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The Accounting and Allocation (AA) capability aims to allocate the consumption of IT services to business units and to calculate the associated costs for chargeback/showback purposes.

• Promote better understanding of the cost drivers for IT services.
• Enable business units to fund directly the provision of new IT services that might not otherwise have occurred because of a limited IT budget.
• Motivate managers across the organization to make sound economic decisions — for example, by subsidizing newer systems and imposing additional charges for the use of legacy systems.
• Encourage users to avoid expensive IT activities when slightly less convenient but far cheaper alternatives are available.

The Accounting and Allocation (AA) capability assigns costs of IT services proportionally and transparently to the users of those services, improving cost awareness and responsible usage behaviours.

IT functions regularly have to deal with reductions to their budgets, while at the same time maintaining ongoing operations, managing costs, and meeting an often fluctuating demand for IT services from other business units. For these reasons, strong financial management of the IT function is essential to ensure that funding for IT is based on the business demand for and usage of the services it provides¹. When trying to fund IT services through the recovery of costs, IT leaders need to present strong financial data relating to the costs of the services they provide — otherwise, they run the risk of alienating their peers across the organization.

By developing an effective Accounting and Allocation (AA) capability, an organization is able to improve visibility into IT cost drivers and to assign costs to business units transparently and in proportion to their consumption. This enables the IT function to meter demand and to place funding for IT services on a sustainable footing.

The Accounting and Allocation (AA) capability is the ability to define and manage the policies, processes, and tools used for calculating the costs of IT and distributing them across the organization. The Accounting and Allocation (AA) capability covers:

• Establishing policies for measuring the consumption of IT services by business units in the organization, and for the chargeback/showback of associated IT costs to those units.
• Managing how the chargeback/showback for IT service consumption is allocated.
• Influencing the demand for IT services.

Representative POMs are described for AA at each level of maturity.

2Basic

• Practice

  Apply a cost allocation model to a prioritized list of IT services.

  Outcome

  Resource management is improved since IT accounting can track IT assets, expenses, and capital expenditures using transparent accounting logic.

  Metric

  Percentage of IT services covered by the cost allocation model.

• Practice

  Introduce governance of IT costs in collaboration with the Finance function.

  Outcome

  The IT function benefits from the Finance function's expertise.

  Metric

  IT function participation in an IT–Finance forum or governance body.

• Practice

  Report costs associated with the consumption of IT services.

  Outcome

  Business units can begin to understand usage patterns and cost drivers.

  Metric

  Percentage of IT costs that are covered by IT cost accounting and the cost allocation model.

3Intermediate

• Practice

  Expand the tracking and reporting of usage statistics to a wider scope of IT services using the accounting and cost allocation model.

  Outcomes

  • Business units gain better understanding of the relationship between IT consumption and IT costs when usage trends and unit costs are visible.
  • Users are encouraged to adopt sustainable usage behaviours.

  Metric

  Percentage of IT costs charged back (or shown back) to business units.

• Practice

  Promote a standardized IT accounting and cost allocation model for formal adoption by corporate Finance.

  Outcome

  IT cost control can be more readily managed within existing corporate financial systems.

  Metric

  Yes/No adoption by corporate Finance.

• Practice

  Promote participation of stakeholders from IT, Finance, and other business units in governing cost accounting and the allocation model.

  Outcome

  Individual business units have a better understanding of IT consumption costs.

  Metric

  Percentage of business units represented in the governance forum.

4Advanced

• Practice

  Promote responsible business unit behaviour by incentivizing desired IT service consumption patterns.

  Outcome

  Business units have more control over managing the costs of their IT service usage.

  Metric

  Percentage of IT services whose consumption patterns are influenced by incentivization schemes.

• Practice

  Make accounting and cost allocation a key component of the IT services catalogue, providing customers with full visibility on all charges.

  Outcome

  Business units are fully able to steer IT service usage based on price and on the required quality and volume of service.

  Metric

  Percentage of services in the IT service catalogue for which unit service costs are provided.

5Optimized

• Practice

  Continually optimize cost accounting and allocation to ensure that it covers all IT services and their associated costs.

  Outcome

  The organization can continually evaluate and compare the costs of providing IT services.

  Metric

  Percentage of relevant costs charged back (or shown back) directly to business units.

• Practice

  Continually ensure that cost accounting and allocation forms a key input to operational and strategic decision-making regarding IT services.

  Outcome

  Investments to optimize the costs of various IT services will remain aligned to changes in business priorities.

  Metric

  Percentage of the discretionary IT budget devoted to cost optimization initiatives.

This capability was introduced in Revision 16 as a new critical capability.

It was deprecated in Revision 18.10, being updated by Accounting and Allocation (18.10).

The following CCs cover topics that are related to AA in some way:

CFPCapacity Forecasting and Planning

Insights on potential future resourcing scenarios for IT services.

DSMDemand and Supply Management

Insights on how demand may react to changes in pricing strategies for IT services.

FFFunding and Financing

Determining sources of IT funding and planning IT funding levels

ITGIT Leadership and Governance

Guidelines as input to establishing accounting and allocation governance.

SAIService Analytics and Intelligence

Insight into which IT enabled business processes are driving infrastructure demand and by how much.

TCOTotal Cost of Ownership

Direct and Indirect cost data on provision of IT services.

TCOTotal Cost of Ownership

Understanding costs associated with IT services