aware of the true cost of their software consumption, indicating changes to usage patterns that may be made to the overall benefit of all.

A classic example of this occurs in engineering applications, most of which use the concurrent usage licensing model.  With this model the peak concurrency level determines the software cost, yet most chargeback algorithms are based on hours of usage, which outside peak periods, actually cost nothing more than the infrastructure support component.

An imaginative way around this dichotomy is to leave the chargeback system in place as it would be too difficult to change anyway, and to generate a new set of reports based on the metric by which software is charged by the vendor and calculate the value of the software usage received by each cost center / department / business unit.  This information would be used to inform user management in several key ways:

– The profile of the tools used (across all license models)
– The usage patterns exhibited
– The adherence to guidelines on prudent software consumption
– The means to arrive at better use habits

Because they would be based on true cost drivers, the usage valuation reports would also be useful in these important areas:

– Vendor negotiation / true-up
– As a tool to evaluate competitive products / vendors
– As preparation for budgetary planning

Conclusion: By avoiding the thorny issue of chargeback, the enterprise can generate meaningful and useful management information without major upheaval.

One comment on “Is your software chargeback algorithm linked to the cost driver of consumption?

  1. Shawn Mayhew on   # Reply

    I think you have missed the point of IT chargebacks to business units. If you do not do something like charge backs, IT becomes free to the end user with no penalty for over usage. Once you stop doing IT charge backs because it is difficult then you lose any leverage on a over consuming business unit. Your only lever at that point is the IT Director going to Director of that unit and asking for more money because of the utilization rates. In this day and age of lower budgets that is throwing paper airplanes into the wind.

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