{"id":5259,"date":"2015-09-15T20:06:57","date_gmt":"2015-09-15T20:06:57","guid":{"rendered":"https:\/\/multiacademstg.wpengine.com\/20000academy\/?p=5259"},"modified":"2025-07-05T08:51:19","modified_gmt":"2025-07-05T08:51:19","slug":"itil-financial-management-charging-as-a-moment-of-truth","status":"publish","type":"post","link":"https:\/\/staging.advisera.com\/20000academy\/blog\/2015\/09\/15\/itil-financial-management-charging-as-a-moment-of-truth\/","title":{"rendered":"ITIL Financial Management \u2013 Charging as a moment of truth"},"content":{"rendered":"<p>When taking part in some of the ICT-related conferences, I meet many people working in many different industries and company sizes. Of course, since working environment dictates daily activities and the issues they live with, there are always many different stories. One thing is always among \u201cthe topics\u201d \u2013 Financial Management.<\/p>\n<p>There are many elements and activities within the scope of the <a href=\"https:\/\/staging.advisera.com\/20000academy\/documentation\/financial-management-process\/\" target=\"_blank\" rel=\"noopener noreferrer\">Financial Management process<\/a>, but most of them are not visible to the outside (of the IT organization) world. We already discussed the three main activities of the Financial Management process according to <a href=\"https:\/\/staging.advisera.com\/20000academy\/what-is-itil\/\" target=\"_blank\" rel=\"noopener noreferrer\">ITIL<\/a>\u00a0in the article <a href=\"https:\/\/staging.advisera.com\/20000academy\/knowledgebase\/financial-management-services-theory-practice\/\" target=\"_blank\" rel=\"noopener noreferrer\">Financial Management for IT services \u2013 theory and practice<\/a>\u00a0\u2013 budgeting, accounting, and charging. Well, charging is an activity that is highly visible and that will provide proof about the quality of the services you deliver. How? It\u2019s simple: if customers are satisfied with your service \u2013 they will pay for it. The next question is \u2013 how much are they willing to pay or, to take the opposite point of view, how much can you charge them?<\/p>\n<p>There are several options, depending on what type of organization you are.<\/p>\n<h2 style=\"padding-top: 10px; padding-bottom: 10px;\">Internal or external \u2013 What\u2019s the difference?<\/h2>\n<p>There is a big difference depending on whether you are a Type I, Type II, or Type III organization (you can recall more details in the articles <a href=\"https:\/\/staging.advisera.com\/20000academy\/blog\/2014\/09\/02\/itil-service-provider-types-type-internal-service-provider\/\">ITIL Service Provider types \u2013 Type I: Internal service provider<\/a>, <a href=\"https:\/\/staging.advisera.com\/20000academy\/blog\/2014\/09\/16\/itil-service-provider-types-type-2-shared-services-unit\/\">ITIL Service Provider types \u2013 Type 2 or Shared Services Unit<\/a>, and <a href=\"https:\/\/staging.advisera.com\/20000academy\/blog\/2014\/09\/30\/itil-service-provider-types-type-3-external-service-provider\/\">ITIL Service Provider types \u2013 Type 3 or External Service Provider<\/a>). Or, if we simplify it, whether you are supporting your own organization (internal IT) or providing your services to external customers on the market.<\/p>\n<p>The point is, if you are internal IT (Type I or Type II organizations) \u2013 you have to comply with many internal (financial and accounting) rules, and you actually don\u2019t have to bother with too many details about charging or, in this case, recovering costs.<\/p>\n<p>But, if you are providing services to external customers \u2013 it\u2019s a different story. In that case, you are limited by the market and rules that are purely business oriented. That means that you have to take care about the cost side, but also about competitors, market, revenue, business model, etc.<br \/>\n<div id=\"middle-banner\" class=\"banner-shortcode\"><\/div><script>loadMiddleBanner();<\/script><br \/>\n<div id=\"side-banner-trigger\" class=\"banner-shortcode\"><\/div><\/p>\n<h2 style=\"padding-top: 10px; padding-bottom: 10px;\">Internal services \u2013 Living on the safe side<\/h2>\n<p>I spent quite some time in this role \u2013 leading an internal IT organization. And, I can tell you, although it seems simple \u2013 it\u2019s not. Other than having to fight with politically oriented issues, one of your biggest concerns will be \u2013 costs. There are several models for <a href=\"https:\/\/staging.advisera.com\/20000academy\/iso-20000-documentation-toolkit\/?rel=supply-demand-processes&amp;doc=budgeting-and-controlling\" target=\"_blank\" rel=\"noopener\">charging<\/a>\u00a0as internal IT:<\/p>\n<ul>\n<li><strong>Notional charging<\/strong> \u2013 this means: \u201cI will not charge you, actually, but I will notify you of how much it would cost if I sent you an invoice.\u201d What\u2019s the point then? Until people know how many resources (services, HW, SW licenses\u2026) they spend \u2013 they don\u2019t understand that the resources they use really cost something. So, don\u2019t expect them to be rational while using the services, unless they know how much costs they caused.<\/li>\n<li><strong>Cost recovery<\/strong> \u2013 this is the simplest method: the IT organization has 100 X (X is your currency) of costs and they will recover exactly 100 X. Not more, not less. Key to distributing costs \u2013 well, it\u2019s not really that simple after all\u2026<\/li>\n<li><strong>Cost plus<\/strong> \u2013 almost the same as \u201cCost recovery,\u201d but the IT organization is allowed to charge a certain percentage above their cost (from the previous bullet \u2013 they will charge, e.g., 100 + 5% X).<\/li>\n<li><strong>Going rate<\/strong> \u2013 the IT organization compares prices in similar organizations and charges the same amount.