Office Memo 11
Office Memo 11
14 April 2004


The cross-charging conundrum
Cross-charging has long been a fact of life for leading outsourcing companies, who have well-established costing models.
Internal cross-charging models are a different matter. Those who get it right can be rewarded with cost efficiency gains. For those who get it wrong, the potentially harmful results can far outweigh the productivity rewards.
The best model for cross-charging is where the work of the IT function can be broken down into well-defined and compartmentalised roles. For instance, cross-charging is well-established and suited to IT environments that are service and administration based. Also, many call centres and claims processing environments have shown well documented benefits from cross-charging.
Simplistic view
For many IT service providers, a major mistake is to think that cross-charging is simply a cost-based version of a service level agreement (SLA). Many companies investigating cross-charging simply think it is a case of applying a few financial rules across several departments.
This simplistic view could not be further from the truth. If the basis of cross-charging is not clearly defined, understood and measured, the likelihood of error can be great.
One outcome is that heads of departments can apply their own interpretation of cross-charging data. This can result in interdepartmental war, with IT being blamed for lost revenue because of system failure or PC downtime.
By applying clearly understood and correctly followed guidelines for cross-charging, the IT department is able to fight its own corner. IT-based functions - such as the help desk or call centre - are able to prove that they are delivering value for money and productivity. This return on investment can be analysed in detail and allotted to the correct department. In short, it gives the IT function the confidence and means to show its value to the business.
Setting a sensible rate
A range of IT services across a company can be cross-charged. Organisations can create a menu of services covering planning, support and implementation. The services are usually listed as:
set-up, which could be a fixed fee,
problem and incident dealing, based on time and materials, and
a suite of extra project implementation services.
Arriving at a sensible rate for these can be a thorny issue. Finance teams across different industries use several matrices to work out charging costs. For instance, do you take IT support personnel and associated infrastructure costs for the support function? Do you involve the number of calls on the desk or perhaps the proportion of the total number of assets the stakeholder owns? Should you add a figure for the 'profit' the assets are expected to produce?
Is it worth drawing comparisons using industry statistics? Companies in the UK are often sceptical when being quoted ROI figures that are optimistic at best and based on companies in different countries.
When the cost structure for cross-servicing has been agreed, every party understands the financial tariff and consequences for missed deadlines and below par performance. It means no harking back to the bad old days where project managers, having missed deadlines and bonuses, cited non-performance of IT infrastructure as the sole reason and demanded compensation from the IT budget.
The easiest functions for cross-charging are repetitive, administratively heavy roles, such as call centres and claims processing. However, even in the most artistic or creative organisation, there will be the same processes and routines, and common hardware and software components. It means that companies follow the same general rules and procedures. Therefore, it is a simple process to apply the rule of cross-charging from one business to another.
IT support service
To create a truly effective cross-charging model, companies need something that reflects the organisation's service model. This means an accurate asset register that reflects departmental and cost centre structures. The register must include all the important functions that affect service delivery, including IT, human resources, business processes and, of course, customers.
Companies often have fragmented systems that address different departmental needs and views. What doesn't often happen is that these IT systems and infrastructure are merged to provide a total view. Without definitive, real-time assessment of an organisation's IT and business performance, proper service metrics will not work. Companies can't even begin to measure interdepartmental performance. This is needed as the basis of any effective cross-charging strategy and implementation.
One solution is to work with a specialist outside company. It can give customers a total view of their main IT assets, including asset management, help desk and service management. This single source of trusted information will then provide a set of reports. These will be respected by both the IT service provider and the stakeholder to provide a balanced and achievable outcome.

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Tim Collis, from Richmond Systems, contributed this article. Our thanks go to him. For further information, contact Debbie Gardner.
Richmond Systems are exhibiting at the Helpdesk & IT Support Show 2004. This features over 70 exhibitors and a free education programme of 50 independent and vendor seminars. Now in its 8th year The Helpdesk & IT Support Show 2004 runs from 27 to 29 April 2004, at the National Hall, Olympia, London.

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