In delivering information services, there are three alternative approaches to managing the costs of IT. Identify and briefly discuss the three alternatives

CPA-Quantitative-Analysis-Section-4 BLOCK RELEASE

Charge back systems
IT as a corporate overhead
IS costs are treated as an administrative overhead. Merits:
Simple and cheap to administer.
 Encourages innovation and experimentation.
 Minimal conflict between IT and user departments Demerits:
 No incentive to control costs
 No responsible use of IT
IT charged out on a cost basis (Cost based charge-out)

Users are charged for the costs of IT in proportion to their usage. Merits
 Conceptually simple.
 Cost control responsibility
 Motivation to regulate costs.

Demerits
Inefficiencies of the IS department may be passed on to users
 Complex to implement in practice.
 Difficulty in determining appropriate cost units.
 Overhead costs of IT department still need to be met.

Market based charge-out.
IT department acts as a profit centre.

Merits
External standards and price available.
 Encourages an entrepreneurial attitude.
 Prices are negotiable.
Demerits
No comparable services might exist
 May result in under utilisation of resources
 Management skills may be lacking in IT

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