Rethinking IT Rate Setting in the Age of AI

Our customers trust us to manage $33B in IT spend every year. 

That scale gives us a front-row seat to what’s really happening inside enterprise and public-sector IT organizations and one truth is clear: The way IT spend is managed today is not built for the pressures of tomorrow. 

IT rate setting is quickly becoming one of the most important financial control mechanisms in modern IT.

The State of IT Spend

Across agencies and enterprises, the same structural issue keeps surfacing. Overhead and shared services are embedded into per-unit product rates based on forecasted consumption. On paper, it feels simple. In practice, it creates systemic risk. 

When consumption drops below forecast: 

• Revenue declines 
• Overhead recovery collapses 
• Central IT faces budget shortfalls 
• Agencies dispute bills 
• Year-end positions become unpredictable 

As outlined in our IT Rate Setting Guide, this approach creates under-recovery risk, budget instability, delayed financials, and increased audit exposure. In short: the model punishes efficiency. 

If agencies reduce licenses, optimize storage, or cut device counts, central IT’s financial stability suffers even though optimization should be a good thing. 

Rising Costs

While revenue volatility increases, IT cost structures continue to expand.

Security operations, identity governance, monitoring platforms, compliance reporting, platform administration, and audit readiness are not optional services and do not shrink proportionally when license counts decline. 

The Guide clearly distinguishes cost categories: 

• Fixed Overhead: IT leadership, baseline security, architecture, compliance 
• Semi-Variable Shared Services: Service desk, endpoint management, monitoring 
• Variable Consumption: Licenses, storage, cloud, project labor 
• Pass-Through Costs: Direct vendor invoices 

Many organizations still attempt to recover fixed overhead through variable consumption rates. Less usage leads to less recovery, leading to financial instability, emergency rate increases, and erosion between IT and finance.

The Cost of AI Adoption… or Failure to Adopt 

Now add AI. 

AI is not just another software line item, it fundamentally changes cost structures. It increases storage and data ingestion, expands compute demand, heightens security and monitoring requirements, introduces new compliance and audit burdens, and reshapes enterprise licensing constructs.

If organizations adopt AI without a defensible cost allocation framework, they risk cross-subsidization disputes, federal audit challenges, unpredictable funding gaps, and political or executive pushback on transparency.

If they delay AI adoption, they risk falling behind peers in automation, decision support, and operational efficiency.  

Either way, the financial model must evolve. AI amplifies structural weaknesses in traditional IT pricing models. If overhead recovery depends on license counts, any AI-driven optimization could destabilize central IT funding. 

That’s not a technology problem; it’s a rate model problem. 

IT Rate Setting As A Control Mechanism for Modern IT 

The solution isn’t more spreadsheets, it’s structural reform. 

The IT Rate Setting Guide outlines a two-part rate structure: 

1. Fixed Monthly Base Services Fee

   A predictable charge that recovers costs that exist regardless of consumption.

   • Allocated using stable drivers such as: 
     • FTE (headcount) 
     • Managed endpoints 
     • Service footprint 
     • Or a documented composite index

This provides financial stability, predictable shared-cost recovery year-end shocks, and clear audit documentation.

2. Consumption-Based Charges

Variable rates tied to actual usage:

• • $ per license 
  • $ per device 
  • $ per GB
  • $ per hour 
  • $ per ticket 

Agencies pay for what they use and overhead is no longer buried in license rates. Now agencies can optimize consumption without bankrupting central IT. 

When implemented properly, IT rate setting delivers financial stability regardless of usage variance, transparency that reduces disputes, audit-ready documentation, real-time visibility aligned to actuals, and governance controls such as annual driver freezers and quarterly true-ups. This transforms rate setting from a back-office exercise into a strategic leadership tool. 

From Volatility to Control 

Modern IT finance leaders must balance cost containment, innovation enablement, AI readiness, and federal audit defensibility.

The organizations that will thrive in the next decade are not just those that deploy AI or modern platforms. They are the ones that build financial models capable of absorbing volatility while preserving transparency and trust. 

Managing $33B in IT spend has shown us clearly: technology complexity will keep increasing, AI costs will expand, and security demands will grow. The only sustainable path forward is separating fixed from variable, documenting allocation logic, and building a rate structure that reflects economic reality. 

That’s not just better billing, that’s better governance.