DQ1 100-150 WORDS
Under what conditions would you recommend using each of these funding methods to pay for information systems expenses: allocation, chargeback, and corporate budget?
REPLY TO RESPONSES 74-100 WORDS
A Jonathan Retes
Professor Gentry and Class,
What is the process by which IT system design, development, delivery, and maintenance costs are recovered? Among the three major funding methods, chargeback, allocation, and corporate budget are the most popular. In the first two cases, management is responsible for recovering costs, while in the fourth, costs are recovered through corporate coffers.
Chargebacks requires a regular billing policy is in place to invoice users on a regular basis based on the actual cost of running the system for the IT group. By doing so, business units, departments, and individuals are charged for IT costs to be recovered through these methods because they are considered more equitable. Implementing and applying an allocation is simple, which is one of its primary advantages. It’s a method of recovering costs other than based on usage, like revenues or employee numbers. Keep in mind that, in order to perform a true-up, IT expenses need to be compared with IT funds recovered from the business units. Corporate budge is a case does not require the calculation of IT prices and, therefore, the business managers do not raise financial concerns monthly. Rather than charging specific users or business units for these costs, these costs are borne by the corporate P&L.
B Elijah Coverini
For chargebacks, one would want them if it is make up for a credit card provider’s loss from fraudulent purchases but the important thing to note is that they can actually “create a relationship between IT and the business that is confrontational, not collaborative” (Chargebacks vs. Allocations – Defining IT’s Relationship with the Business, n.d.). Allocations would be preferred in the event that agility must be increased because projects as the budget required changes, one can simply begin or stop projects without needing to reconsider costs and negotiate all over again, not to mention that the conversation switches to that of benefits rather than purely costs. Corporate budget is useful for when more complete control over the IT department’s budget is needed by the higher ups.
C Ashley Burns
Hello Class and Professor,
I would recommend using chargeback for information system expenses. “IT chargeback is an accounting strategy that applies the costs of IT, whether services, hardware, or software, to the unit of business which is responsible for its use. This is different from the traditional model which counted the centralized IT department as simple corporate overhead and as essentially a sunk cost” (Eidson, 2019). This seems like a better option than cost allocation and corporate budget for information system expenses. Chargeback will allow the IT department to have better efficiency and responsibilities for the IT department.