A Cost Allocation Dilemma

The CIO Executive Board is a membership of senior executives with a shared commitment to steward enterprise-wide IT initiatives. In their role of offering cross-functional perspectives on IT and practical tools to promote strategic agendas, the Board found via a survey that most companies are using a “lump sum” cost allocation method to distribute IT operating costs and that this method typically provides little connection between the costs and the volume of services actually consumed.

Questions:

1. Based on the article, some companies used a “granular-chargeback model.”  Explain what this is and its benefits or costs.

2.  What is the CIO Executive Board recommending at the best practice for allocating IT costs?

3.  Explain in your own words what you see as the benefits of implementing the CIO Executive Board’s recommendations.

Source:

McCann, David. (2010) The New Star of IT Cost Allocation. CFO.com, Today in Finance, April 28. (Retrievable online at http://www.cfo.com/article.cfm/14494101/c_14494842?f=TodayInFinance_Inside)