TABLE OF CONTENTS So that was the theory. But does it work in practice? I have already cited above the case of the insurance company failing to achieve any of the key objectives of transfer charging. To help illustrate further some of the difficulties of successfully implementing transfer charging I set out below my experience with a British clearing bank. You will hear much more about my friends at this bank in the case study in the next chapter.
The IT function at this bank had developed a very complex algorithm that collated literally hundreds of metrics to build a sophisticated market pricing model linked to various levels of SLA ( Gold , Silver etc.) for mainframe and network services. Development services were charged on a simple per diem staff rate basis. All IT staff time was factored into the tariffs by a sophisticated activity-based costing model (e.g. CPU tariffs included a certain amount for capacity planning staff, performance monitoring staff etc.). The cost of central services (e.g. security management, strategy planning) and overall IT management were factored into the tariffs on an allocation (cost recovery) basis. No incentives or penalties were included in the process (although the success of the IT function in meeting its SLA targets was widely publicized).
So was this complex implementation of transfer charging a success and, if so, at what cost? Well, 34 staff were required to administer the tariffing/billing system and the application system that collated the usage data and computed bills was...
