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Chargebacks

August 27, 2014

Chargeback challenges for international projects

International projects – you go first!

International projects are frighteningly expensive and fraught with complexity, both technical and organizational. The theory behind cost savings, synergies and process standardization hardly ever materializes, as anyone who has ever managed one can probably attest to. If you now also throw chargebacks into the mix, things can really become messy.

Unless affiliates or countries that are candidates for an international project have some sort of mechanism in place for sharing the risks (see previous post, “Why chargebacks should take into account project risk”) and the costs with Corporate or with IT, they will end up having to bear all of the costs. And this can be really tricky.

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Why chargebacks should take into account project risk

Most people in IT are aware of the statistics concerning IT project success rates, which, even in the 21st century, still sit stubbornly at around one in three. Or, to deliberately take the negative view, two out of every three IT projects are unsuccessful. For example, the Standish “CHAOS Summary 2009” reports the following project success statistics:

  • Successful – “32% delivered on time, on budget, with required features and functions.”
  • Challenged – “44% were challenged, which are late, over budget and/or with less than required features and functions.”
  • Failed – “24% failed (cancelled prior to completion, or delivered and never used).”

It’s not sure that the BUs who have to pay for projects are aware of these statistics. If they were, they would logically ask for the risk to be shared, either with other BUs or with Corporate. And failing that, they would step back and let some other BU go first with any new project.

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The challenges of defining objective cost allocation models

As we saw at the start of  the previous post (Chargebacks – allocations vs cross-charges vs showbacks) we saw that the challenge for chargebacks is to strike the right balance between the desired result (fair and reasonably accurate) and the costs and complexity of obtaining actual, metered usage. Well, that’s easier said than done! Let’s see how things generally play out in practice.

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Chargebacks – allocations vs cross-charges vs showbacks

“The pen is mightier than the sword, but no match for the accountant.” (Jonathan Glancey)

When and when not to chargeback

As explained towards the end of an earlier post (Your personal IT Financials reality check) the IT budget can be centralized as part of a corporate cost centre, or charged back to BUs so that both costs and benefits sit on their P&Ls.

It is commonly thought that chargebacks are an all-or-nothing proposition, ie a company either recovers all of its IT costs or it doesn’t. While this is generally the case, there are very good reasons to have a mix of the two (as will be discussed in a future post when talking about project risk – see “Why chargebacks should take into account project risk”).

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