IT Cost Accounting: Measuring the cost of IT services at the point of delivery

IT Cost Accounting: Measuring the cost of IT services at the point of delivery

In these days of economic downturn, visibility into IT Operational costs has become increasingly important for Enterprises due to the proliferation of IT into their Business. This visibility is essential in order to establish control over the ever increasing IT expenses, caused by unchecked IT sprawl. Also, understanding the cost of IT, at the point of delivery, lays the foundation for many key themes of today - like Service valuation, Green IT, economic analysis of IT projects etc.

This whitepaper proposes a cost accounting oriented approach to allocate a cost to an Application based on the premise that Applications are the IT face to Business, and use the Application Cost as a basis to derive the cost of IT delivery to Business.

Introduction

Enterprises need to have a clear financial visibility into its operations – as it is said, ‘You can’t control what you don’t know’ . In these days of economic downturn, it has regained importance, as enterprises are frantically searching ways for reducing their expenses.

This whitepaper is about discovering IT Cost at the point of IT service delivery. The intention is to change the IT Cost from General and Administrative (G&A) of Indirect Cost category to Direct Cost category in tune with Cost of Goods Sold (COGS) concept. This will enable linking of IT cost directly to the cost of products and services offered by business units and thus improve visibility of IT cost to business.

This is a necessary precondition for implementing recent IT management concepts like “chargeback” and “transforming IT from cost centers to profit center” . Concepts discussed in this whitepaper will also play a key role in green computing and carbon credit accounting as far as energy consumption by IT contributes to the price of a particular product and service offered by organizations.

Information Technology, an integral part of today’s dynamic business, and delivered through their sprawling Data Centers, pose a challenge to enterprises in this respect. It is frequently observed that IT continues to drain financial resources without providing any insight as to its consumption. This is partially due to intangible nature of IT and partially due to lack of standard IT accounting frameworks.

Having a clear understanding of where & how IT costs are consumed helps not only identify areas of cost inefficiencies, but also improves accuracy of financial decisions, like Budgeting, Project prioritization, Product & Service Pricing. In addition, insight into energy expenditure of IT is the basic necessary step for enterprises on a Green IT mission, in reducing their Carbon footprint.

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