Shared Services offers the potential for significant savings

across an organization and within business units. However,

neither running the Shared Service Center nor investments in
continuous improvement activities are free. In this Point of
View, we consider the steps involved in establishing and
communicating a clear framework for charging back for
services to the business unit customers of the Shared Service
Center.

As we look in some detail at the key issues, fairness emerges as

a prerequisite for a successful chargeback framework. By
demonstrating that business units are receiving value for
money, with transparent, predictable charging, the Shared
Service Center can win their active cooperation in the move to
continuous improvement and the drive to reduce costs.

Success means establishing a framework for a

win-win relationship between the Shared
Service Center and its customers.

Point of View 2
Why a chargeback framework is essential to the overall success of the
Shared Service Center
The Shared Service Center must be
positioned as a valued supplier of
services and motivate customers to
actively participate in improvement
initiatives. A significant part of the
value proposition for Shared Services
is a new level of efficiency, i.e.
reduced headcount.
Chargebacks are important because
they motivate the business units to
achieve the workforce reduction
targets. Without chargebacks, the
overall cost of back office financial
processing may actually increase, as
the local workforce is not reduced
while staff are recruited to the
Shared Service Center.
Some of the questions that need to
be considered when formulating a
chargeback framework include:
! Will the Shared Service Center
charge for its services at all, and
if so for all services or just
specific ones?
! Will the charging model adopted
be cost, break-even, or profit-
making?
! Will charges be fixed or variable
in nature - what will affect this?
! How will the specific services and
associated charges be clearly
defined?
! Will a start-up 'grace' period be
granted where the business units
are not charged?
! How will costs be allocated: by
business size, transaction
volumes, complexity of tasks,
time required to complete tasks?
! How will charges be
communicated to the business
units, in terms of timing,
reporting mechanisms, and so
on?
! How can a win-win seller/buyer
relationship be best established?
Chargebacks are important because they motivate
the business units to achieve the workforce
reduction targets.
Point of View 3
Must-know facts: learn from others' experience in setting up a Shared
Services Chargeback Framework
We have found the following guidelines helpful in building a
chargeback framework that makes a significant contribution to
the success of the Shared Service Center:
Make charging visible
The chargeback allocation needs to
be clearly defined so that the
business unit customer clearly
understands what services will – and
will not – be provided. Joint
responsibilities must be stated up
front. In a Shared Services model, the
services and responsibilities must be
truly shared. The mechanism to
establish services, responsibilities and
costs is the Service Level Agreement
(SLA).
The chargeback approach adopted
must motivate the Shared Service
Center to focus on outstanding
customer service and continuous
improvements.
Gain the business units' active
participation
The business unit customer needs to
be an integral part of driving the
costs down over time through
continuous improvement. The
customer also needs to recognize the
value of standard processing, with
limited exceptions. The chargeback
approach should be designed to
influence customer behavior
appropriately.
Point of View 4
Work closely with the client’s
finance team
During development, the Shared
Services program management team
typically has responsibility for
working directly with the client’s
corporate finance group to define
the chargeback framework. The
controller function on that team
must be very disciplined in tracking
and forecasting all build and
projected run costs.
Review what's already in place –
and if possible, capitalize on it
It is very likely that the business units
in a multi-unit corporation (required
for Shared Services) are already
receiving and paying for some form
of centrally provided service. It is
useful to evaluate where these
transactions may be occurring, how
they are being managed and how the
business units are charged.
There may be some precedents to be
leveraged. Alternatively, there may be
some confusion in service delivery
and associated costs allocation. The
Shared Service Center controller
needs to coordinate the chargeback
framework with these other entities
as required.
Confront the challenge of getting Business units of vastly different size will have a
agreement on 'fairness'

Business units of vastly different size

different view on what constitutes chargeback
will have a different view on what fairness.
constitutes chargeback fairness. For
example, a standard per-transaction
cost may seem fair, with larger units
paying more for more transactions. Set realistic expectations of
However, the larger units may take continuous development
issue with the actual per-transaction
The chargeback allocation is hard to
cost since their size may have already
get right from the start. The cost pool
afforded them economies of scale
has been forecasted and will no
that make the shared service cost less
doubt change over time. It is
favorable than it may be for smaller
important to set the expectation that
business units.
the costs will likely be modified as
Clearly, the chargeback allocation the Shared Service Center reaches
must be aligned with each business full capacity and rollout nears
unit’s benefit stream. This is not completion.
always easy. It is common to see the
benefits most easily attributed to the
larger business units, since they have
the extra headcount to cut. The
smaller units, therefore, may perceive
that they are subsidizing the larger
ones. Alternatively, the large units Bearing in mind the above issues that are typically encountered during Shared
may feel that they are paying for the Services projects, what steps can you take to establish a successful Shared Services
majority of a new technical Chargeback Framework?
infrastructure used by smaller units
Working systematically through the methodology on the following pages will
who would not have otherwise been
help address the concerns of the business units, while moving the organization
able to afford it.
forward on achieving the mission of the Shared Service Center.

