- Barry Whittle
- May 15, 2019
Showback is either an intermediary step to get to chargeback or a valid standalone solution. If the aim is to enable cost recovery from business units (BUs) in the form of general ledger (GL) transfers, then chargeback will be the goal. However, showback speaks to other motivations for service pricing not inherently tethered to cost-recovery.
Showback isn't just a stepping stone
First of all, let’s tackle the implied maturity of chargeback over showback. From a pure language perspective, there is no implication—it’s quite blunt. Showback leaves a bill on the table for analysis; chargeback leaves the same bill but requires payment. Most customers I have worked with acknowledge an aspiration for a full cost recovery approach with chargeback. But aspiration is one thing—cold, hard reality another.
Here’s an example: an organization has a homegrown chargeback solution built off multiple spreadsheets that are labor intensive to maintain and error prone. They wish to replace it with an automated, standardized application like Apptio Bill of IT. While the BUs may question the monthly charges from the homegrown solution, it’s a predictable presence in their budget. In the absence of consumption levers they can pull to control those costs (a key aspect of a services hierarchy in Apptio Bill of IT), it’s a cost they begrudgingly accept.
In this scenario, however, the decision to roll out a like-for-like chargeback system with Apptio Bill of IT is not black and white. The current chargeback is well established, even if it is laborious to implement and difficult to defend. A common approach is to continue cost recovery with the homegrown solution while building consensus from business stakeholders with a showback in Apptio Bill of IT.
Adoption of any solution is based on the twin motivators of ease of use and superiority over existing methods. With showback in Apptio Bill of IT, BUs familiarize themselves with the new billing experience and can question the assumptions and review their service choices. When running showback in parallel with an existing chargeback solution, an organization affords itself headroom to grow into the use of fully defendable chargebacks with Apptio Bill of IT. Showback can be an intermediary step to get there.
Showback frames the IT value conversation
Showback can also be a standalone process that communicates the value of IT, without any implied billing immaturity. An organization can drive towards accountability for IT spend by using many different on-ramps. But ultimately, the focus is on the outputs of IT (services available to BU-s) rather than the inputs (infrastructure costs). If these outputs are communicated to BUs in terms they understand (price x quantity or PxQ) and can control (consumptive rather than assumptive feeds), showback can frame up a conversation of IT value without the white noise distraction of cost recovery and true-ups of chargeback. The point is to focus on driving an IT value conversation rather than being wedded to a particular tactic to get there.
»Read more: Showback & chargeback: How to optimize costs by shaping consumption and demand
Build showback on a firm foundation
At its heart, a bill of IT system serves to hold BUs financially accountable for the IT they choose to use. Cost recovery with chargeback is the ultimate tool to recoup IT spend, but if the construction of those charges are indefensible (through assumptive allocations or poor service cost compositions), then the BUs aren’t being shown the true impact of their decisions. The choice between showback and chargeback is the wrong focus: it’s the underlying data that builds up the costs of the services and the consumption feeds that needs attention. With Apptio Cost Transparency, organizations use the industry’s first standard cost model for measuring and managing the cost of IT Services (the Apptio TBM Unified model or ATUM) to build a fully-defensible cost composition for services. Organizations can then operationalize a chargeback or showback process off that defendable costing of services with automatic monthly billing, variable pricing strategies, and role-based controls with Apptio Bill of IT.
#1 Start with cost-based showback
A showback is definitely quicker to implement and there's no financial processes or transactions that you need to administer. It allows time for the users to challenge the bill of IT services that they're seeing in readiness for the full chargeback motion.
An organization can drive towards accountability for IT spend by using showback or chargeback, and ultimately, the focus is on the outputs of IT, the services available to the business rather than the inputs, meaning the infrastructure, cost, facilities, labor, etc.
If these outputs are communicated to the business units in terms that they understand, for example, here's the cost per mailbox or the cost per gigabyte of Tier 2 storage, etc., and in ways that they can control, for example, allocations based on actual consumption rather than assumptive feeds like business unit headcounts that we've talked about earlier, then showback frames up IT value without the distraction of cost recovery and true-ups that would come from chargeback.
Here is where to get started to adopt a showback model:
- Define services by availability, business capability, supporting technology, and dependencies
- Identify service users and usage
- Calculate service TCO based on actuals
- Communicate costs & drivers openly and often
- Refine based on BU feedback
#2 Operationalize showback
Showback sets an expectation that transparency into service costs will change behavior but there is no inherent mechanism of enforcement. In light of that, CIOs should set expectations accordingly by asking:
- What are the service costs for each BU?
- What are the quarterly IT costs per BU?
- What are the service costs at each level of the BU hierarchy?
- What are the largest service costs?
- How many units were consumed this month?
- How many units of a service did each BU consume?
- What are the budget variances for each BU?
- What service prices have changed this month that impact the BU’s bill?
- What service consumption changes have occurred that impact the BU’s bill?
- What allocation changes have occurred that impact the BU’s bill?
#3 Evaluate business goals
Showback implementation is more challenging than simple spread allocations because you must map cost and utilization, but it’s fairer and more defensible. Showback also provides more motivation to the business units to change their behavior, since they can actually see a much tighter correlation between their actions and the actual costs. The last row (recovery completeness) has the full spectrum outcomes, from nothing to complete recovery. The pure act of showback doesn't actually have any cost recovery associated with it at all. So the amount of recovery will actually depend on which model you actually use to bill the business.
Analyze the suitability of showback for your organization by considering the following capabilities:
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