Assessment of chargeback systems in IT management

The management practice of billing cost centers or user departments for services provided by an in-house information technology center is referred to as a chargeback system. Chargeback systems have been widely advocated as a method of making users responsible for the information technology costs that they incur. With the rapid pace of technological change, increasing investments, and a growing diversity of users and usages, the importance of effective information technology cost control has increased to management. Some organizations have adopted chargeback systems from the earliest computer applications but chargeback has remained a controversial management technique. The necessary and sufficient conditions for effectively using chargeback systems have yet to be determined. This paper examines prior research on chargeback systems focusing on its application and relevancy to the current technological environment. The extant cost management literature on allocations of support costs is introduced to the discussion. The importance of information, congestion, and incentive effects are emphasized in evaluating cost allocation systems. Considerations of capacity levels, opportunity costs, and positive and negative externalities are introduced in the debate of using or not using chargeback systems. The contingent technological and management contexts are used to develop a framework for chargeback choice and effectiveness evaluation.