The Three Faces of Chargeback?
July 30, 2012

Dennis Drogseth

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I’ve yet to meet anyone who likes to get a bill, to pay a bill, or as the saying goes, to be dunned. So using the term "Chargeback" to describe what's becoming an increasingly critical and multi-dimensional service management capability has always seemed to me like it's missing the point.

Chargeback was and still is a convenient name for device- or component-centric metrics — such as database usage – often made overly complex with an ungodly array of technical, component details that only a hybrid super-geek/super accountant could love. The actual value in terms overall infrastructure capacity planning and the relevance to the business of IT, the business IT supports, and even basic IT operational efficiency almost always gets lost in a sea of component-centric details.

But even without an overdue change in name, Chargeback has come a long way since then. One of the reasons is the upsurge of cloud computing. Cloud, which by definition — or at least the National Institute of Standards and Technology's (NIST's) definition – is usage based, requires usage-based accounting (a somewhat better term than “Chargeback”), or else both the cost and the flexibility of cloud becomes minimized. Simply leasing an application on a monthly basis and calling that "usage based" is not truly cloud — and it's certainly not new. Software-as-a-Service, in this sense, has been around for a long time and is no more (or less) flexible, dynamic and user-driven than leasing an apartment.

In fact, to truly harvest the promised flexibility and efficiencies of cloud, IT organizations need to leverage Chargeback in three fundamental ways:


This means understanding real user demand for services, both via internal cloud (IaaS, virtualized applications, VDI, etc.) and through external service providers.

As cloud is becoming more and more of a mosaic — a mixture of internal/external, cloud/non-cloud, IaaS, SaaS, PaaS, etc. – no IT executive can meaningfully manage his or her IT organization without understanding the priorities of real service consumers. Nothing could be more basic, and yet this, for IT, is a radical idea.

Cultural introversion, system-centric processes and a pride in technology that has too often remained oblivious to actual human beings has characterized IT organizations up until the present. But the shopping mall of cloud services means that IT execs and their organizations will need to study consumer needs, patterns, desires, and priorities. In essence, they will need to grasp that they are delivering products with values as well as costs.

And while usage-based accounting can address only a part of this, it is a solid beginning if supported with sufficient analytics to look for critical trends based on roles, organizations, geographies and business outcomes. Otherwise, IT organizations will be casting about as if they were miscreant utilities (which IT services are emphatically not), hoping that the rule of measuring only what's convenient allows them to navigate unchallenged through their self-imposed sea of oblivion.


While there many costs associated with services from a lifecycle perspective, one of the clear benefits that cloud promises is a much more dynamic way of expanding infrastructure when application demand requires.

Understanding service usage is central to this — although to achieve full benefit, it requires analytics that support real-time or near-real-time insights so that tradeoffs can be made proactively. It won't do much good, for instance, if while demand is accelerating, IT is powerless to take action to support a business critical application until after the analysis is complete a month hence.

On the other hand, future capacity planning from analysis of service usage patterns is also valuable, as an additional requirement.

If some of this actually sounds like performance management – you’re right, some of this is. (People who like discrete, boxy disciplines should probably either change or forget about cloud.)


OK, now here you have something that actually sounds like it should be called “Chargeback.” Although it should be kept in mind that the costs associated with service usage invariably combine some level of science with some level of art. And unless you're a service provider yourself, the dollar value may be more of interest for communication than remuneration. But it will help to crisp out choices like:

“Is it more effective for us to develop and provision this ourselves?”

“Which service providers in the cloud service provider mosaic are most cost efficient for our needs?”

“Given the cost of delivery vis a vis business impact values, is this application service worth the price?”

I’ll wrap up with just a little data from two EMA research projects. From Optimizing Cloud for Service Delivery, EMA February 2012, our data shows that usage- based accounting has risen to a solid middle position from nearly the bottom of the list of service management technologies used in support of cloud. It is number six out of thirteen just after "load balancing" and just ahead of "service management dashboard with advanced analytics". Not surprisingly, the top criterion was SLM and UEM — combined – where chargeback as consumer demand profiling also plays.

Related data shows that usage-based accounting in support of cloud is strongly correlated with infrastructure configuration automation, capacity planning and optimization, and blueprinting.

In a yet more recent research report, User Experience Management: The new Cornerstone for IT Transformation, EMA June 2012, 64% of the respondents said that USAGE was a core part of their deployment objectives—after Business Impact at 70% and Service Performance at 66%, but ahead of User Productivity and Application Design. The research also corroborated the growing relationship between usage-based analysis and portfolio planning.

All this isn't to say that the industry finally has its arms around Chargeback as described here. The thought boxes framed by historical and now obsolete market definitions will probably constrain progress for at least a few more years. But research data, common sense, and economic pressures are finally all aligning in moving the role of Usage-Based Accounting into its truly three-dimensional value proposition so that sooner or later, someone's bound to wake up and figure out that Chargeback really is the wrong word — and that aligning to a consumer-driven, "front-office" mind set is the way of the future.

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Dennis Drogseth is VP at Enterprise Management Associates (EMA)
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