Paying for software development in the corporate budget

Interesting report by Mitch Betts in the the January 4, 2010 edition of Computerworld on how The Corporate Executive Board think the corporate IT funding model should evolve. You know what this is all about - balancing the budget by transferring money from the profits centers to the costs centers (of which IT, and software development, are usually one of the largest).  Your organization probably does it in one of three ways:

  • usage-based chargeback (which requires detailed cost accounting)
  • lump sum payments (based on some arbitrary metric to divide up which profit center pays how much e.g. headcount)
  • A mix of the two

The Corporate Executive Board believe that a much better way option for the future is to parcel up all of IT into 12-24 "business services" and assign costs for each one.  They recommend that the IT services should be described in business terms e.g. "video conferencing" not network "bandwidth."  Although if video conferencing ios one service, how on earth do you describe It in only 12-24 services. That brings me to my main point.  How would software development fit into these 12-24 services? My guess is that it would be included in the services that it supports.  So if, say,  Service A needs to enhanced or modified, the software development cost would be included in the Service A cost to the business.   Hmmm.  That's not so easy.  Presumably the typical cost of Service A is an operational cost.  How would you handle a one-off enhancement cost?  Would it be amortized over, say, two years and added to the operational cost?   What if the software development included some architectural changes that benefit more than one service?  Well you could make some arbitrary decisions about how to divide up the architectural costs among the services.  Oh!  Wait a minute! isn't that where we came in?

Written by Michael D. Harris at 18:22
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