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BVM - Value-Based IT Chargeback
   
Allocation methodologies were developed to allow organizations to allocate costs associated to products or services consumed by a customer. Early allocation methods used historical costing models as a basis for the allocation. Product and service unit costs and consumption volumes were fed into complex spreadsheets or databases. Applicable driver volumes and percentages drove the costs to line of business or client group based on usage.  So what about overheads? Waterfall techniques were applied to overhead costs distributing them across the products and services using weighted driver percentages. The nature and complexities of waterfalls result in an allocation on top of an allocation, on top of an allocation.

 
  
The greater the number of levels in the waterfall the greater the complexity and the greater the risk for cross subsidization (some or all of the costs associated to one product being funded through the price of another product).

Today, allocation models are often considered to be a consequence of a costing model. IT Chargeback models work somewhat differently. Many believe them to be in real-time and consumption based.  While partially true, the reality is, a model based solely on consumption in real-time would be virtually impossible to manage and keep up.
   
So how do they work?
   
Successful IT Chargeback models use a combination approach that includes current and historical costing, service level agreements, subscribed volumes and real-time consumption data and reports. Automated processes and data feeds simplify the process conversely; manual processes, legacy systems and multiple data points complicate things.


IT Chargeback models are designed to demonstrate cost management, financial governance, and provide clients with a detailed transparent list of products and services charged.  The output of these models acts like an invoice of charges and depending on the ability to collect data, can be produced monthly, quarterly or annually.
   
The Baix IT Chargeback Framework Focuses On:
 
  
  Transparency
  Effective communication and execution strategies
  Enables cost reduction, process improvement and improved performance
  Build repeatable chargeback methodologies
  Total cost of ownership
   

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