IT showbacks vs. chargebacks: Everything you need to know

As digital transformations accelerate, organizations are investing more heavily in software solutions, hardware and IT support services. An increasing reliance on technology means bigger investments. Older accounting models traditionally looked at technology expenses as a centralized cost paid for by the company, adding them to organizational overhead. However, with leaner budgets, increased IT demand and the increasing need to ensure leaders are spending technology resources wisely, many organizations are considering the role of IT showbacks vs. chargebacks and how they can provide greater transparency and accountability across their organizations. 

An IT chargeback model associates the costs of IT software, solutions and services with the business units or individuals who use them. The cost of these items is charged back against the department or team’s financial budget. For example, if a development team orders new computers for its developers, those costs are charged to the DevOps budget.

By employing a chargeback model, organizations give leaders full visibility into how their technology choices impact the bottom line. Chargebacks are often an effective way to underscore requests to look at cloud usage costs, hardware acquisitions and IT support services with a critical eye. The introduction of chargebacks can help leaders to assess their IT systems proactively. With visibility into these costs and being asked to allocate resources accordingly, it serves as a motivator to explore opportunities for optimization and cost-effective alternatives.

Showbacks involve tracking the costs associated with software, hardware and support services at the individual, team or department level. Showback systems are often used when there's a demand for accountability in IT resource usage, but companies prefer not to directly charge departments.

A statement is prepared showing the costs for those resources and shared with management to help inform their decision-making. The goal is to offer greater transparency and visibility into how IT costs affect the bottom line without placing the burden of paying for those services on individuals or departments.

Both showback and chargeback models offer organizations increased visibility, accountability and careful resource stewardship for technology budgets. But the contexts for using them—and how they’re likely to impact operations—are slightly different.

Often, when an IT department or financial department considers chargebacks or showbacks, it’s to increase how effectively departments use their resources.

Showbacks can be considered an initial step to raise awareness and accountability. When leaders see what software, hardware and services they’re using alongside their respective costs, it simplifies the process of establishing cost-effective alternatives. Reports on IT-related spending may also help leaders make key decisions about when expenditures are driving results and when it makes sense to cut costs. Showback reports also open the door for data-based discussions with senior executives and IT leadership on whether specific requests or initiatives are likely to drive an appropriate return on investment.

Chargebacks are more actionable as they require payment. They can also be used as an escalation strategy, where the conversation moves from raising awareness and accountability to enforcement. Often, chargebacks are implemented when other requests to manage IT and financial resources haven’t yielded significant results. It can also be a way to increase financial transparency across organizations. In other cases, chargebacks may be appropriate when certain departments have disproportionate costs associated with their operations, which should be reflected in budget allocations. Strategically, some senior financial executives and IT leaders see chargebacks as a way to drive home the costs of IT initiatives and motivate departments or teams to look more closely at their needs. 

IT showbacks are easier to understand from an operational perspective. Spending and utilization are tracked and reported on, requiring the right systems to be in place. Reports are then provided at regular intervals—such as weekly, monthly or quarterly—for management review. It’s critical to have the right accounting and tracking solutions in place to facilitate accurate reporting that makes it easier for leaders to understand and correct usage issues.

Chargebacks, by contrast, result in payment. An IT chargeback system requires the same tracking capabilities as showbacks. However, reporting is just one part of the system. Payment, whether an actual payment or an allocation on a financial report from an existing budget’s line items, also happens. Since a budget is impacted, leaders are more likely to push back, ask questions and require hands-on support to navigate the chargeback process. Teams may also need time and resources to address and process the chargebacks, foster collaboration between IT and other departments and maintain smooth operations.

IT chargebacks can be a powerful tool in increasing ownership of IT expenses. Introducing this system comes with clear benefits and challenges.

