The document discusses key considerations for establishing a chargeback framework for a shared services center. It outlines that a chargeback model is essential to motivate business units to reduce costs and participate in continuous improvement initiatives. Some of the key steps in developing a successful chargeback framework include: determining the business model, defining cost allocation requirements, selecting an appropriate pricing model, establishing pricing phases, aligning with service level agreements, and ensuring systems support the approach. Achieving alignment across various stakeholders is also important.

2. 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

3. Why a chargeback framework is essential to the overall success of the
Shared Service Center
The Shared Service Center must be ! Will the charging model adopted
positioned as a valued supplier of be cost, break-even, or profit-
services and motivate customers to making?
actively participate in improvement
initiatives. A significant part of the ! Will charges be fixed or variable
value proposition for Shared Services in nature - what will affect this?
is a new level of efficiency, i.e. ! How will the specific services and
reduced headcount. associated charges be clearly
Chargebacks are important because defined?
they motivate the business units to ! Will a start-up 'grace' period be
achieve the workforce reduction granted where the business units
targets. Without chargebacks, the are not charged?
overall cost of back office financial
processing may actually increase, as ! How will costs be allocated: by
the local workforce is not reduced business size, transaction
while staff are recruited to the volumes, complexity of tasks,
Shared Service Center. time required to complete tasks?
Some of the questions that need to ! How will charges be
be considered when formulating a communicated to the business
chargeback framework include: units, in terms of timing,
reporting mechanisms, and so
! Will the Shared Service Center on?
charge for its services at all, and
if so for all services or just ! How can a win-win seller/buyer
specific ones? relationship be best established?
Chargebacks are important because they motivate
the business units to achieve the workforce
reduction targets.
Point of View 3

4. 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 Work closely with the client’s
finance team
The chargeback allocation needs to
be clearly defined so that the During development, the Shared
business unit customer clearly Services program management team
understands what services will – and typically has responsibility for
will not – be provided. Joint working directly with the client’s
responsibilities must be stated up corporate finance group to define
front. In a Shared Services model, the the chargeback framework. The
services and responsibilities must be controller function on that team
truly shared. The mechanism to must be very disciplined in tracking
establish services, responsibilities and and forecasting all build and
costs is the Service Level Agreement projected run costs.
(SLA).
Review what's already in place –
The chargeback approach adopted and if possible, capitalize on it
must motivate the Shared Service
Center to focus on outstanding It is very likely that the business units
customer service and continuous in a multi-unit corporation (required
improvements. for Shared Services) are already
receiving and paying for some form
of centrally provided service. It is
Gain the business units' active useful to evaluate where these
participation transactions may be occurring, how
they are being managed and how the
The business unit customer needs to
business units are charged.
be an integral part of driving the
costs down over time through There may be some precedents to be
continuous improvement. The leveraged. Alternatively, there may be
customer also needs to recognize the some confusion in service delivery
value of standard processing, with and associated costs allocation. The
limited exceptions. The chargeback Shared Service Center controller
approach should be designed to needs to coordinate the chargeback
influence customer behavior framework with these other entities
appropriately. as required.
Point of View 4

5. 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

6. A Nine-Step Methodology
1. Determine the Nature of Shared 1. Determine the Nature of Shared
Service Center Operation Service Center Operation
2. Determine the Chargeback Cost The first step in defining the
Pool chargeback approach is to determine
the overall business model for the
3. Define the Chargeback Allocation
Shared Service Center. Will it be:
Requirements
! A cost center with associated
4. Determine the Chargeback
costs allocated to participating
Model/Approach
business units?
5. Determine the Timing and Pricing
! A profit center with a market-
Phases (Start-up vs. Ongoing)
based fee structure charged to
6. Align the Chargeback Approach business units?
with Service Level Agreements
! A business services provider to
7. Determine the other businesses outside of the
Systems/Data/Reporting Impact of corporate structure?
Chargeback Approach
8. Define the External Benchmarking 2. Determine the Chargeback Cost
Approach Pool
9. Achieve Alignment with In setting chargeback levels, it is
Chargeback Framework 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,
The first step in defining the chargeback approach
facility lease and maintenance
is to determine the overall business model for the costs.
! Depending on the project’s cost
Shared Service Center. 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.
Point of View 6

