By tracking, monitoring and charging for IT services, the IT dept at Polaris Software Labs helped project directors bill clients more accurately. It was meant to do that. Then there were other benefits.
Two years ago, the IT department at Polaris decided to apply a chargeback policy to all our IT functions in order to evaluate the services we provide. We identified four different cost areas. First there was the basic hardware including the desktop and connectivity. Second was special software (which is often expensive). This covers a large list of all the software users can choose from.
The third area was network elements like wide area links that are special to some projects. These can be very expensive so they are charged only to users who request it. The fourth area was the UNIX environments, where we need proprietary servers. We use an online method to receive requests and grant each service. Each of these has a fixed rate and a fixed measure, so if users ask for any of them, they know what it is going to cost them.
It took a year to get the basic matrix right. During this time we gained user confidence, identified various processes like software metering, hardware metering, and we tracked unutilized resources and missing hardware.
Earlier when IT was a free service, everything started with "install this on my PC." Today, exchanges with users don't start that way; conversations with users start with "what will be the cost if I do this."
The finance department, with the whole management team, was a part of the policy structure from the beginning. Having them on our side made it easier to explain the rationale and get clearance from the management team. But when we introduced the policy, the immediate user reaction was that their demands were being monitored. This resulted in a significant reduction in demand. Two other benefits became evident: users didn't waste resources, and they were able to demand more accurate rates from their customers thanks to a higher level of transparency.
Polaris has made two decades worth of contributions to the global financial services marketplace. We realized that assessing the cost of IT services can make a critical difference to a project's cost. That was one the motivations behind the chargeback policy: we did not want to hit low-cost projects with heavy IT-usage expenses (which happens if all projects are billed a flat IT fee). The idea is to get more realistic estimates of profitability for project directors, largely to help them negotiate projects more correctly. In the absence of this policy, we were subsidizing some projects and over-charging others.
Take for example, a project we ran for a leading bank that was always under margin pressure because we laid IT cost as a flat charge. The project manager kept telling us there was nothing wrong with the project's margins, but with the IT cost-charging system. After analyzing the project, we realized that it did not use expensive IT services like WAN and Internet links, expensive design and testing tools, shared servers with expensive server software, or the global voice infrastructure. The project benefited immensely when we started charging IT services based on use.
As an extension, an employee working at a client's site and not using in-house applications should be removed from the costing process.
Internally, the chargeback policy also made for good model for project Capex, since I know exactly what's being demanded and what's being used. This data helps me project accurately. Additionally, it has given us a way to identify idle resources. One of the keys to the chargeback policy was tracking assets and their utilization. Now, we can cut down the maintenance costs of some of those assets.
But to stress the biggest business advantage: we now have a pragmatic approach to check the profitability of our projects. We are able to get better realization from customers in whose projects we're sinking more resources. Some projects require almost double the IT of others and we are now able to identify which projects are more profitable and those that aren't. That's why a chargeback policy can directly help with both the top and bottom line.
There is also a compliance angle to this. We have to charge clients realistic figures because they relate to the cost of an item and a chargeback process helps us do that. Now we don't subsidize or make a profit. These are very real figures, we cannot even make a profit by over-deployment.
And although the IT team at Polaris has never had an identity issue, appreciating IT is always very difficult. It's a tough job to handle, but today everyone knows its true value -- if a project can afford it, they ask for IT assistance, if not, they keep quiet. Earlier, when there weren't any figures to depend on, everyone thought that we were judging their demands. Today, that's gone, eliminating some friction at the working level. That's how a chargeback policy can be conducive to creating a better working environment. It's a point our management acknowledges.
For companies of our profile, it's the right thing to do. In a very uniform company, with no -- or almost no -- diversity, it may not be so useful; maybe in a manufacturing organization costing out IT resources may not work too well. For software services companies, this is the way to go -- there's no other way.
Finally, the chargeback has proven to be a timely venture. Today, I'd say most companies have about 20 percent to 30 percent of their resources lying idle. Fortunately, we woke up early to that fact and today we can monitor our resources. We have found ways to better utilize 15 percent to 20 percent of our assets in the last year alone, because we had tracked each asset. In the current financial year, we have introduced the chargeback policy to finish that.
Looking back, I'd say it was an act of providence, because today, under the new economic order, when most others have high percentage of idle resources, this policy has given us the benefit of utilizing all our assets optimally.
V. Balakrishnan is CIO, Polaris Software Lab.
Join the CIO New Zealand group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.