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Accounting for Bandwidth

New software helps companies monitor Internet usage and charge accordingly.
Anthony Sibillin, CFO Magazine
December 1, 2001

Your company may block employees from visiting Web sites that don't appear to further the corporate mission, but preventing that sort of wasted bandwidth is just one facet of a larger problem that often goes ignored. Business units think of bandwidth management as a problem for IT departments. Ditto for finance, which pays the bill but asks for little in return by way of accountability.

Even if asked, most IT departments would have little "accounting" to offer up. Standard network-monitoring tools spit out raw traffic data that's unintelligible to business managers. As a result, in organizations where activity-based costing is prevalent, the CFO is forced to apportion bandwidth costs on head count alone.

Fortunately, the shortcomings of this crude approach--namely, that managers have no incentive to manage bandwidth used by individual staff--have not gone unnoticed by billing software companies. These vendors, which traditionally help bandwidth providers bill entire companies, are now tweaking their products so that these companies can, in turn, bill their "customers," or business units.

Uni-X Software AG is one such vendor. Its OpenInformer software follows every byte that flows across a company's wide-area network (WAN) and assigns it to a particular application, user, and business unit. Steve Shergold, a managing director at the German firm, says CFOs can attach a price to that byte based on its business value and the company's overall bandwidth expenses. "And as soon as you put a price on it, you can begin to control it," he says.

Lawrence Orans, an analyst at Gartner Group, says most companies aren't ready to take the software to its logical conclusion and charge every unit based on how much bandwidth it uses. "For now, they are using the software to undertake a thorough analysis of the traffic on their network," he says. "Some are going a step further and introducing shadow billing in anticipation of actually charging individual units at some point." Orans expects 20 percent of large firms to do that by 2006.

One company that has introduced full-blown "usage-based chargeback," as it is sometimes called, is Lufthansa Systems. Not everyone is happy about the bill they receive, admits Joerg Lenz, a senior consultant at the group. "Some units now pay more than they used to [when charging was based on head count] and some pay less," he explains. "But because everything is transparent, they cannot really complain."

The transparency can work both ways. Lenz concedes that chargeback has put pressure on Lufthansa Systems to offer value-for-money. Business units can even wield the ultimate sanction and take their bandwidth business elsewhere.

With bandwidth prices dropping, companies may be reluctant to invest in software that manages it. "Companies often say, 'We're in long-term contracts with unit costs coming down, so why worry about this?'" says Andrew Burroughs, chief marketing officer for Apogee Networks, a U.S. firm that competes with Uni-X. But, he says, once they see how new applications such as voice and video eat up bandwidth, "we get almost no resistance." Indeed, bandwidth requirements are doubling each year at most large companies, says Yankee Group analyst Paul Hughes, which means demand is generally outpacing falling unit prices.

Apogee president and chief operating officer Tom Goldman suggests that this technology, which can also be used to charge back storage, applications, and other IT services, can improve strained relations between the IT team and other parts of the company. "It is not the IT department's responsibility to tell business units what they can and cannot do," he says. "They should tell them the cost of the service, provide a method of accounting, and let them decide whether it is worth it."

How that affects the popularity of finance managers when colleagues see their first Internet bills hit their desks remains to be seen.




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