Under what conditions would you recommend using each of these funding methods to pay for information systems expenses: allocation, chargeback, and corporate budget?
Topic 5 Discussion 1: Information Systems Expenses
For bearing the information system expenses, I would recommend that allocation methods should be used over other funding methods when the implementation of the system cannot be tracked, however, other expenses need to be borne as estimates. With the allocation funding method, the IT costs for individuals, business units, and departments will be allocated. Most often the allocation is used when it becomes impossible to track the actual usage of the system. Moreover, with the allocation funding method, an organization can able to recognize what services they are being provided to their customers and how much it costs to assign to the business units and handle the cost recovery.
This method also serves the purpose which facilitating decision-making. However, when planning for the long term and short term, it is crucial to determine which organizational department consumes more money (Ivp. in, 2022). The allocation funding method is very crucial during the organization’s cost-cutting and profit-enhancing strategy.
The chargeback method is a better option for bearing the information system expenses when the actual usage of the organization in every department is being analyzed. The chargeback method has gained a lot of popularity in several years for information system expenses because it can address all the IT issues arising within the organization’s premises and can also increase the consumption of costs and energy. Many internal IT users like departments and functional units can get charged back if they use any of the IT services.
This funding program may divide the IT delivery expenses such as hardware, software, and maintenance services among the organizational department that utilizes the IT services (CNBC, 2021). Various organizations across the world have already adopted the chargeback method for paying IT expenses, however, some do not. Therefore, organizations must adop one because nowadays both private and public cloud technologies are very trendy.
In an order to appreciate the company when it is growing, the valuation method used when using the market process for the DCF analysis is the corporate budget. With periodic pre-determined rates, the corporate budget method allocates the IT costs in the organization (Stobierski, 2021). Whenever there is a need to provide budget authority to the departmental managers to reduce functional costs, the corporate budget is used.
Ivp. in (2022). A Quick Guide to Automate Your Expense Allocation Process. Retrieved on 31st August 2022, from: https://www.ivp.in/resources/blogs/a-quick-guide-to-automate-your-expense-allocation-process/
CNBC (2021). What is a chargeback—and how to dispute credit card transactions? Retrieved on 31st August 2022, from: https://www.cnbc.com/select/what-is-a-chargeback/
Stobierski, T. (2021). HOW TO PREPARE A BUDGET FOR AN ORGANIZATION: 4 STEPS. Retrieved on 31st August 2022, from: https://online.hbs.edu/blog/post/how-to-prepare-a-budget-for-an-organization