• Increased accountability and transparency: One of the most significant benefits of chargeback systems is greater transparency for IT spending. When IT costs are considered as organizational overhead, it’s easy for departments to remain disconnected from their usage. When there is more transparency around IT spending, it facilitates discussions about how certain investments or strategic decisions impact their bottom line.
• Alignment of IT costs with business units and objectives: While alignment of IT costs with business units is often used as a tool to help reduce costs, it’s also helpful to ensure resources are allocated where they matter most. In some cases, a chargeback system provides leadership with the insights needed to make the right investments.
• Optimization of resource allocation and budget management: Strategically managing resources and implementing cost controls is often a natural result of introducing IT chargeback systems. By providing greater clarity on the costs associated with resources, leaders can make key decisions about whether their spending and bottom line are optimized for performance.

• Resistance from business units: Greater transparency in these systems can sometimes raise questions or require clarification within business units. Units accustomed to IT resources being provided by the organization may have inquiries regarding taking on associated costs and how shared services are allocated.
• Complexity of cost attribution and accurate measurement: Implementing a chargeback system has some complexities, including attributing the costs of shared services and accurately measuring the usage of shared resources. For example, if an organization pays for a managed print services contract, a company may track usage to the individual page printed or use another metric. Thinking this through in a systematic way and being prepared to explain those decisions can be challenging.
• Continuous improvement and adaptation: Introducing an IT chargeback system may be an iterative process. For example, the level of granularity items are tracked on may need to be adjusted or the methods for allocating usage may need to be updated. As new technologies are adopted and integrated into key business processes, they may require updates, adaptation and continuous improvement to deliver helpful, accurate information that achieves the organization’s goals.

Showbacks display how IT resources are used and offer ways to introduce this data with less friction. At the same time, showbacks do have their limits.

• Easier implementation: Showbacks are often easier to deploy, as they primarily involve reporting without financial integrations. This can reduce the need for additional accounting systems or complex procedures such as true-ups. Getting started with showbacks is as easy as setting up and distributing reports.
• IT spending awareness: While showbacks help raise awareness of resource utilization, they also provide a softer way of beginning this conversation. Bringing data to leadership can help streamline discussions, reduce waste and introduce cost controls.
• Increased visibility into vendor value: Showbacks help introduce IT spending data at a level that helps organizations assess whether a vendor’s costs are effectively meeting departmental needs and fitting without scoped budget structures.
• Increased communication between business units and IT: Showback reporting helps open a line of communication between departments or business units and the IT department. This data serves as the basis for productive conversations about resource allocation, time spent supporting specific initiatives and more. 

• Limited enforcement: Because showbacks are focused on visibility instead of enforcement, they tend to have a less dramatic impact on spending. A leader who's required to cover the costs of IT spend may be more likely to take action to reduce costs and align strategic investments compared to a leader who's just given access to data.
• Lingering overhead expenses: While showbacks help lend greater transparency to usage and costs, they do little to help IT departments and the organizations they support recover costs. As a result, in the absence of behavioral change, their impact can be limited. Companies must pair reports with education and management follow-up in order to drive change.
• Cultural context: IT showbacks can have a transformational effect on IT usage. However, it’s important to recognize that without a clear financial consequence, the success of this initiative requires communication and education. Ownership must be fostered at a cultural level.

IT showbacks and IT chargebacks provide a structured approach to raising awareness of how resources are being used. When accompanied by the right reporting and communication, this can help companies effectively manage costs.

Having the right technology solutions in place can make the tracking and accounting associated with IT showbacks and chargebacks easier to implement. Capital One Slingshot is a data management solution that provides granular visibility into cost, performance and Snowflake usage. Its intuitive UI and detailed dashboards provide a deeper understanding of cloud spend, resource allocation and more.

Custom tagging helps admins attribute and categorize usage in a way that works for them, in order to report on and allocate spend more easily. You can customize visualizations in the dashboard by combining tags and easily export PDFs for sharing. The cost breakdown report specifically enables chargebacks by tracking and reporting on spend by custom tags admins define, like user, project or line of business, to reduce manual tracking.

To learn more about how Slingshot can help you better manage and report on your Snowflake costs and request a demo today.