IT Service Funding: Shared Cost, Charge Back or Sponsor Pays

Senior management must select a strategy to determine who will pay for the information system’s services. Funding is an important topic because departments must have adequate funds to operate. Each funding option has its advantages and disadvantages. The three most common include these:

Shared cost
With this method, all departments of the organization share the cost. The advantage of this method is that it is relatively easy to implement and for accounting to handle. Its disadvantage is that some departments might feel that they are paying for something they do not use.

Chargeback
With this method, individual departments are directly charged for the services they use. This is a type of pay-as-you-go system. Proponents of this system believe that it shifts costs to the users of services. Those opposing the chargeback system believe that it is not that clear-cut. As an example, what if your city of 1,000 people decided to divide electrical bills evenly so that everyone pays? Many might complain, as not everyone uses the same amount of electricity. Opponents of the chargeback system make the same argument, as end users don’t consume IT resources evenly.

Sponsor pays
With this method, project sponsors pay all costs. Therefore, if sales asks for a new system to be implemented, sales is responsible for paying the bills. Although this gives the sponsor more control over the project, it might lead to the feeling that some departments are getting a free ride and, thus, can cause conflicts.[Michael Gregg, Certified Information System Auditor Exam Prep 2007]