ch09 - Chapter 9 Funding IT Managing and Using Information...

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1 Chapter 9 Funding IT Managing and Using Information Systems: A Strategic Approach, 2 nd ed.
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2 INTRODUCTION This chapter looks at the financial side of IT. First we explore ways of funding the IT department, Then, we look at ways to calculate the cost of IT investments, including total cost of ownership and activity based costing. Finally, we consider ways of monitoring IT investments after they are made.
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3 FUNDING THE IT DEPARTMENT
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4 Funding the IT department How are costs associated with designing, developing, delivering and maintaining IT systems recovered? There are three main funding methods: Chargeback Allocation Corporate budget The 1 st two are done for management reasons, while the latter recovers costs using corporate coffers
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5 Chargeback IT costs are recovered by charging individuals, departments, or business units Rates for usage are calculated based on the actual cost to the IT group to run the system and billed out on a regular basis They are popular because they are viewed as the most equitable way to recover IT costs However, creating and managing a chargeback system is a costly endeavor
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6 Allocation Recovers costs based on something other than usage, such as revenues, log-in accounts, or number of employees Its primary advantage is that it is simpler to implement and apply There are two major problems: The 'free rider' problem Deciding the basis for charging out the costs
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7 Corporate Budget , rather than levying charges on specific users or business units In this case there is no requirement to calculate prices of the IT systems and hence no financial concern raised monthly by the business managers However, there are drawbacks, as shown in the next slide
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Figure 9.1 Comparison of IT funding methods Funding Method Description Why do it? Why not do it? Chargeback Charges are calculated based on actual usage Fairest method for recovering costs since it is based on actual usage Must collect details on usage; often expensive and difficult Allocation Expenditures are divided by non- usage basis Less bookkeeping for IT IT department must defend allocation rates Corporate Budget Corporate allocates funds to IT in annual budget No billing to the businesses. Good for encouraging use of new technologies. Have to compete
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This note was uploaded on 07/31/2011 for the course ISM 4300 taught by Professor Staff during the Fall '08 term at University of South Florida.

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ch09 - Chapter 9 Funding IT Managing and Using Information...

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