In the absence of charge-out, the IT organization is responsible for all IT costs. Business units have little incentive to provide accurate estimates in their business cases or to worry about cost overruns. With charge-out, business units are far more careful about projecting accurately, because the actual costs (and overruns) will come out of their own budgets.

There are many approaches to charge-out. Simplistic systems merely allocate the total IT costs based on some easy metric (e.g., business unit head count). This method is unfair, since some departments use far more IT resources than others. Moreover, it doesn't reward departments for reducing their resource consumption. More-advanced charge-out systems allocate IT costs based on resources actually used by each department.

Charge-out is not appropriate for everyone. It works best in large companies that are sophisticated in the ways they plan, manage and allocate IT resources. The company should already be making business trade-offs based on solid business cases, not impassioned pleas of "We've gotta have it." In addition, the company must be large enough to warrant the significant overhead that charge-out requires. This includes major internal IT systems: resource accounting, cost accounting and a standard chart of accounts. Don't even consider charge-out without these in place.

Charge-out provides the following benefits, enabling effective use of IT resources:

Reduces consumption. Operational services are monitored more carefully when the consuming department is charged for egregious consumption of bandwidth and disk space (massive e-mail files, music and video files, etc.) User departments are also more likely to cancel unnecessary services such as unused accounts when cancellation results in lower monthly costs.