What are the benefits and drawbacks of showback and chargeback for FinOps?
One of the most significant benefits of both showback and chargeback is that they contribute to a culture of accountability. Before the advent of cloud technology, businesses viewed their traditional IT data centers as a capital expenditure. However, with the evolution of the cloud, many companies now consider their cloud infrastructure an operational expense. In other words, as an operational expense, spend is variable, and within their control to adjust. So there is a greater opportunity to derive value from the cloud while mitigating excessive cloud costs.
As with any framework, there are drawbacks to showback and chargeback.
While showback is effective, if it’s not part of a bigger culture of accountability, or lacks executive sponsorship, it loses efficacy. As a result, it becomes just one more report with no guarantee that stakeholders will review it, and may fail to drive change.
Alternatively, because chargeback is a line item in each BU’s budget, the company will hold them responsible for what they spend. If the BU exceeds its budget, they must either make budget cuts elsewhere or find a means to expand its budget.
In the end, a chargeback model is the more effective of the two. When cost is the most crucial factor for a company utilizing the Iron Triangle, a chargeback model may be the most effective way to drive that culture of accountability.
Finally, it’s essential to recognize that cost is not the priority for every company. For many, the emphasis is on innovation, speed, performance, and quality of deliverables. In these cases, when the focus is on developing high-quality products and delivering them to the marketplace quickly, then chargeback may not be a priority. But even when it’s not a priority, it can still have benefits. It all depends on the business, its marketing strategy, and its appetite for accountability.