Our first two topic's relating to IT budgets looked at the creation of the budget and also projecting it several years forward. Once you have your budget, you should track your spend and monitor any variances. All good accountancy practices so far and no new ground breaking stuff being introduced by IT Service Management.

We then go onto charging and creating a cost model. Why would you want to charge? Well for a small business you may not want to but their is a method and an opportunity if it does fit your business model.

In simple terms, a cost model works as follows (let’s work on an organisation with 3 departments: sales, buying and distribution):

Step 1, for all of the charges look for your “direct costs” – these are costs that CAN be apportioned to a single department (e.g. the route planning software could be only used by distribution). For each department, allocate their direct costs

Step 2, what’s left on your budget are your “indirect costs”, these are costs that can not be apportioned to a single department. If you can share a cost between departments (e.g. maintenance cost of the network could be pro-rated by the number of users in each department), this is called an “absorbed overhead”. You work out your absorbed overheads from your budget and once again allocate these to each department

Step 3, what is left on your budget is your “unabsorbed overheads”. These are costs you can not allocate out (e.g. disposal costs, blank CD’s etc.). You then have to take a decision of how you allocate these between the 3 departments. You could divide the whole cost by 3 or your could weight it based upon the amount of direct and absorbed costs the department has carried. Either way you need to allocate the costs out.

Once you have done that, add up each departments cost and you have your cost model – a simple way to demonstrate to a department, the true costs of its IT services.

Our services page does provide information on how we are able to assist with the creation of your IT budget but if you have one in place and would like us to help you understand the cost of each department, please get in contact.