7. ! The selected chargeback model 4. Define the Chargeback Model Shared Service Center’s perspective
(defined below) may vary for
development costs vs. ongoing In selecting and defining the pricing ! Must recover build costs and
run costs. model to adopt for the Shared ongoing cost of operations
Service Center, several objectives
! Motivate behavior in the Shared
! It is critical that the program must be considered, from the
perspective of the business unit Service Center aimed at
management controller function
customer and that of the Shared continuous improvement
on the Shared Services
development team accurately Service Center: ! Encourage customer behavior
maintains all build and ongoing towards joint responsibility
Customer’s perspective
run costs.
! Ensure continuous cost/service
3. Define the Chargeback Allocation quality improvements
Requirements ! Ensure cost savings are passed on
Before evaluating various chargeback to the businesses
model options, as outlined in the ! Motivate Shared Service Center
next section, the allocation behavior towards continuous
requirements must be determined. It efficiency improvement
may seem like common sense, but
reaching a satisfactory level of ! Must be relatively simple to
alignment with the business units monitor/understand
will be easier if the allocation
requirements are shown to have been
satisfied.
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

8. 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 Pros Cons
Resource-Based ! Perceived to be fair to customers ! Price is less transparent since it is
Unit price x quantity of resources derived from multiple resource factors
! Price is based on usage of various
used resource factors ! Relatively more cumbersome to
administer since data on resource
factors must be collected
Cost-Plus ! Supports Shared Service Center during ! May not be perceived to be fair to
Cost plus management fee the set-up phase since its costs are customers
recovered
! Simple to administer
Business Transaction-Based ! Favorable to Shared Service Center if it ! Shared Service Center revenues
Unit price x business transaction has cost advantage fluctuate according to customer
volume ! Perceived to be fair to customers demand
! Price is based on volume of
transactions (i.e. usage)
Fixed Revenue ! Customer has greater predictability of ! Customer may perceive that cost
Fixed compensation for services Shared Service Center costs savings or efficiency improvements are
provided ! Provides Shared Service Center with not passed on
greater incentive to drive down costs: ! Exposes Shared Service Center to risks
the larger the cost reduction, the of cost/volume increases that are
higher the profitability beyond its control
Fixed Revenue within predefined range ! Favorable to Shared Service Center if it ! Customer may perceive that cost
Fixed compensation for services provided, has cost advantage savings or efficiency improvements are
as long as resource utilization or ! Perceived to be fair to customers not passed on
transaction volumes stay within
! Price is based on volume of
predefined range of activity. If activity
transactions (i.e. usage)
goes above or below range, price will be
adjusted accordingly ! 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
Business Value-Based ! Customers are able to link Shared ! Significant risks to Shared Service
Compensation varies according to Service Center fees to the value they Center, particularly in the start-up
degree to which predefined business receive phase where cost drivers are not yet
objective is accomplished easily understood
Point of View 8

9. 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

10. 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

11. 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

12. This Point of View has brought together some of the most F&PM's Finance & Accounting Operations Solutions
focus on the planning and implementation of back
significant factors, based on the experience of Finance & office services. F&PM assists clients in achieving
Performance Management (F&PM) professionals, surrounding the dramatic efficiency increases in these areas while at
the same time aligning these services better with
creation and operation of a Shared Services Chargeback the needs of the business. Typical programs include
Framework. For more information about F&PM solutions, contact: shared services, web-enablement, and client specific
finance and accounting strategies.
fpm.service.line@accenture.com Shared Services involves the consolidation and
redesign of administration and support business
or processes into major service centers. The objective
of these Shared Service Centers is to deliver the
optimum in cost-effective, high quality services.
Gary A. Duncan
gary.a.duncan@accenture.com The Shared Services model helps to achieve
+1 917-452-4400 economies of scale in back office processes and
eliminates the replication of basic transaction
processing capabilities across an organization.
David T. Cousineau
david.t.cousineau@accenture.com Adopting the Shared Services model has allowed
organizations, including many Fortune 500
+1 973-301-1000 companies, to rethink how and where work is
accomplished. Shared Services can provide a range
of organizational solutions that retain responsive
customer service without requiring physical
proximity to the customer. Global companies are
also proving the value of Shared Services in
managing international operations in an integrated
fashion.
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