Point of View 5
A Nine-Step Methodology
1. Determine the Nature of Shared
Service Center Operation
2. Determine the Chargeback Cost
Pool
3. Define the Chargeback Allocation
Requirements
4. Determine the Chargeback
Model/Approach
5. Determine the Timing and Pricing
Phases (Start-up vs. Ongoing)
6. Align the Chargeback Approach
with Service Level Agreements
7. Determine the
Systems/Data/Reporting Impact of
Chargeback Approach
8. Define the External Benchmarking
Approach
9. Achieve Alignment with
Chargeback Framework
The first step in defining the chargeback approach
is to determine the overall business model for the
Shared Service Center.
Point of View 6
1. Determine the Nature of Shared
Service Center Operation
The first step in defining the
chargeback approach is to determine
the overall business model for the
Shared Service Center. Will it be:
! A cost center with associated
costs allocated to participating
business units?
! A profit center with a market-
based fee structure charged to
business units?
! A business services provider to
other businesses outside of the
corporate structure?
2. Determine the Chargeback Cost
Pool
In setting chargeback levels, it is
critical to develop an accurate cost
basis based on the recovery
objectives. This number can be
challenging to calculate.
! All costs associated with
providing the service at the
mutually established service
levels need to be calculated. This
includes Shared Service Center
personnel, systems maintenance,
facility lease and maintenance
costs.
! Depending on the project’s cost
recovery objectives, the cost pool
may also include the
development costs associated
with establishing the new Shared
Services model, such as process
design, systems build, facility
build, technical infrastructure
build, interest carrying charges.
! The selected chargeback model
(defined below) may vary for
development costs vs. ongoing
run costs.
! It is critical that the program
management controller function
on the Shared Services
development team accurately
maintains all build and ongoing
run costs.
3. Define the Chargeback Allocation
Requirements
Before evaluating various chargeback
model options, as outlined in the
next section, the allocation
requirements must be determined. It
may seem like common sense, but
reaching a satisfactory level of
alignment with the business units
will be easier if the allocation
requirements are shown to have been
satisfied.
4. Define the Chargeback Model Shared Service Center’s perspective
In selecting and defining the pricing ! Must recover build costs and
model to adopt for the Shared ongoing cost of operations
Service Center, several objectives
! Motivate behavior in the Shared
must be considered, from the
perspective of the business unit Service Center aimed at
customer and that of the Shared continuous improvement
Service Center: ! Encourage customer behavior
towards joint responsibility
Customer’s perspective
! Ensure continuous cost/service
quality improvements
! Ensure cost savings are passed on
to the businesses
! Motivate Shared Service Center
behavior towards continuous
efficiency improvement
! Must be relatively simple to
monitor/understand

Each client situation, with its

associated requirements, is different.
Example requirements include:

! Fair allocation

! Measurable and sustainable

allocation
In selecting and defining the pricing model to adopt
! Simple to understand and
implement for the Shared Service Center, several objectives
! Easily understood metrics
must be considered.
! Automatic vs. manual calculation

