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Chargeback vs. Showback: How to Choose What’s Best for Your Business

Feb 09, 2022

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Is your company evaluating chargeback vs. showback policy options?

In today’s competitive business environment, making and maintaining technology investments is costly but also essential for profitability. As the world undergoes a third industrial revolution, software and digitization are driving efficiency in every occupational discipline.

For businesses, this means IT purchases are multiplying – causing new budget headaches for executives and management challenges for IT teams.

Chargebacks and showbacks are valuable tools for managing technology costs that function by automating departmental IT usage and associated costs into reports. Chargebacks do this by actively taking these costs from departmental budgets, while showbacks simply report departmental spending.

Showback and chargeback policies both address consumption and cost issues by displaying IT spend, usage, and business capacity by department (sometimes referred to as “business unit”). With visual insights into their IT investments, executives can have a more informed debate about how to allocate technology resources and measure their value to the organization.

But which option is better for businesses?

While showbacks and chargebacks are similar, which you choose depends on your organization’s tactical preferences and strategic needs.

4 Common Storage Chargeback Problems – and How to Solve Them

Chargeback vs. Showback: What are the Practical Differences?

Chargebacks and showbacks both provide department-level accountability for technology usage and costs, but they go about it in different ways. While they both generate statements with the same data, expenses, and consumption, only chargebacks require payment directly from departments themselves.

How Showbacks Work

Showbacks work by preparing a document (similar to a billing statement) that shows the cost of technology usage (such as a storage array or a software license). This document is typically shared with the department using the technology, but the department is not expected to pay for it through their budget.

Instead of drawing from individual budgets, showbacks are intended to help leaders and team members understand the financial footprint their department is leaving. If the department is actively using all the technology in the showback, they can confidently support the value of the investment. But if they are not (maybe they have extra licenses or are not using all the storage they request), they hopefully feel incentivized to correct misaligned usage.

How Chargebacks Work

Chargebacks work by notifying departments of the costs of their technology usage and simultaneously requiring payment. Often, this payment occurs automatically as a budget deduction.

With chargebacks, each department is responsible for its own IT budget. As a result, leaders feel significant pressure to use resources efficiently and only ask for what they need. This differs from showbacks, which are not enforced and often lack a system for ensuring that departments maintain resource utilization as efficiently as possible.

See How VSI Does Chargeback & Showback Reporting

Chargeback vs. Showback: What are the Strategic Differences?

Although chargebacks may seem more effective at driving down costs, they carry significant risks that might cancel out their efficacy.

Making departments pay for their own IT costs often causes some hard feelings among leaders, many of whom are already in a budget crunch. And since technology is necessary for every employee, some leaders might view chargebacks as similar to making departments pay for their own light bills or water coolers – costs traditionally covered by general organizational operating expenses.

Showbacks, on the other hand, reduce friction between executives, IT teams, and operations departments by not interfering with budgets. This is one reason why showbacks are sometimes used as an intermediary step for companies who do not need immediate cost reductions but wish to implement chargebacks through a gradual and employee-conscious change management process.

Download Guide to Storage Chargeback & Showback

Weighing the Pros and Cons of Chargebacks vs. Showbacks

Now that you have a general understanding of the distinctions between chargebacks and showbacks, you’ll want to compare them at a more technical level in light of your organization’s abilities and goals.

Ask yourself why you want to implement a chargeback or showback policy. What are your primary business goals? Are there technical or resource-driven limitations to your ability to implement a chargeback or showback policy?

Executives and IT leaders need to work together to answer these questions. As you do, consider some of the following benefits and drawbacks to each option.

Chargeback Benefits

  • Captures many benefits of a showback-only approach.
  • Promotes total accountability by financially incentivizing business end users.
  • Nudges adoption or discontinuation of services through strategic pricing.
  • Allows IT to collect payment and recover costs across multiple departments or agencies.

Chargeback Drawbacks

  • Interacts with existing financial systems, creating implementation complications.
  • Risks larger probably of failure or abandonment unless there is sufficient planning prior to launch and strong leadership support.
  • Carries more likelihood of making mistakes.
  • Requires a true-up on a monthly or yearly basis.
  • Increases the likelihood of disagreement over the equitability of cost distribution and allocations in the organization.

Showback Benefits

  • Does not change existing financial systems.
  • Does not require true-ups.
  • Can be implemented quickly by more visibility software.
  • Exposes end users the business impact of their IT usage.
  • Demonstrates the value of IT spending by tying it to business capabilities.
  • Carries less severe consequences when an error occurs.
  • Allows fine-tuning of cost distributions and allocations.

Showback Drawbacks

  • Lacks enforcement mechanisms.
  • Cannot collect payments or recover costs.
  • Relies on education, process revisions, reinforcement, and socialization to accomplish objectives.
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What Is the Best Way to Begin?

In our own experience working with clients, showbacks tend to be the best initial step for many organizations. This includes businesses that have no prior experience generating a bill of IT, need a low-effort setup, want to avoid dramatic process changes or accounting software integrations, or do not want to absorb the risks of errors.

Even companies that want to use chargebacks in the long-term often see more success by starting with showbacks. Their reduced complexity lets organizations start sooner and fine-tune over time, building up to an easier chargeback implementation process.

Still, both are valuable options, and more and more businesses are optimizing IT costs through them.

Seeking more guidance along the chargeback / showback journey? Visual Storage Intelligence helps enterprise organizations begin (or course-correct) their chargeback and showback policies. Our business unit reporting capabilities – along with personalized expert attention and more than a dozen other customizable reporting features – centralize infrastructure data onto a single pane of glass so that IT teams have the time and data they need to accomplish what they want.

Go ahead and ask us anything – we’d love to answer any of your chargeback / showback questions.

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