<\/li>\n<\/ul>\n<p style=\"text-align: center;\"><img decoding=\"async\" class=\"aligncenter wp-image-5261 size-full\" src=\"https:\/\/staging.advisera.com\/wp-content\/uploads\/sites\/6\/2015\/09\/Internal_IT_organization.png\" alt=\"Charging options for internal IT organizations\" width=\"378\" height=\"220\" srcset=\"\/wp-content\/uploads\/sites\/6\/2015\/09\/Internal_IT_organization.png 378w, \/wp-content\/uploads\/sites\/6\/2015\/09\/Internal_IT_organization-300x175.png 300w\" sizes=\"(max-width: 378px) 100vw, 378px\" \/><em>Figure 1: Charging options for internal IT organizations<\/em><\/p>\n<h2 style=\"padding-top: 10px; padding-bottom: 10px;\">External services \u2013 You never know<\/h2>\n<p>Once you try to sell your services, the moment of truth comes. You will get direct feedback from the market about how much your services are worth, if anything. Other than having to compare yourself with other competitors (which is always a good idea), there are several models of how to form the price:<\/p>\n<ul>\n<li><strong>Market price<\/strong> \u2013 you know how much that service costs on the market, and you charge the same.<\/li>\n<li><strong>Fixed price<\/strong> \u2013 when negotiating with the customer, you will define a set of services or consumption of the service(s) and set a fixed price. Yes, you have to be very careful when creating this kind of price.<\/li>\n<li><strong>Tiered subscription<\/strong> \u2013 let\u2019s start with an example. You have, I assume, seen some packages while buying, say, a support service for, e.g., network maintenance. And, there are Bronze, Silver, and Gold packages \u2013 differentiated by, e.g., support hours (Bronze \u2013 8&#215;5, Silver &#8211; 24&#215;5 and Gold \u2013 24&#215;7). So, you have one service, but are charged separately depending on the options that are included in the package.<\/li>\n<li><strong>Differential charging<\/strong> \u2013 in this model, you will charge different prices for the same service depending on some pre-defined parameters. For example, there are telecom operators who charge different prices at different times of the day. So, during business hours, a minute of conversation costs more than during the night. In such way, you can also influence capacity of the service (better utilization during off-peak hours, in the telecom example).<\/li>\n<\/ul>\n<p style=\"text-align: center;\"><img decoding=\"async\" class=\"aligncenter wp-image-5260 size-full\" src=\"https:\/\/staging.advisera.com\/wp-content\/uploads\/sites\/6\/2015\/09\/External_service_provider.png\" alt=\"Charging options for external service providers\" width=\"384\" height=\"217\" srcset=\"\/wp-content\/uploads\/sites\/6\/2015\/09\/External_service_provider.png 384w, \/wp-content\/uploads\/sites\/6\/2015\/09\/External_service_provider-300x170.png 300w\" sizes=\"(max-width: 384px) 100vw, 384px\" \/><em>Figure 2: Charging options for external service providers<\/em><\/p>\n<h2 style=\"padding-top: 10px; padding-bottom: 10px;\">Moment of truth<\/h2>\n<p>Although charging models sound complicated, they can be implemented pretty simply, but you have to know your options. And you are not alone in \u201cthe game.\u201d In the case of internal IT, there are financial policies or principles (set by financial people) that you must use. If you are sending invoices outside the company \u2013 talk to sales people and management. It will give you a clear picture of what to do.<\/p>\n<p>No matter what kind of organization you are, you have to validate how much your <a href=\"https:\/\/staging.advisera.com\/20000academy\/iso-20000-documentation-toolkit\/?rel=sms-related-documents&amp;doc=list-of-services\" target=\"_blank\" rel=\"noopener\">service<\/a> is worth. Charging gives you the answer.<\/p>\n<p><em>To implement ISO 20000 easily and efficiently, use our<\/em> <a href=\"https:\/\/staging.advisera.com\/20000academy\/iso-20000-documentation-toolkit\/\" target=\"_blank\" rel=\"noopener\">ISO 20000 Documentation Toolkit<\/a> <em>that provides step-by-step guidance for full ISO 20000 compliance.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>When taking part in some of the ICT-related conferences, I meet many people working in many different industries and company sizes. Of course, since working environment dictates daily activities and the issues they live with, there are always many different stories. One thing is always among \u201cthe topics\u201d \u2013 Financial Management. There are many elements &#8230;<\/p>\n","protected":false},"author":32,"featured_media":5261,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[421,488,404,411,344,204],"class_list":["post-5259","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","tag-charging","tag-costs","tag-customer","tag-financial-management","tag-itil","tag-service"],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.advisera.com\/20000academy\/wp-json\/wp\/v2\/posts\/5259","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/staging.advisera.com\/20000academy\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.advisera.com\/20000academy\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.advisera.com\/20000academy\/wp-json\/wp\/v2\/users\/32"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.advisera.com\/20000academy\/wp-json\/wp\/v2\/comments?post=5259"}],"version-history":[{"count":3,"href":"https:\/\/staging.advisera.com\/20000academy\/wp-json\/wp\/v2\/posts\/5259\/revisions"}],"predecessor-version":[{"id":18502,"href":"https:\/\/staging.advisera.com\/20000academy\/wp-json\/wp\/v2\/posts\/5259\/revisions\/18502"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/staging.advisera.com\/20000academy\/wp-json\/wp\/v2\/media\/5261"}],"wp:attachment":[{"href":"https:\/\/staging.advisera.com\/20000academy\/wp-json\/wp\/v2\/media?parent=5259"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.advisera.com\/20000academy\/wp-json\/wp\/v2\/categories?post=5259"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.advisera.com\/20000academy\/wp-json\/wp\/v2\/tags?post=5259"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}