! Clear audit trail

Point of View 7
Choosing a chargeback model
There are six fundamental chargeback models outlined in the chart below. Additionally, hybrids can be created from
these base models. Different models may be applied for different services.
Model
Resource-Based
Unit price x quantity of resources
used
Cost-Plus
Cost plus management fee
Business Transaction-Based
Unit price x business transaction
volume
Fixed Revenue
Fixed compensation for services
provided
Fixed Revenue within predefined range
Fixed compensation for services provided,
as long as resource utilization or
transaction volumes stay within
predefined range of activity. If activity
goes above or below range, price will be
adjusted accordingly
Business Value-Based
Compensation varies according to
degree to which predefined business
objective is accomplished
Pros
! Perceived to be fair to customers
! Price is based on usage of various
resource factors
! Supports Shared Service Center during
the set-up phase since its costs are
recovered
! Simple to administer
! Favorable to Shared Service Center if it
has cost advantage
! Perceived to be fair to customers
! Price is based on volume of
transactions (i.e. usage)
! Customer has greater predictability of
Shared Service Center costs
! Provides Shared Service Center with
greater incentive to drive down costs:
the larger the cost reduction, the
higher the profitability
! Favorable to Shared Service Center if it
has cost advantage
! Perceived to be fair to customers
! Price is based on volume of
transactions (i.e. usage)
! Addresses Shared Service Center risks
exposure of uncontrollable cost/
volume increases
! Customer does not have to pay fixed
revenues if volume falls below
predefined range
! Customers are able to link Shared
Service Center fees to the value they
receive
Point of View 8
Cons
! Price is less transparent since it is
derived from multiple resource factors
! Relatively more cumbersome to
administer since data on resource
factors must be collected
! May not be perceived to be fair to
customers
! Shared Service Center revenues
fluctuate according to customer
demand
! Customer may perceive that cost
savings or efficiency improvements are
not passed on
! Exposes Shared Service Center to risks
of cost/volume increases that are
beyond its control
! Customer may perceive that cost
savings or efficiency improvements are
not passed on
! Significant risks to Shared Service
Center, particularly in the start-up
phase where cost drivers are not yet
easily understood
5. Determine the Timing and Pricing Service Center as if they were still
Phases providing it independently. After the
development cost of the project has
Typically, shared services projects are been recovered, the chargeback
large, complex, and lengthy projects amount would then be dropped to
with deployment to impacted cover the ongoing delivery costs only.
business units being accomplished in At this point, the business units begin
a phased approach. These realizing the quantifiable benefits.
characteristics might lead Shared
Service Center management to
consider implementing distinct 6. Align the Chargeback Approach
service pricing phases, possibly based with Service Level Agreements
on different pricing models. For
Service Level Agreements are an
example, during the initial start-up,
integral component of all Shared
the Shared Service Center might not
Service Centers. They are important
charge for services. Once deployment
to set expectations with customers
to additional business units
and to set associated internal Shared
commences, it might attempt to
Service Center measurements and
recover only operating costs. Finally,
goals. The chargeback approach must
once deployment is complete and/or
be aligned with defined SLAs in order
the Shared Service Center is
for customers to understand and
considered to be in a steady state, a
accept charges.
profit-center (mark-up) pricing
option might be implemented.

Another consideration is how the

chargeback might decrease over time
as new business units are added
through growth or acquisition. It
certainly won’t take long for existing
business units to ask this question.

For situations where development

costs are part of the cost pool: in a
'cost neutral' chargeback scenario,
the charges are matched to a
business unit’s savings during the
project’s recovery period. That is, the
business unit will pay the same for
the service provided by the Shared

Point of View 9
7. Determine the 9. Achieve Alignment with
Systems/Data/Reporting Impact of Chargeback Framework
Chargeback Approach
This last step can be time-consuming
Once the chargeback approach is and frustrating. There are typically
determined, the Shared Service multiple constituencies who will have
Center must be able to track, capture, a point of view on the chargeback
calculate and report on all framework. They include the
components of the chosen model. corporate finance department, the
Therefore, the model must be Shared Service Center management
dissected down to the lowest data team, the business unit customers,
requirements and encompass the the IT department and other service
impact on systems, processes, people providers to the Shared Service
including technology enablers Center, and others.
required, data needed, internal and
There is a significant 'change
external reporting, additional step(s)
management' effort associated with
within processes, and organizational
making the transition from
effects.
independent processing to a pay-for-
service model. To many clients,
8. Define the External Shared Services is one step away from
Benchmarking Approach outsourcing, so the chargeback
discussions can be challenging.
As business unit customers begin to
analyze the charges, they will
ultimately want to know if they are
getting a 'good deal'. Some
customers may even compare the
Shared Service Center service
offerings and pricing to external
providers. Therefore, it is important to
define the external benchmarking
approach to ensure that customers
are paying a fair price.

Point of View 10
Impact on Processes, People and Technology

Processes Technology

What is the process for establishing, How must systems be modified to

agreeing, maintaining, and servicing process chargebacks? What data is
chargebacks? Do existing process required? What technology enablers
designs need to be modified to exist that can be leveraged to track,
incorporate chargeback pricing calculate, and report chargebacks?
specific activities, steps, or decision
points? Has the chargeback pricing
model been decided upon early
enough to incorporate into initial
process designs?

People

Who in the Shared Service Center is

responsible for chargeback
processing? Does chargeback pricing
need to be a distinct department
within the Center or added to an
existing group? What impact does
chargeback processing have on every
level of employee at the Shared
Service Center from management, to
supervisor, to transaction processing
personnel?

Point of View 11
This Point of View has brought together some of the most
significant factors, based on the experience of Finance &
Performance Management (F&PM) professionals, surrounding the
creation and operation of a Shared Services Chargeback
Framework. For more information about F&PM solutions, contact:
fpm.service.line@accenture.com
or
Gary A. Duncan
gary.a.duncan@accenture.com
+1 917-452-4400
David T. Cousineau
david.t.cousineau@accenture.com
+1 973-301-1000
Copyright © 2004 Accenture.
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are trademarks of Accenture.
This point of view is intended as a general
guide and not as a substitute for detailed
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advice on any of the topics covered. So far
as Accenture is aware the information it
contains is correct and accurate but no
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