DS06 Cost Accounting

DS06: Cost Accounting

1. Description

Ensures that costs are recorded, calculated and allocated to the required level of detail and to the appropriate service offering.

2. Control Objectives

Chargeable Items - ensure that chargeable items are identifiable, measurable and predictable by clients.
Costing Procedures - define and implement costing procedures to provide management information on the costs of delivering information services while ensuring cost effectiveness. Variances between forecasts and actual costs are to be adequately analyzed and reported on to facilitate the cost monitoring. In addition, senior management should periodically evaluate the results of the information service function's job cost accounting procedures, in light of the organization's other financial measurement systems,
User Billing and Chargeback Procedures - define and use billing and chargeback procedures. It should maintain user billing and chargeback procedures that encourage the proper usage of computer resources and assure the fair treatment of user departments and their needs. The rate charged should reflect the associated costs of providing services.

3. Key Goal Indicators

Continued cost optimisation of information services by the IT function
Continued cost optimisation of information services by users
Increased ratio of proven benefits to actual costs of IT services
Index of efficiency, based on a comparison of internal with external provider costs
Business management understanding/acceptance of IT costs and service levels

4. Key Performance Indicators

Percentage of variance between budgets, forecasts and actual costs
Percentage reduction in information service rates
Percentage increase in optimisation of user service requests
Percentage increase in optimisation of IT resources usage
Number of cost optimisation initiatives

5. Critical Success Factors

End-users, business process owners and the IT organisation share a common understanding of costing requirements and cost allocation
Direct and indirect costs are identified, captured, reported and analysed in a timely and automated manner
Costs are charged back on the basis of utilisation and recorded in charge-back principles that are formally accepted and regularly re-assessed
Cost reporting is used by all parties to review budget performance, to identify cost optimisation opportunities and to benchmark performance against reliable sources
There is a direct link between the cost of the service and the service level agreements
The results of cost allocation and optimisation are used to verify benefit realisation and are fed back into the next budget cycle

6. Service Maturity Variations

0 Non-existent	There is a complete lack of any recognisable process for identifying and allocating costs with respect to information services provided. The organisation has not even recognised that there is an issue to be addressed with respect to cost accounting and there is no communication about the issue.
1 (Initial/Ad Hoc)	There is a general understanding of the overall costs for information services, but there is no breakdown of costs per user, department, groups of users, service functions, projects or deliverables. There is virtually no cost monitoring, with only aggregate cost reporting to management. There is no charge-back process or system in place to bill users for costs incurred in delivering information services.
2 (Repeatable but Intuitive)	There is overall awareness of the need to identify and allocate costs. Cost allocation is based on informal or rudimentary cost assumptions, e.g., hardware costs, and there is virtually no linking to value drivers. Cost allocation processes are repeatable and some of them begin to be monitored. There is no formal training and communication on standard cost identification and allocation procedures. Responsibility is not assigned.
3 (Defined Process)	There is a defined and documented information services cost model. The model is institutionalised and communicated, and informal training is established. An appropriate level of awareness exists of the costs attributable to information services. An automated cost accounting system exists, but is focused on the information services function rather than on business processes.
4 (Managed and Measurable)	Information services cost management responsibilities and accountabilities are defined and fully understood at all levels and are supported by formal training. Direct and indirect costs are identified and reported in a timely and automated manner to management, business process owners and users. Generally, there is cost monitoring and evaluation, and actions are taken when processes are not working effectively or efficiently. Action is taken in many, but not all cases. Cost management processes are continuously being improved and enforce best internal practice. Information services cost reporting is linked to business objectives and service level agreements. There is involvement of all required internal cost management experts.
5 Optimized	Costs of services provided are identified, captured, summarised and reported to management, business process owners and users. Costs are identified as chargeable items and support a charge-back system that appropriately bills users for services provided, based on utilisation. Cost details support service level agreements. There is strong monitoring and evaluation of costs of services, where variances from budget amounts are identified and discrepancies are detailed and appropriately acted upon. Cost figures obtained are used to verify benefit utilisation and are used in the organisation’s budgeting process. Information services cost reporting provides early warning of changing business requirements through intelligent reporting systems. A variable cost model is utilised, derived from volumes processed for each service provided. Cost management has been refined to a level of best practices, based on the result of continuous improvement and maturity modelling with other organisations. External experts are leveraged and benchmarks are used for cost management guidance.